Installment loans help credit score?
Question by heather S: Installment loans help credit score?
I am trying to repair some of my credit and heard that taking out installment loans, which only be to pay for my credit debt and paying off the loan before it’s due will help out my credit score. has anyone ever heard this and does this really work, i need to build my score quickly within the next 6 months and pay off bad debt.
Best answer:
Answer by Smoovy Loco
There are two main types of credit: revolving accounts that allow you to build up and pay down balances, and installment loans that typically have fixed payments that require you to pay down your balance over time. Credit cards and lines of credit are examples of revolving accounts, while auto loans and mortgages are considered installment loans. The FICO formula has always rewarded folks who had and successfully managed both types, which is why getting an installment loan was often recommended as a way for people with troubled credit to rehabilitate their scores. The new scoring formula is even more sensitive to the mix of credit types people have and use. In the past, people were able to get and keep very high scores using only credit cards; it’s not clear if that will still be true under FICO 08.
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Yes any loan will help your score. So yes it will help and you will almost have to have a installment and revolving credit accounts to build credit these days.
Having a mix of revolving and installment credit will help your score. However, if you have bad debt on your credit report now, you are not likely to rebuild your score quickly.
If you currently have balances on credit cards, you should pay these off first. A big part of your score is the ratio of revolving debt to available credit limit. Carrying balances of 30% or more hurts your score.
Then you should work on resolving negatives on your report. Start with the newest and work back. The older the negative, the less impact on your score. Be sure to get settlement agreements in writing and don’t give the creditor access to your bank account. Ask for deletion for payment. Some will, some won’t.
Bascially, you will need at least 24 months of consistent on time payment to really improve your score.