LOS ANGELES – December 30, 2021 – (Newswire.com)
iQuanti: If you’ve ever tried borrowing money, like taking out a personal loan, you know that your credit history and credit rating can play a big role. This is because some lenders use your credit history to assess your risk as a borrower. Fortunately, you can still get a personal loan with no credit history and can even use that loan to build your credit. If you’re looking to build your credit history, here’s what you need to know and if taking out a personal loan can help.
How does the credit history work?
Your credit history is a diary that tracks your ability to repay your debts. And it has a huge influence on your credit score because it tracks the important aspects that create your score like your payment history, your total debt, and the types of accounts you have opened. There are several things you have in your credit history, including:
- Personal informations: This section includes your personal data such as your name, address and social security number.
- Current and past debt payments: The debt section includes all types of loans including personal loans, auto loans, and credit cards. It will detail the unpaid amounts, how much you paid and whether those payments were made on time, late or unpaid.
- Credit term: In addition to tracking payment history, your credit history also shows how long your various lines of credit have been open and when loans have been closed.
To view your credit history, you can download your free credit report once a year from each of the three major credit bureaus: Experian, Equifax, and TransUnion.
How Does Credit History Affect Credit Score?
It is essential to create a credit history because it has a direct impact on your credit score. Your score is made up of 5 parts:
- Payment history (35%): A record of past debt payments and whether they were on time, late, or missed.
- Amounts due (30%): The current amount of debt you owe compared to the overall available credit.
- Length of credit history (15%): the length of time your debts have been open and for how long you have used them.
- Credit composition (10%): The various loans you have in your name, including installment loans and revolving lines of credit.
- New credit (10%): The number of new credit accounts you recently opened.
How can a personal loan help build a credit history?
A personal loan can certainly help you build your credit history, but you will need to make sure that you are making regular and timely payments for the personal loan to have a positive impact. A personal loan can build your credit history in several ways, including:
- Adding to your credit mix: If you don’t already have an installment loan, taking out a personal loan can add a new dimension to your credit mix and help increase your credit score in this area.
- Increase the length of your credit history: The more regularly you have and repay a personal loan, the more time it adds to your credit history.
- Create a more favorable payment history: If you make payments on time and in full, you will build your credit history to get more points in the payment history section of your score.
The bottom line
Having a good credit history is essential when you want to get into debt in the future. And taking out a personal loan can help you build your credit history by diversifying your credit mix, extending your credit history, and creating a timely payment history. But you’ll want to make sure you make all loan payments on time and in full to make sure your personal loan will positively impact your credit history.
Notice: The information provided in this article is for informational purposes only. Consult your financial advisor about your financial situation.
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Can a personal loan help build your credit history?