Can Personal Loans Build Your Credit Score?

Taking out a personal loan is an option many people will want to consider when they need help making a large purchase or paying off debt. If you’re thinking of taking out a personal loan, you might be asking yourself, “will taking out a personal loan help my credit?”

A personal loan will indeed affect your credit, but whether it will improve your credit score or not depends on your ability to meet your monthly payments and eventually pay off the debt in full. As long as you make your monthly payments on time, and in full, that personal loan will help build your credit score. However, making late payments or stopping payments altogether will harm your credit score, whether for your personal loan or on other debt that you have.

Getting the right personal loan for your situation is easy at the Credit Union of Southern California (CU SoCal), where we offer a series of personal loans to ensure you’ll be able to access money that helps build your credit.

Call 866.287.6225 today to schedule a no-obligation consultation and learn about our personal loans and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.  


How Personal Loans Can Improve Your Credit Score

If you are considering personal loans to build credit, you’re in luck. Successfully borrowing and paying back your loan will help improve your credit score and make it easier to obtain financing in the future.  

If you want to make sure you’re taking advantage of a personal loan to improve your credit, here are a few things you should know. If you’d like to know more about personal loans, check out our blog post on what are personal loans.


Payment History

When lenders look at your credit history, they want to see that you have a history of paying back what you borrow. Taking out a personal loan and meeting your monthly installments on time will help establish this history, making it easier to borrow in the future.


Credit Usage

The amount of debt you have is a good indicator of how well you can handle credit. You’ll also need to consider the type of debt you have. Taking out a personal loan is an easy way to get started with credit, even if you don’t have any debt or credit cards.


Length Of Credit History

The longer you have been successfully borrowing and paying back credit on time, the better your credit score will be. If you’re new to credit, personal loans can help you start building your credit easily. Keep in mind, though, that using if you’re using a personal loan as a way of establishing credit, you might experience higher interest rates or less favorable terms.


Credit Mix & Types

Another way to improve your credit score is to have different types of credit. This could be personal loans, credit cards, and even mortgages. If you’ve already got credit cards but no other credit, taking out a personal loan could add more variety and raise your score.


Personal Loan Pitfalls

The short answer to the question “do personal loans build credit” is yes, but there are some pitfalls that you should be aware of before you take the leap. To get the most out of your personal loan, you’ll need to ensure that you pay it back in full and on time. Here are some more potential problems that you could run into when borrowing a personal loan.


Late Payments

When you take out any type of credit, one of the most important things to do is to make sure that you can meet the monthly payments. If your payments are late by 30 days, this will show up in your credit report in most cases. Pay on time, every time, to keep your credit score high.


High Interest Rates

If you’re a first-time borrower or have low credit for other reasons, you will likely see higher interest rates on personal loans than if you had already established good credit. If you’re taking out a personal loan to build credit, be aware that it could be quite costly due to these rates.


Short-Term Loans Can Be Dangerous

When taking out a loan to build credit, make sure that the term is suitable for your needs. While many loans give an average of two to seven years to pay it back, short-term loans might only give a couple of weeks before demanding payment, often in full. If you aren’t able to make the payment, you may need to take out another loan, which will lower your credit score and raise your costs.


Hard Inquiries

Sometimes known as a “hard pull” or “hard credit check,” a hard inquiry is when a lending institution makes an official check on your credit. This kind of credit check could lower your score by a small amount. If you’re able to keep up with payments, though, you can bring that score right back up.


Fees

When you apply for a loan, you may be asked to provide an application or origination fee to the lender. Ensure that you have the funds to cover the initial fees before signing for the loan to prevent any unwanted surprises or lack of funds for your first month’s payment.


Other Ways To Build Credit

So, will a personal loan build credit? Absolutely! But if a personal loan to build credit doesn’t feel like the right fit for your needs, there are various alternatives that you can check out to raise your credit score.


Credit Builder Loans

Credit builder loans are aimed at helping individuals boost their credit score even if they don’t need to borrow money for a purchase or to pay off bills.

With a credit builder loan, the amount borrowed is put into a savings account, where it will be held for the duration of the loan term. During that time, the borrower makes monthly payments. When the term is over, the borrower receives the loan amount, including any accrued interest, from the savings account.

The CU SoCal Credit Builder Loan is a great way to improve or establish your credit score. As you make monthly payments, we report to credit bureaus so that your successful payment history can be taken into account and your credit score raised.


Credit Cards

Credit cards are another excellent way to build good credit. If you are used to using a credit card and regularly meet your monthly payments, adding another credit card will help you bring up your credit score – assuming you continue to pay it off each month.

Credit cards are also a great way to establish a credit history if you are new to borrowing. They’re easy to use and often come with perks like cashback or air miles. To avoid the typically high interest rates, make sure to pay your full balance each month.

CU SoCal credit cards are a great way to get your credit score to where you need it to be. Choose from two dynamic credit card choices – the Topaz Visa or Platinum Rewards Visa – or apply for both! Choose your rewards to get more from your card, in addition to building your credit score.


Paying Current Accounts On Time

If you already have a credit account, the best thing you can do to build your credit is to pay your accounts on time each month. The more often you’re late, the lower your credit score will dip. But if you prove to your lender – who then reports to the credit bureaus – that you can pay back the money on time, you’ll see your score improve.


Where To Get A Personal Loan

Getting the right personal loan means finding the right lender with the best rates and terms for your needs. When you search for a lender, be thorough and check out their rates, fees, terms, and whether or not there are any prepayment penalties.

Not sure where to start looking? Below are the three most common lenders to choose from when looking for a great personal loan to build your credit.


Bank

Banks are a primary lender for many people, especially since most people already have an account with a bank. Borrowing from the same place you bank with makes applying easier than finding an entirely new institution.

And since more and more banks are featuring online banking, you can keep track of your checking and savings accounts in the same place you keep track of your loan payments.

Do be aware that banks generally charge higher interest rates than other lenders since they are profit-based organizations. Additionally, they have higher standards for credit scores. This means that if you’re looking to get a personal loan to build your credit, a bank may not be the right place for you.


Credit Union

Credit unions are one of the best places to get a personal loan to build credit. Because these organizations are not for profit, you’ll see much lower interest rates and generally more flexible terms.

Plus, credit unions tend to be much smaller, so you’ll get the added benefit of attentive, customized service, but also modern technology. CU SoCal’s website and mobile app features the highest security and accessibility, so you can access your finances wherever you find yourself.


Online Lender

Online lenders are quickly becoming more and more commonplace in the banking world. Unlike typical banks and credit unions, online lenders don’t have brick-and-mortar locations, so everything will be done online.

Online lenders are a great option you are internet-savvy; however, if you like talking to another human being in person, a bank or credit union might better suit your needs.


CU SoCal Personal Loans

Getting a personal loan could be the right way for you to build credit, and at CU SoCal, we understand just how important it is for you to get the best loan possible.

We offer rates low rates, no fees and financing of up to $30,000, so you’ll be able to find the right specifics to get your credit score where it needs to be. Plus, we believe that your money is yours, so we never charge our members prepayment penalties or application fees.


Apply For A CU SoCal Personal Loan Today!

The financial experts at CU SoCal are ready to help you find the perfect personal loan for your current needs.

Give us a call today at 866-287-6225 for a free consultation. Ready to get started now? Apply online today!

Building Better Lives

Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.

 

562.698.8326 | 866 CU SoCal Se Habla Español

Tweet