Using a Personal Loan to boost credit score

[Determined1]

Hi,

I have a very slim credit file, with a score that has largely recovered from past issues. I want to keep going and improving my credit score, and thought I'd take out a personal loan, something like $1,000 for 12 months. Can anyone speak to the ideal payment schedule? I've heard some say, pay off half right away, then the remainder for 6 months, then do it again. Others say pay all 12 months per the schedule. Also, how do personal loans show on a credit report? (what is the term, i.e. a credit card is a "revolving account").

Thanks for any input!

[kevin3344]

I've tried that and it didn't do much for my credit file. The reason is it didn't give me much age (like 4-5 years of consistent payments). You would be better served by getting a revolving line of credit like a secured credit card. Over time that will really help. That's what I did and I bought my home shortly afterward. Of course, keep your utilization low. I still have the card to this day and it has proved to be an excellent TL for me.

[UNCForest]

It's called an "installment loan." And though kevin3344 didnt seem to have much positive increase with it, I've heard from many many sources that you want a good mix of credit and that this will help.

[jq26]

It's called an "installment loan." And though kevin3344 didnt seem to have much positive increase with it, I've heard from many many sources that you want a good mix of credit and that this will help.

FICO loves installment loans. One of your scoring factors is the mix of credit. When you have solid revolving credit tradelines and installment loan tradelines you will most likely boost your score. I've used this technique three times in the past two years (after my BK) and it has been very helpful in boosting scores.

The downside is that personal loans are unsecured credit, and the bank/credit union will charge you accordingly. Personal loan rates are in the 10% rate range, and this assuming you have good credit. If you go the unsecured route, then pay down a huge amount immediately to lower the interest you will pay. Then milk the rest of your payments to drag out the amount of time the loan is open.

If you have poor credit, you will either be denied (most likely) or pay enormously high rates for unsecured credit.

The better way to handle this is to secure it. Put $1000 into a credit union account and then "borrow" $1000 from them based on your collateral. They'll charge you roughly three points over the current savings rate you're receiving on your secured savings. (Ex: 1% interest earned on money, 4% interest paid on borrowed money). Take the $1000 and place it into an online savings account and earn 5%. That way, you earn a total of 6% and pay 4%, SO YOU NET 2% INTEREST. Your loan will have a notation on your credit reports that it is a secured loan but it shouldn't matter for score purposes. And drag out your payments since a longer tradeline is better.

There are threads on this in the banking and finance section.

[Determined1]

Thanks guys, I've heard different approaches to this. I thought my current file was missing a healthy mix of credit, so I'll do this next. I think I'll be approved for unsecured as the bank I will approach has already given me an unsecured card and my history with them is good. It sounds like I should just pay it down month by month....

I appreciate the feedback.