Consumer Loans to Build Credit

Your credit score is a number that follows you through life and determines your ability to make the large purchases you want. You already know the importance of making this number as high as possible, but you may not know all the strategies to build your credit rating. Using consumer loans in a responsible manner is among the best ways to build and maintain good credit.

Credit Cards

Although credit cards have the reputation for being bad consumer loans, you can use them to build and increase your credit, even when you don’t have enough credit to qualify for other kinds of loans. The key to using credit cards is to use them in moderation. Responsible credit management also means limiting the number of credit cards you apply for at a time.

Start out slow with your credit card usage by charging only fuel for your car. Unless you’re in the midst of a cross-country road trip, this should be an amount you can pay off each month. Once you’ve followed this method for three to six months, use your card for a larger purchase, like schoolbooks, car repairs or to replace an aging household appliance. In this case, you will carry a balance on your card to prove you can manage a debt load, but you should first budget to pay off the total balance within six months.

Unsecured Loans

After you’ve used credit cards to establish your credit, it’s time to move to a different kind of loan. Visit your financial institution and request a small personal loan. The amount need not be large and you don’t need a specific purpose in mind for the funds. The goal of this approach is to show you can repay consumer loans without collateral according to the credit agreement. Make sure you select a term long enough to establish a good payment history for the credit bureaus. You can usually get by with six months, but terms of at least one year are best.

Consumer Loan Tips

Regardless of the type of loan you have, there are a few guidelines to help you maximize the benefit to your credit score.

• Pay your bills on time
• Make more than the minimum payment on credit cards
• Take out only one kind of consumer loan at a time
• Keep credit card balances under 50 percent of your total credit limit

The same consumer loans that lead to bad credit are the loan products that help you build or restore a positive credit rating. Even if you’ve been irresponsible with your credit in the past, it’s never too late to improve your credit score.

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