Facing financial pressures can often feel like a bit of a vicious cycle. Paying off immediate bills can help ease the stress, but a lack of credit can create more of a squeeze. That’s a real issue for Canadians, with some finding themselves with the prospect of a financial struggle. However, there is a way through this challenge. An installment loan has two ways of helping. First, it can ease current financial pressures and, second, help build a better credit score.
In this guide, we’ll explain how that works. Read on to learn why installment loans might be the best solution for you with a low credit score.
What Are Installment Loans?
An installment loan is an easy way for people to borrow money. You start by receiving a lump sum and agreeing to a fixed set of payments to repay it.
That usually’s monthly, though, for some shorter-term loans, you could pay every week.
Sometimes that’s helpful if smaller weekly payments are easier to manage.
Lots of loan types fall into the category of installment loans. That includes personal loans, short-term loans, mortgages, and car loans.
The easiest way to understand installment loans is to compare them to another popular form of finance: credit cards.
With a credit card, you accumulate debt every time you use that card. Each month, you’ll repay a minimum amount of the entire debt or something in-between.
How Consistent Payments Help Your Credit Score
Your credit score is how lenders view your financial management.
A high score means you pay debts on time, and lenders find you dependable. A low score could happen if you fail to repay a debt on time or have high levels of debt that you find unmanageable.
One factor that influences your credit score is the regularity of payments. A steady and timely repayment of each money on your debts is one of the easiest ways to show you can manage your finances.
That’s why installment loans can help improve your credit score. By their very nature, these loans require you to make monthly or weekly payments.
Providing you don’t miss a payment, it shows you have a sound approach to money management.
The benefit of this is clear. The more months you spend repaying loans on time, the more opportunity you have to improve your credit score.
Types of Credit and Your Score
A variety of finances is surprisingly important for your credit score.
If you have many credit cards but no other type of loan (like a mortgage or car loan), that could lower your score. In contrast, having varied types, like mortgages, personal loans, and store cards, could help improve your score.
This is because it shows you can manage different types of finances. Lenders see that in a positive light.
You demonstrate you can handle any financial situation and still pay on time. That’s a good indication that you’re a reliable borrower.
So getting an installment loan is a good idea if you haven’t had one before. If you’ve only ever had credit cards, for example, one installment loan is a valuable way of improving your credit score.
Improving Your Payment History
Suppose you have a poor credit history because you recently missed a payment on a credit card.
What you need to do next is to demonstrate that it was a one-off and that you are reliable with your payments.
That’s where an installment loan comes in handy. It gives you set payments. Contrast that to a credit card that goes up and down each month, leaving you uncertain about your outgoings.
You can add an installment loan to your budget and check if it’s affordable. Once you’ve done that, you must make the payments on time.
Your credit report will show recent payment history as a string of positive payments, helping to counter that previously missed payment.
When lenders look at your history and see it, they’ll have a better view of your finances than if your missed credit card payment was the last thing on your file.
Lengthening Your Credit History
You will lack a credit history if you haven’t taken out much credit in the past. This can make it harder to get approvals for finance because lenders won’t know if you are a risk.
One way to counter this is to begin building your credit history. That’s where a small installment loan can help.
Loans like ours at Tekaloan don’t require a credit check, and since they are small, you can set manageable installments. It gives you a chance to start building a positive credit history.
Once you do this, you’ll have a positive track record, and it will help you build that sought-after excellent credit score. It’s a helpful way to lengthen any credit history, whether starting from zero or having a poor credit score.
Taking on a New Loan: Staying in Control
We’ve explored many of the benefits of installment loans. But don’t let these benefits get in the way of making sensible decisions before picking a lender.
Taking on too much debt could leave you with a burden you can’t manage, making your score worse, especially if you are late with payments.
The best way to use installment loans for credit building is to pick a small and manageable one. That way, you can set up small installments that fit within your budget and don’t leave you feeling financially stretched.
Tekaloan, for example, offers small online loans that you pay back in as little as three months, so you aren’t overcommitting yourself.
Continuously monitor your credit score once a month. That’s the best way to ensure your loans are helping to improve your credit history.
Installment Loans: Taking Sensible Steps With Your Finances
Don’t let a bad credit score get in the way of accessing finance. There is a solution. Small installment loans are a sensible way to start rebuilding your credit without burdening your monthly finances.
Start that process right here. At Tekaloan, you can repay in 3, 6, or 12 installments. Our easy application process doesn’t require a credit check, so it’s straightforward, whatever your financial circumstances.