Should I Take Out a Loan Just To Build Credit?
There is no quick answer to this question, the reality is you can take out a loan to help build your credit score and credit rating, but you shouldn’t have to do this. There are other ways to increae your credit score without taking out a loan.
There can be many good reasons for someone to take out a loan:
* Buy a car
* Buy a property (mortgage loan)
* Consolidate accounts (debt)
* Holidays (debatable)
There are loans for just about any reason, however, just to build credit, while an idea, as we will see there are other ways to do this.
Will Taking Out a Loan Improve My Credit?
The answer to this is probably so, yes.
By taking out credit and paying that credit or loan or credit card off, you show responsibility in handling credit. The paying off of a loan also can increase your credit score, as the loan will be reported to the credit bureaus as paid as agreed.
Having accounts you have taken out paid in full as agreed, can increase your credit score. Just as paying late, having arrears or defaults, can drastically reduce your credit score.
What Came First: The Loan or Credit Scores How to Get Credit if You Have None
There in lies the rub, as they say.
How can you get credit, if you have never had credit?
There are a few ways, and credit builder credit cards is one option.
These are specific credit cards for people with bad credit or no credit, and offer a way for them to rebuild their credit rating, or build a credit rating.
There also is the option of a guarantor loan.
Guarantor loans are loans that are based on affordability and the fact the borrower has a guarantor, not based on credit scores.
A guarantor is someone who knows the borrower, and feels hey will repay the loan, so as a guarantor they state they will repay the loan should the borrower fail to do so.
Another way to build a credit history and credit rating.
Ways to Increase Your Credit Score Without Taking Out a Loan
There are ways to increase your credit score and NOT take out a loan. The starting point is to get a copy of your credit history, and also know your credit score.
From there you will know if your credit score is low, and also if there are any errors or omissions on your credit history. Correcting these is one way to improve your credit score.
Electoral Roll: Getting on the electoral roll is one way to increase your credit rating without taking out a loan.
Lenders use the electoral roll to verify identities, and by being on one, it helps improve your chances of getting a loan.
Rental Exchange: If you are a tenant and paying rent each month, you are not getting credit on your credit history for doing this. By having your landlord get on the Rental Exchange, and reporting your rent as being paid on time each month, this helps to build a credit history, and credit score.