Your credit score is the indicator of your financial health. These figures are awarded by the credit bureaus, namely Equifax, Experian and TransUnion after the credit report is prepared based on the present and past debts. If the borrower has unpaid outstanding debts, the score becomes bad, and if the debtor has paid the debts, the score remains good, or even excellent- all the scores vary between 300 and 850, though.
When a person takes out a loan- except for the payday loans- the lender usually reports it to the credit bureaus. It also reports the payment and default of the loan. This is mandatory to follow according to the Fair Credit Reporting Act. Those reports help the credit agencies to build a credit history of the borrower. When it comes to the Installment loans- which are short-term debts that can be repaid in multiple scheduled installments- most lenders report the borrowing to the credit bureaus, although some don’t!
Installment Loans Can Affect Your Credit Score
Installment loans can have both positive and negative impact on your credit status depending on how regularly you pay the installments.
Some people actually take out installment loans to rebuild their credit as it gives a substantial amount of time to repay; and early pay off of such a loan boosts the credit score. If you want to rebuild your credit, make sure you take a loan from the financing company that reports the lending activities to the credit agencies. Taking a small amount of loan is wise in this case as it is easier to repay. Another way of making your credit look good is to pay the consolidated debts by taking out an installment loan. This scenario too needs the debtor to make the payments on due.
On the other hand, several factors can also have a negative impact on your credit health. Just by applying to take out a small starter installment loan one’s credit score goes down a little- that’s normal and temporary. However, the main factor that hurts the credit score is- nonpayment. Late payment or default of such loans are reported to the credit bureaus by the lenders. Sometimes these late payments can affect your credit until next seven years.
Factors Considered for Credit Score Calculation-
- Past debt payments: 35%
- Outstanding debt: 30%
- The time length of credit history: 15%
- The diversity of credits (debts): 10%
- New account activity: 10%