Are you concerned about your credit score? Perhaps you are floating between having good credit and having a bad rating. You are scared that your next actions are going to push things over the edge. In particular, if you are thinking about getting a loan, you might be wondering if this is the wrong move. Will this help or hind your credit score?

Well, the answer is that it depends. Most people consider getting a loan as damaging to your score. But, there can be some situations where getting one is more good than bad. Let’s break it down and take a closer look.

The Positives of Getting a Loan

When it comes to your credit score, there are some positives to getting a loan. So, not only are you borrowing the amount of money you need, but you can also help your score in the long term. Let’s take a look at how getting one can boost your rating in the future.

Shows Good Payment History

Think about the process of having a loan. You are going to be borrowing money and paying it back in instalments. Each time you pay on time and in full, you are going to be helping your credit score. You are showing that you are able to borrow responsibly and pay it back as you have agreed. Indeed, over time, you are going to have a strong payment history, which is something that is positive for other lenders to see. 

Boost your Credit Mix

Something that is important for calculating your credit score is your credit mix. In other words, when you have a mix of different types of credit and you are paying them all back, it shows you can handle different types of debts. Again, when you are paying on time and in full, this helps your score. Even if you have a poor rating right now, a personal loan can help you. Click on the link to know how to get quick loans with bad credit. You can get the money you need, as well as work on boosting your credit mix.

Does Not Affect Your Credit Utilisation Ratio

If you want to boost your rating, something you are told to do is keep your credit utilisation ratio low. For example, if you have a credit card, you only want to utilise a maximum of 30 per cent every month in order to boost your score over time. The good thing about a loan is that this is not going to affect your credit utilisation ratio. Therefore, it can actually help you keep it low and still provide you with the money you need.

The Downsides of Getting a Loan

We have looked at the positives of getting a loan and how it can help your credit score in the long term. Now, it is time to look at the downsides and what you have to consider before borrowing.

You Will Get a Hard Search

Of course, before you get a loan, that provider is going to have to carry out a hard search to find out your credit score and whether they will lend to you. A hard search is one that is going to be visible on your report, and it can impact your score. While this might only happen for a few months, it will bring your score down. So, you have to be aware of this as it could put you in a bad position.

Other Lenders Can See

Again, we talk about a hard search. This is one that other lenders are going to be able to see on your credit report. If you are making a lot of credit applications at once, this is something that can get you rejected. Indeed, your score can also plummet if you have many applications, and you could end up with a huge dip in your score from when you first started.

You Will Have More Debit

Let’s not forget that if you get a loan, this is going to increase the debt you have. You have to make sure that this is something you can afford to do. After all, if you start to miss payments and default on the loan, you will get into trouble. You can get charged for missing them, as well as your credit score being affected. As a consequence, you might not be able to borrow in the future or you could have high interest rates.

Other Ways to Improve Your Credit Score

Know that there are other things you can do to improve your credit score. When you are being conscious about what you are doing financially, it means that you can gain access to a better loan in the future. This includes a higher amount of money, as well as better interest rates. So, here are some things you can do to boost your rating.

Pay Bills on Time

One of the best things to do is make sure you are fulfilling your current financial obligations. This means paying things like a mortgage and other expenses on time and in full. This shows you are responsible and future lenders can trust you. Therefore, make sure you are budgeting correctly so that all bills are taken care of.

Register to Vote

Are you on the voting register? If the answer is no, know that this is something you can do to boost your rating. It is simple and will not take long. It proves where you live, and even if you do not vote, it is a positive step to improve your score.

Check for Mistakes

You have to remember that sometimes, mistakes can be made. As a result, your credit score could suffer and it is not your fault. So, you want to get into the habit of checking your report. This way, if there are any errors, you are able to correct them. Often, this can mean contacting the lender or the person that has made a mistake. This can boost your rating.