Can you use a loan to improve your credit score?

Submitted by SeanChuck on Fri, 04/03/2009 - 20:30

Hello again!

I have a scenario someone suggested to me and wanted to know if there is any validity to it?

Here is how the idea would go:
One would apply for a small loan they knew they would get. After receiving the loan keep the money and not spend it. Then use the money to pay the loan off over time. You would still have to pay the interest, but is worth it to establish good or improve ones credit!

So is this true?
Would this increase your credit score?
If so, what kind of amount to time ratio would work best to pay it off?

As always any advise would be greatly appreciated!
Sean C.

Well.........this is how it goes for loans. To get a loan, the Lender needs to make a 'Hard Inquiry' for your credit. Making 'Hard Inquiries' can lower your Credit score a few points. Also...( I guess depending on the amount of the loan..) it will show that you have MORE debt on your Credit report. Would this be a high/low amount..this loan? Every time you apply for 'new' credit, you will lower your score each time. I know you want to raise your score,'s possible you will be doing the opposite. I would just keep paying down the debts you have now. This will raise your score.

Mon, 04/06/2009 - 10:32 Permalink

Actually, this isn't a bad thing to do and some banks have programs that they set up so you can build your credit in this way. The bank I know of calls it a Believer Loan. Here is the info from their website:

Believer Loans are a great way to rebuild your credit if you’ve had payment trouble in the past. Showing a solid payment history is a healthy thing for a credit report. A loan between $1,000 and $5,000 is made and used to purchase a Certificate of Deposit for the same amount in your name. You make regular monthly payments, and when the loan is paid off, the CD is yours.

Mon, 04/06/2009 - 12:34 Permalink

You will bank lone to improve your credit Score, You will pay your credit by bank loan. Some bank having this programs to improve credit score. If you improved your credit score they will help you in future for financial activities , So your idea is best & useful.
This is also depend on credit amount . They will make inquiry for all your credit, Lone & other banking record to pass your lone.


Tue, 04/07/2009 - 11:23 Permalink

It will improve your score over time as it shows ur responsible. Best way to really improve your score is too get ur total debt under 30% of your total credit limit. Dont apply for alot of loans/cc over 6-12 month period and watch your score go up. Paying ur bills on time each month is a huge percentage of your credit score.

Wed, 04/08/2009 - 15:20 Permalink
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Tue, 08/05/2014 - 09:08 Permalink