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Personal Loans

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If you have a tarnished credit score or are new to credit, there are different financial products to consider. Personal loans are an attractive option because they offer lower interest rates compared to credit cards.

Healthy Ways to Build Credit

There are different ways to go about this, from opening a bank account to getting a cosigner and applying for a personal loan. If your credit is tarnished, you may want to apply for a small amount. Small loans are less risky for financial institutions for obvious reasons. In case of default, they will lose less compared to a large lump sum. A student loan is a great solution for young people. To begin with, borrowers benefit from a low interest rate. Repayment begins 6 months after you leave school or graduate. The only problem with this solution is that it won’t show up on your report until you begin to repay the balance. On the positive side, a student loan is easy to obtain, and there are different modification programs and options for those who experience financial problems.

Secured Personal Loans

If you have a poor credit score, your application for an unsecured credit loan may be denied by financial institutions. You have two options in this case – to find a co-signer or to apply for a secured loan. The latter is a good choice if you have a valuable asset to offer as collateral. It can be anything of value – real estate, vehicle, cash in your savings account, second home, antiques or collections, and so on. The asset to offer as collateral depends on different factors such as your financial institution, the loan amount, and others. The main benefit for borrowers is that the interest rate is lower which makes monthly payments more affordable. Thus it is easier to keep up with payments, which is the main factor that helps improve your credit score. Finding a cosigner is another option if your credit score is tarnished. This can be a family member or friend with a very good or excellent credit score and stable income. The problem with this solution is that it is risky for co-signers. If you are about to default, the cosigner is responsible for loan repayment. Their credit score will be affected as well.

Other Options to Build a Healthy Score

Other options include a secured or retail store credit card or opening a bank account. Obviously, it is important to pay your gas, electricity, and other bills in a timely manner. Late payments affect your credit score. A secured card is a good option as well. The downside is that cards usually come with high interest rates of 20 – 30 percent.

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