Five Types of Loans to Help You Build Credit

Whether you don’t have any credit at all or have a bad credit score, loans are a dynamic and multifaceted part of our economy. If you don’t know what you are doing, you can find yourself in debt after a loan with a bad credit score, but if you know how to use them to your advantage, you will be able to build your credit using loans. Below are five types of loans you can use to raise your credit score and create new financial opportunities for yourself.

Personal Loans

There are two different types of personal loans. They are known as secured and unsecured. For example, a secured loan is when the borrower provides some form of collateral when applying for the money. This is common for loans to buy cars, which often use the vehicle itself as collateral. You can also use a property you own or another high-value item as collateral. An unsecured loan doesn’t require collateral, but requires a good credit score. Credit cards are another form of an unsecured personal loan. Whatever the financial situation, using personal loans to build credit can be a very effective method. Secured loans can offer funds and a way to increase your score without a good credit standing.

Mortgage Loans

Mortgage loans are another form of secured lending. This is money that you use to pay for a home. Monthly payments will consist of the principal amount and the interest rate in addition to taxes and insurance. If you have money but no credit, mortgages can help you build a score with collateral. The faster you’re able to  pay off your home, the more your credit score will increase. Mortgages can be expensive, but if you have a plan to buy a house and build your credit score at the same time, you will be able to open up new doors.

Credit for Specific Purchases

Do you have a credit card you are afraid to use? If your score is low, you should be using your credit card to gradually increase it. Simply put a purchase on it and pay it off immediately. Every time your balance goes to zero your credit score will go up. This is particularly beneficial when you use the credit card for specific purchases. These include hotels, air travel, and restaurants. Creditors give more back when you use a card for these purchases. When you have a credit card, you should use it to your advantage. Be smart about it, but when you have a credit card you should build your score with it.

Auto Loans

You don’t have to buy a new car to build credit with an auto loan. If you have good enough credit or use collateral to buy a used car, you can rebuild your credit by making the payments frequently. It depends on your credit score and what you can afford as a down-payment, but loan on a car will help you increase your credit when you are done paying for it and the car is yours. Don’t get comfortable and fail to make the payments. If you don’t pay the money back in good time, it will negatively impact your credit.

Business Loans

Depending on the loan and what you are using the money for, a business loan is a great way to build credit. They often have more favorable terms if the lender believes in your idea. If you can pay back the money through the business revenue, you will be able to boost your credit and make new finances available to you. Your situation is unique and the right move depends on a lot of factors, but if you can pay back a business loan quickly you will be able to improve your credit score.

Loans can put you into debt, but they can also help you out of your credit hole. A good credit score is imperative to do well in our dynamic modern economy. If you have the means to use loans for your benefit, there is no reason that you should do it. It’s imperative to be careful and pay the money back as soon as possible, but if you do you can build your credit score and create new financial opportunities for yourself and your family.