A personal loan is a useful tool to consolidate your debt or funding a home project in the Bay State. The utility of this financial product does not stop there, though. It can also help build your credit.
However, a personal loan can affect your credit scores negatively as much as it can impact them positively. Fortunately, you can take the good without the bad. Before you apply for it to pay off your credit card bills or finance your basement waterproofing in Massachusetts, below are the rules you should not break.
Contemplate How Much You Need
First and foremost, understand how much money you have to borrow. It is convenient to loan more cash than you need, but doing so can be more destructive than helpful.
Without a clear goal, we usually end up wasting money. Many of us spend our disposable income on things we think that we need but do not. In the end, the surplus money in our wallet or bank account does not bring more value to our lives.
When seeking any form of credit, having a target amount matters. Borrowing more than you need will cost you more over the long term, for the interest rate you qualify correlates with the size of your loan.
Get Credit Reports and FICO Scores
Much like any creditor, a personal loan lender will check your creditworthiness to just your risk as a customer. You do not want to start the conversation without any guarantee that the FICO scores your prospective lender looks at genuinely represent what you are as a consumer.
To make sure your credit scores are as accurate as possible, request for a copy of your credit reports. Review them all, and ensure that every piece of information is correct.
Furthermore, find out about your credit scores from your bank, credit union, or any lender you have an existing relationship with. You can even ask a credit card network, like Discover, about your FICO scores at no cost even if you are not affiliated with it.
Do Not Shop Around Too Much
If you have taken out loans or requested for credit card limit boosts in the past, you probably know that the very act of applying can ding your FICO scores. A hard inquiry is a negative item in your file, and its number and frequency represent how often you seek credit.
Hard inquiries do not significantly affect your credit, and their impact is just fleeting. However, you should keep them to a minimum to avoid appearing desperate for debt, which is a cause for concern to creditors in general.
Negotiate, Negotiate, Negotiate
Whether or not you think that the deal offered to you is fair, always aim to negotiate for something better. As long as you have the credentials to demand more, ask for a lower interest rate or make the monthly payment more manageable. Everything is negotiable even if your lender makes it seem like the terms are set in stone.
Some rules are malleable, but the said ones can’t be bent. Follow them strictly if you are to use your personal loan to build your credit successfully and open more opportunities to improve your finances in the future.