What is a credit score, and how does it work? Will taking out that installment loan help or hurt my credit? These are important questions if you’re considering any type of loan. Learning the ins and outs of your credit score is one of the most important things you can do for a financially secure future. And it all starts with asking questions.
Don’t be discouraged if you aren’t sure how credit scores or certain types of loans work. These are complicated topics, and it will take a lot of time and research to learn everything you need to know, before committing to a loan. One of the best questions you can ask will be, “how will this loan affect my credit score?”
Read on to learn more about credit scores, how they work, and whether taking out an installment loan will help or hurt your credit.
What Is a Credit Score?
A credit score is a three-digit number that shows lenders, banks, and other financial institutions how trustworthy you are when you borrow money. Having a high credit score tells lenders that you are someone who makes payments on time and sticks to your financial obligations, which makes you a “creditworthy” borrower. On the flip side, a low credit score shows lenders that you may have trouble making payments on time, or even paying back the loan at all.
There are a few different types of credit scores out there, but the most common one is called the FICO score. FICO stands for Fair, Isaac and Company, and it’s the company that created the most popular system for tracking borrower’s creditworthiness. Your FICO Score ranges from 300 to 850, the higher the score, the better.
How Is My Credit Score Calculated?
There are several factors that go into determining your credit score. Ultimately, the score is calculated using information from your credit report. This is a report that keeps track of your borrowing and credit history. The FICO Score is calculated using the following information from your credit report:
- Payment history
- Money you owe to financial institutions
- Length of credit history
- New credit accounts opened
- Credit mix
Each of these factors holds a different amount of weight for your credit score. For instance, the most important one would be your payment history, which makes up 35% of your FICO Score. This means that failing to make payments, or making late payments can lower your overall credit score. On the other hand, you can boost your credit by making sure that you’re always paying your bills on time.
Money you currently owe, or the amount of debt you’re in, makes up 30% of your total credit score. How long you’ve had credit accounts makes up 15% of your score, with a longer amount of time being more beneficial. New credit accounts make up 10% of your score, and your credit mix, or different types of credit, also makes up 10%.
Do Installment Loans Affect My Credit Score?
Now that you’re familiar with what your credit score is and how it’s calculated, the question still remains: will the installment loan I need affect my credit score? The short answer is…possibly.
The best way to find out whether a particular loan, bill, or financial product will affect your credit score is to ask the lender or company whether or not they report to any credit bureaus. The credit bureaus are the companies that collect all of your credit and borrowing information that makes up your credit report. If the lender reports your payments to any of the credit bureaus, then these payments will in fact affect your credit score.
You’ll find that most lenders do report payments to the credit bureaus, but it isn’t a guarantee. The only way to know for sure is to talk to your lender and find out. If your lender does report to the credit bureaus, make sure that you’re prepared to make your payments on time, so that your credit score will improve.
Why Choose a CreditNinja Installment Loan?
If you’re one of the many people who has a less-than-perfect credit score, and you need a personal installment loan, CreditNinja is here to help. Our personal installment loans are designed to fit your specific financial needs. With a quick and simple online application, fast funding, and easy-to-understand terms and conditions, a CreditNinja personal installment loan may be the answer you’ve been waiting for. Apply today, and see why so many people are choosing CreditNinja for their personal loan needs.