How to Build Your Credit Score with Loans

How to Build Your Credit Score with Loans

A good credit score is essential for good financial flexibility, as it is an indicator of how well you use credit. It is what you need to borrow money, whether for buying a car or a new credit card.

Although you may not need it for taking direct lender loans, it is wise to build a good credit score. The higher this score, the easier it is for you to get quick approvals for getting new loans. A higher score, say 700+, can also give you the benefit of acquiring the lowest possible interest rate.

Whether you are building for the first time or are rebuilding your credit, there are a couple of simple things to follow. Although an improved score can take some months, you can start taking steps toward it in just a few hours. Here are these steps to take or tips to follow!

Amalgamate Loan Accounts

If you own two or more loan accounts, consider consolidating them into a single account. The underlying notion is that your credit score will increase with the decrease in the number of loan accounts. Yes, the relation between the two is inversely proportional. Here, consolidating your debt can help you in reducing your monthly payments.

Reduce Your Credit Usage

The amount of money in your bank accounts affects your credit score. Credit usage refers to the percentage of your total credit that you use in a month. This should ideally be 30%.

For example, if the total credit limit is $2,000 and the balance is $1000, this means your credit usage is 50%. This is not recommended! Anything over 50% means you are craving credit and lack in managing your finances.

You can calculate your credit utilization rate by dividing the total money you owe to the lenders by the total credit limit. This percentage should be lower to build a good credit score, as it indicates your ability to manage credit in a healthy way.

Some ways to ensure low credit usage are to avoid owning more credit cards and pay your debt as soon as possible.

Use Your Credit Accounts Cautiously Instead of Closing Them

Most people tend to close their credit card accounts or overdrafts to increase their credit scores. However, this is not advisable. This is because it gives a negative impression of your overall financial condition.

So, instead of closing them, consider using them prudently to keep missed or delayed payments at bay and build an impression of good financial health. Doing so will build your credit history, without which there cannot be a credit score.

Stop Missing Payments

If you have been delaying or missing any payment, it is high time to avoid it. In general, a credit score is always built upon payment history. So, if you can repay only a minimum amount, ensure that you always make it on time. In case of any past amounts that are due, consider paying the earliest ones first and then slowly paying off the latest ones.

Keep a Healthy Portfolio of Credit

You should maintain a good assortment of secured and unsecured loans. If your credit score is low and you have no option other than to borrow, it is wise to opt for an unsecured loan. Doing so will help in increasing your credit score with time. Some unsecured loans are personal loans and credit card loans.

Having only secured loans consumes more time when it comes to building a good credit score. Secured loans include all offers with collateral, such as car loans and home loans.

Avoid Accumulating Much Debt

You should never accumulate too much debt in the short run if you wish to build a good credit score. Having such debt is never wise, as it is likely to work against your credit health.

Simply put, taking several loans in a short period gives the impression that you are going through an interminable cycle of inadequate funds. It is also an indicator that you may now not be able to pay your installments, making it more difficult to get one more loan.


To build your credit score, the best tips are to keep making timely payments and stay within your account limits. It is the approach of the wise, not of the greedy.

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Johnny is dedicated to providing useful information on commonly asked questions on the internet. He is thankful for your support ♥

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