It has always been said that the more accounts you have open, the better your credit score. But if you are leaving high balances on all those open accounts that can really put a dent in your credit score. If this is a problem you are trying to correct, consider getting a personal loan to help repair your score.
What is revolving debt?
Revolving debt is when you only pay the minimum payment on your loans each month; making it so that you are actually only paying the applied interest it has accrued. This means you are never actually paying off your expenses. Credit cards for example are a form of revolving debt. If you do not pay off the card each month and leave a high balance on it, they charge you interest. Then when you go to make a payment on the card you are having to pay the interest first, then the money goes to the balance on the card. When you don’t pay off your credit card balance the interest keeps growing and growing and before you know it you are drowning in debt.
Why get a personal loan?
Getting a personal loan can allow you to pay off revolving debt. If you have a lot of accounts opened and you have trouble with keeping up with the payments, with a personal loan you can pay off the balance on all those accounts and only pay interest on the one loan. This is can also be referred to as a consolidation loan. It not only is more cost effective to only pay interest on one loan rather than multiple different ones but it also helps out your credit score tremendously. Revolving debt, like credit cards, factor into your credit utilization, which effects your score. A personal loan does not factor into your credit utilization therefore letting you achieve a higher score. You may be thinking, “How can I get a loan when I have a low credit score? How can I get approved?” Well the great thing is that a personal loan is unsecured, meaning you are not required to give any collateral. This can make the interest rate slightly higher but consolidating all your debt into this one loan will save you hundreds if not thousands in the long run. Your credit score will determine the amount you are allowed to borrow and also the terms for the loan.
Why is it important to diversify your credit mix?
There are a lot of factors that come into play when calculating your credit score. It is good to have a variety of credit helps in your report. If you have a ton of revolving credit on your report, adding an instalment loan will help to diversify your report, giving your score a boost. Making the payments for your loan on time each month helps to establish or re-establish your payment history, which also greatly enhances your score. Once you have consolidated some of your accounts it makes it easier to pay the fixed monthly payment and get it in on time.
There are many different ways you can repair your credit. Consolidating your various accounts debt into one loan can really take the stress off of remembering to pay certain accounts and can also reduce the total amount you pay per month. Another added benefit, besides paying off your debt quicker, is that once the loan is paid off you are that much closer to being financially independent once again.