The Secret to Using Installment Loans to Raise Your Credit Score, by 720 Credit Score
I always tell people that one of the best ways to get a great credit score is to have an installment loan on your credit report.
But how are you supposed to do this? 🙂
Just run out and buy a car so that you can add an installment loan to your credit report?
Nope. Here’s an easier strategy.
Go into your local credit union and explain that you want a secured loan that is reported to all three credit bureaus as an installment loan.
And because the sole purpose of this loan is to get your credit score to increase, you should apply for a small loan–somewhere around $500.
Now, to get this loan, you might need to offer collateral…
If you have a car that has been paid in full, then you can use your car as collateral.
If you don’t have a car that is paid in full, the credit union will let you know if you have other options.
Here’s one that I suggest…
Explain that as a term of your $500 installment loan, you will leave the money in an account at that credit union.
In fact, you should do this regardless of whether you have collateral.
Be upfront. Let the bank representative know that you are trying to build your credit score, and that you want to do it in a way that offers the credit union 100 percent security in making the loan.
So whether you are putting up collateral or not, when the credit union gives you the loan, open a checking account at that local credit union.
Stick the full amount of the loan into this account.
Don’t get checks. Don’t get a debit card.
Just let the money sit in the checking account
Then set up a payment plan so that the loan is paid automatically and in full from this account over the course of six months.
It bears noting…
When you first get the loan, your score will drop a little bit.
But paying an installment loan in full and as agreed is one of the best things you can do for your credit score …
And since this installment loan will be paid in six months, you will see the benefits of a higher credit score within a few short months.
Philip Tirone
