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March 22, 2024
Credit Repair Secret Weapon: Installment Loans
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At Idaho Finance, we’ve seen that it takes years to build up a good credit score, and even longer to repair when it takes a hit. This is by design, because the credit bureaus that track your credit and assign credit scores need proof that you are trustworthy over the long term.
If you are not yet familiar with what credit is, how it works, and why you should care about your credit score, start with our blog post How to Build Credit.
If you have poor credit right now - whether you've ever had good credit or not - you can always start today to build up a good credit score. Common strategies for improving credit include:
● Set up automatic payments for recurring bills.
● Never use more than 30% of your credit limit.
● Use different types of credit.
● Don't use your credit card to buy anything you can't pay off right away.
There are many other things you can do, depending on your situation. If you're just moving out on your own for the first time, or starting your first full-time job, your focus should be to make wise financial decisions and build up good credit. If you have bad credit from years of bad luck or some poor decisions, the path to financial stability is going to be tougher.
Another strategy you can use in building or rebuilding your credit is to take out an installment loan.
Simply put, an installment loan is a small, personal loan that is used for various purposes. You receive a lump sum and pay it off on a fixed repayment schedule. These loans are not to be mistaken for payday loans, which have to be repaid all at once, or for revolving credit, which is the kind of credit that a credit card uses. Any loan you take out affects your credit score, so when you need money it's important to consider all of your options.
To illustrate how an installment loan can be helpful, here are three scenarios -
● A young adult in college, working a part-time job, with no outside support. They're new to the area and their car was totaled recently.
● A thirty-something couple with various debts including student loans, a mortgage, and several credit card debts. They're consequently struggling to make ends meet.
● A fifty-something person who has recently taken some financial hits and is worried about their retirement fund. To top that off, they need to add mother-in-law quarters to their house, so their aging parents can move in and be taken care of.
If you take out an installment loan, your top benefits may be:
● Predictable budgeting by having fixed monthly payments.
● Build a positive credit history by making your payments on time.
● Consolidate debt by combining high-interest debts into one lower rate.
● Finance large purchases such as cars, appliances, or home improvements.
To see these benefits in action, let's return to the scenarios listed above.
Scenario One: Our young friend needs to purchase a new (used) car to get to and from work and school.
While this person is trying their hardest to keep their debt low, they just can't work enough hours to cover a big expense while also working on a degree. Plus, they need a car to get to their work. An installment loan can assist this person in purchasing a used car. This loan could be taken out with a short or long-term repayment plan. As the loan is paid off, person one will be building a good credit record with the credit bureaus.
Scenario Two: A striving couple needs to consolidate debt and improve credit.
When you have a lot of debt - in how high the number or how many - paying it off quickly becomes overwhelming. And on top of that, as you fall behind in payments, your credit score sinks. As your credit score sinks, many areas of your life can be affected. Your ability to own or purchase a home is probably the biggest. Many banks will not allow you to take out a mortgage if you have bad credit, forcing you to keep renting until your credit score rises.
The couple in scenario two were able to get a mortgage before their credit sunk too low. But as they fall further behind, the threat of eviction looms. So, after seeing a credit counselor, the couple decides to take out an installment loan and use it to pay off their high-interest debts. With a long-term repayment plan set, the couple can focus on paying down their mortgage and student loans, while the installment loan doesn't prove to be a burden like payday loans and credit card debt.
If you have high-interest loans, an installment loan can be used to pay those off, leaving you with just one low-interest payment on a schedule that is tailored to work for your budget.
Scenario Three: A caring son or daughter needs to make home improvements.
After talking things over with their siblings and parents, the person in Scenario Three won't have to pay for the addition and all of the moving expenses on their own. But, even after selling their parents' home, they still need to come up with a few thousand dollars.
Installment loans are usually taken out to cover a specific cost. Like in the above examples, they're often used to pay for something too expensive to buy outright, but that isn't so expensive that there are specific loans for that purchase. These loans are also used to cover emergency expenses and, as in scenario two, installment loans are sometimes used to consolidate debt.
An installment loan can be a lifesaver when you have a broken-down vehicle, need to make home improvements, or just want to raise your credit score. But, as with all loans, you do need to be cautious. It's all too easy to fall into a cycle, or spiral, of debt.
When considering if an installment loan would be helpful for you and your credit score it is important to take into account:
● The interest rates, fees, and repayment schedule of each installment loan option.
● The potential positive and negative impacts on your credit score. Missed payments will hurt your score, as well as taking out too many loans or getting too many credit cards in a short period of time.
● The loan term. A shorter term means higher payments but lower interest, and becoming debt-free faster.
● Whether or not you actually need a loan at this time, or if you can do without.
How To Get An Installment Loan
If you've decided that taking out an installment loan would help you to improve your credit score, then it's time to fill out an application. Idaho Finance is a licensed installment loan lender. Applying for a loan from Idaho Finance will be a simple process, and we look forward to working with you.
Idaho Finance is located in Meridian, ID and we assist people in Nampa, Caldwell, Boise, Eagle, Star, and Kuna. Call Idaho Finance at (208) 999-LOAN (5626) or contact us online to talk about how an installment loan could help you.
If you are not yet familiar with what credit is, how it works, and why you should care about your credit score, start with our blog post How to Build Credit.
If you have poor credit right now - whether you've ever had good credit or not - you can always start today to build up a good credit score. Common strategies for improving credit include:
● Set up automatic payments for recurring bills.
● Never use more than 30% of your credit limit.
● Use different types of credit.
● Don't use your credit card to buy anything you can't pay off right away.
There are many other things you can do, depending on your situation. If you're just moving out on your own for the first time, or starting your first full-time job, your focus should be to make wise financial decisions and build up good credit. If you have bad credit from years of bad luck or some poor decisions, the path to financial stability is going to be tougher.
Another strategy you can use in building or rebuilding your credit is to take out an installment loan.
What Are Installment Loans? Quick Review
Simply put, an installment loan is a small, personal loan that is used for various purposes. You receive a lump sum and pay it off on a fixed repayment schedule. These loans are not to be mistaken for payday loans, which have to be repaid all at once, or for revolving credit, which is the kind of credit that a credit card uses. Any loan you take out affects your credit score, so when you need money it's important to consider all of your options.
To illustrate how an installment loan can be helpful, here are three scenarios -
● A young adult in college, working a part-time job, with no outside support. They're new to the area and their car was totaled recently.
● A thirty-something couple with various debts including student loans, a mortgage, and several credit card debts. They're consequently struggling to make ends meet.
● A fifty-something person who has recently taken some financial hits and is worried about their retirement fund. To top that off, they need to add mother-in-law quarters to their house, so their aging parents can move in and be taken care of.
Pros of Taking Out An Installment Loan
If you take out an installment loan, your top benefits may be:
● Predictable budgeting by having fixed monthly payments.
● Build a positive credit history by making your payments on time.
● Consolidate debt by combining high-interest debts into one lower rate.
● Finance large purchases such as cars, appliances, or home improvements.
To see these benefits in action, let's return to the scenarios listed above.
Scenario One: Our young friend needs to purchase a new (used) car to get to and from work and school.
While this person is trying their hardest to keep their debt low, they just can't work enough hours to cover a big expense while also working on a degree. Plus, they need a car to get to their work. An installment loan can assist this person in purchasing a used car. This loan could be taken out with a short or long-term repayment plan. As the loan is paid off, person one will be building a good credit record with the credit bureaus.
Scenario Two: A striving couple needs to consolidate debt and improve credit.
When you have a lot of debt - in how high the number or how many - paying it off quickly becomes overwhelming. And on top of that, as you fall behind in payments, your credit score sinks. As your credit score sinks, many areas of your life can be affected. Your ability to own or purchase a home is probably the biggest. Many banks will not allow you to take out a mortgage if you have bad credit, forcing you to keep renting until your credit score rises.
The couple in scenario two were able to get a mortgage before their credit sunk too low. But as they fall further behind, the threat of eviction looms. So, after seeing a credit counselor, the couple decides to take out an installment loan and use it to pay off their high-interest debts. With a long-term repayment plan set, the couple can focus on paying down their mortgage and student loans, while the installment loan doesn't prove to be a burden like payday loans and credit card debt.
If you have high-interest loans, an installment loan can be used to pay those off, leaving you with just one low-interest payment on a schedule that is tailored to work for your budget.
Scenario Three: A caring son or daughter needs to make home improvements.
After talking things over with their siblings and parents, the person in Scenario Three won't have to pay for the addition and all of the moving expenses on their own. But, even after selling their parents' home, they still need to come up with a few thousand dollars.
Installment loans are usually taken out to cover a specific cost. Like in the above examples, they're often used to pay for something too expensive to buy outright, but that isn't so expensive that there are specific loans for that purchase. These loans are also used to cover emergency expenses and, as in scenario two, installment loans are sometimes used to consolidate debt.
Take Care When Taking Out Loans
An installment loan can be a lifesaver when you have a broken-down vehicle, need to make home improvements, or just want to raise your credit score. But, as with all loans, you do need to be cautious. It's all too easy to fall into a cycle, or spiral, of debt.
When considering if an installment loan would be helpful for you and your credit score it is important to take into account:
● The interest rates, fees, and repayment schedule of each installment loan option.
● The potential positive and negative impacts on your credit score. Missed payments will hurt your score, as well as taking out too many loans or getting too many credit cards in a short period of time.
● The loan term. A shorter term means higher payments but lower interest, and becoming debt-free faster.
● Whether or not you actually need a loan at this time, or if you can do without.
How To Get An Installment Loan
If you've decided that taking out an installment loan would help you to improve your credit score, then it's time to fill out an application. Idaho Finance is a licensed installment loan lender. Applying for a loan from Idaho Finance will be a simple process, and we look forward to working with you.
Idaho Finance is located in Meridian, ID and we assist people in Nampa, Caldwell, Boise, Eagle, Star, and Kuna. Call Idaho Finance at (208) 999-LOAN (5626) or contact us online to talk about how an installment loan could help you.
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