Apart from just helping you settle financial emergencies, installment loans are good at helping you build credit scores and credit history. Typically, installment loans are repaid through equal monthly payments for a certain period, such as 6-72 months, depending on the loan amount and the lender's terms.
However, you should keep in mind that installment loans might hurt your credit in some cases, such as missing the repayment. Read through to know more.
Will Pay off Installment Loans Hurt My Credit?
Installment loans usually have more extended repayment periods of up to 72 months, subject to the principal amount. Every month, lenders report loan payments to the three credit bureaus, Experian, Equifax, and TransUnion. These reports are used to calculate your credit scores. You will earn more points when you make monthly payments for 72 months than if you pay off the loan in just 6 months.
Thus, it's good to have an active installment loan to enhance your credit scores. Besides, go for loans with longer repayment terms. Ultimately, your credit history will show your capability and commitment to paying off loans.
Furthermore, the more you have a good credit history, the more you qualify for larger loan amounts. Lenders trust applicants with a good and long record of repaying loans more than candidates whose loan accounts have been inactive. That also explains why lenders are concerned about your credit history before approving loan applicants.
However, if you already have an excellent credit score, no significant damage will happen to your credit history when you make early loan repayments. The credit score will remain stagnant if you don't have an active installment loan.
Conclusion
Applicants with good credit scores always have the upper hand when looking for loans in banks, credit unions, or online lenders. You can always build your credit scores by repaying your installment loans within the stipulated repayment terms. Besides, always have an active loan account to boost your credit history.