A Personal Loan Can Help Your Credit
Credit is one of the most important aspects of your financial health. From employment to homeownership, poor credit causes problems. What's less understood by some people is just how debt can hurt their credit, even if they have a good mix of credit and a history of on-time payments. Learn how debt affects your credit and how a personal loan can help you overcome these woes.
The Connection Between Debt and Credit
The credit bureaus all examine the amount of debt a person has and compare it to the available credit they have. This comparison is then formatted into something known as credit utilization. For instance, if a person has four credit cards with a combined credit value of $20,000, but the combined balance on the cards is $17,000, their credit utilization ratio is 85%. To keep your credit healthy, you typically want to keep your utilization rate below 30%, as a higher ratio creates a greater risk, and therefore a lower score.
Personal Loans Can Help
With a personal loan, you can get the money you need to pay down your debt, and instead of making several monthly payments, you can combine everything into one. Discover some of the benefits this approach to debt management can afford you.
Credit Utilization Ratio
While credit cards follow the above utilization ratio formula, it's not the same for a personal loan. For this reason, if you secure a personal loan and use the proceeds to pay down the debt, you will automatically lower your credit utilization ratio. Depending on the other factors in your credit history, lowering your ratio can significantly impact your credit score. Tallying all your credit card debt to see how much you owe and securing a loan for this amount can help.
Healthier Credit Mix
As you move through life and try to secure larger lines of credit, such as for a mortgage loan, credit mix is very important. Amongst other factors, mortgage lenders like to see that the applicant has experience with all sorts of different financial products, not just credit cards. Taking out a personal loan can improve your utilization ratio, your score, and give you a healthier mix of credit accounts, which can make approval easier.
If you believe a personal loan can help you overcome your debit hurdles, a loan specialist will be more than happy to sit down with you to discuss your options. Contact a company like Liberty Lending Group for more information.