Debt Free? How a Loan Can Protect Your Credit Rating

Being debt free is great, but a debt free loan can help your credit rating. Your credit rating is one of the most important numbers in your life. Your credit rating will affect how much money you spend in interest over the course of your life. Anytime you purchase anything with credit, your score will be affected. Buying a house, a car, consumer goods or anything else will require a good credit score just to get in the door and a good credit score will make your life easier. 

Need Credit to Get Credit

One of the strangest things about credit is that in order to get approved for new credit, you need to have old credit established. If you need to obtain credit for any large purchases, you will need to build a good credit score. When you have never used any credit, your credit rating is negatively affected. This means that in order to get the score that you need, you're going to have to take out some credit early on. 

When you take out a loan, you are actually exercising your credit at an entry level. In order to get more credit, lenders will want you to prove that you can handle it. When you do everything correctly your credit score will be boosted and you can then secure the future credit that you need.

How a Loan Can Help

When you have a loan, there are several things that can help your credit rating. The biggest thing you can do is always make the payment on time. Timely payments represent 35% of your credit score. If you make your payments on a regular basis and they are always there on time, your score will be positively affected. If you miss your payments on a regular basis, there will be negative repercussions. Paying your payment every month is one of the best things you can do to benefit your score. If you don't have any debt, there is no way you can have any payments. No payments, means you cannot build up your score. 

Another way that you can benefit your score with a loan is by paying it down. When you keep the balance of your loan down to 30% of your credit limit or less, the credit rating system will reward you because of it.

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