Personal loans are the answer for those in need of extra cash who don’t know where to get it. As relatively easy ways to obtain small amounts of money, these loans can give you access to the funds you need, and fast! However, you may feel hesitant to apply for this type of loan because you fear that it will have an adverse effect on your credit score.
While it is true that your credit score will be affected initially, there are many other positive reasons to consider taking out a personal loan. The impact of one on your credit score will not be nearly as painful as you think—as long as you’re responsible about repayment. This blog post will discuss why taking out a personal loan may be the right financial decision for you.
How Does a Personal Loan Affect Your Credit Score?
Before we delve into the nitty gritty of personal loans, we need to address the initial question: does a personal loan affect your credit score? The short answer is yes. It will cause a small (around 3 or 4 points) but immediate drop in your credit score.
If you are able to stay on top of your payments and make sure to always pay your dues on or before your due date, your credit score will likely rise over time. As long as you keep paying promptly, you will establish a good record because of on-time payments to your loan. There are many advantages to taking out a personal loan, and they will help you in your quest to build good credit over time.
Advantages of Taking Out a Personal Loan
1 - Establish a Strong Payment History
If you pay your monthly payments for your loan on time, it will establish that you are a good payer. You will be seen as a payer that has a good payment history. Your loan will also gradually get smaller over time, making it more manageable as time goes on.
2 - You Will Get the Cash You Need
Applying for a personal loan will help you gain access to the cash that you need. The main purpose of applying for a personal loan is to help you get better control over your finances. If you are careful about the way you handle your money and the proceeds of your loan, you will be able to get rid of debt and make your credit score higher in the process.
3 - Consolidate Debt
The best way to use a personal loan to help increase your credit score in the long run is to use it to consolidate your debt. Paying off what you owe on your credit card and other loans will help you better manage your finances as a whole.
The takeaway from all this is that taking out a personal loan will most likely result in helping you get better control over your financial situation. Getting a personal loan will likely have a positive effect on your credit score in the long run as long as you play your cards right. Making sure that you are up-to-date with your payments, you will see a significant increase in your credit score when the loan term will be finished.
Should you ever need extra cash and improve your credit in the process, apply for a personal loan with Mid-Town Finance! We offer a variety of personal loan sizes to fit your needs. We
will work to review our different options, and upon approval put clients on an affordable
payment plan. Get the best deals in personal loans in Birmingham, AL by contacting us today!