A personal loan is an installment loan so debt on that loan won’t hurt your credit score as much as debt on a credit card that’s almost to its limit, thereby making available credit more accessible.
A personal loan can also help by creating a more varied mix of credit types.
How much does personal loan affect credit score?
With a personal loan, factors that affect credit score most are the payments you make and the mix that your loan adds to your credit profile. Adding a personal loan to your credit mix can actually give your score a little boost. While credit mix is only 10% of your score, it can still provide a little help.
Do personal loans show up on your credit report?
A personal loan will show on your credit report and be listed simply as an unsecured closed-end loan. This loan will not affect your credit score any differently than opening up a secured loan for the same amount and term (i.e. a car loan).
Is it worth it to get a personal loan to pay off debt?
If you expect to pay off your debt in the next six months to a year, however, then a personal loan probably isn’t worth it. The small amount you’d save in interest isn’t worth the hassle.
Is it better to get a personal loan to pay off credit cards?
While personal loans may have higher interest rates than secured loans, they often offer lower interest rates than credit cards — some as low as 6 percent. Using a personal loan to pay off credit card debt could help you save money on interest and potentially get out of debt faster.
Photo in the article by “JPL – NASA”