Nonprime Personal Loans Make a Great Credit Builder, Here’s How.

Counting money

Even personal relationships are influenced by credit scores. How much more your prospects to borrow for a home, a car, or anything your heart desires? It’s for this reason that personal loans exist. They finance what you need, plus you are able to build credit with personal loans.

Let’s help you find a personal loan lender. Start here.

Building Up Personal Loans

A financing for something that is too small for a home equity line of credit yet too large for a credit card, this is the territory of personal loans. For as low as $1,000 to as high as $35,000 or $50,000, these loans can finance a home improvement, a vacation, or any personal endeavor.

Rates and terms of personal loans would vary depending on your credit standing. Say you have a nonprime score, your loan package would be primarily based on that.

Otherwise, nonprime personal loans and all other personal loans have these characteristics:

Fixed interest rate
Fixed monthly payment
Fixed repayment term
Fast processing (compared with other loans like mortgage)
Flexible loan amount
For any use
Fine without collateral (unsecured debt)

Credit-Builder Loans

Now, there’s a reason, actually three, why personal loans are dubbed as a credit-builder, if not a lifesaver.

First, they can be used to eliminate high-rate debts.

While there are other loans carrying a higher balance than credit cards, the latter tend to grow exponentially because of high interest rates.

To keep the debt from ballooning out of control, you can use your personal loan to pay them off.

Personal loans have rates lower than credit cards so they’re safer to consolidate debts with. Plus, their rates are fixed so no need to worry about fluctuating rates.

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Second, they can be used to lower your credit utilization rate.

This is still related to credit cards and the balances they carry.

High balances on credit cards directly affect your credit score. They are reported to the credit bureaus every closing date so you could see your score moving along.

Your credit card usage is measured by your credit utilization rate, the second most-important factor in calculating credit scores by the way.

It is the ratio of your outstanding balance across all cards divided by your available credit limit. Say, all your cards have a total limit of $5,000 and you have an existing balance of $3,000, your utilization rate is 60%.

For lenders who usually consider 30% as a standard, anything beyond that rate signals you’re borrowing more than you can pay for.

Just imagine if one of your credit card balances gets paid off through a personal loan, then your credit utilization ratio will go down and your credit score will not decrease and will likely get a lift if you keep your borrowing at manageable levels.

Third, they can help you maintain a timely payment history.

Let’s move on from credit cards and into personal loans themselves.

Now you’ve consolidated your credit card debts and are making your personal loan payments every month.

Timely honor your monthly dues and you will strengthen your payment history — the all-important component of credit scores.

With personal loans having fixed rates and fixed payments, it’s easy to remember them and take them out of your monthly budget.

Your payment history is a reflection of how willing and able are you to pay your debts. So it’s importance can’t be taken for granted when you apply for a loan.

Credit scores can define relationships and when it comes to borrower-lender ties, it makes sense to build a credit history where the lender can trust you with a loan that you can pay back.

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