Lenders look at your credit when you apply to finance a vehicle or apply for a home mortgage. If you do not have credit, you may wonder where you should start. You can start to build your credit by making payments on a personal loan.
By taking out a modest personal loan, you can provide for an immediate need and build credit at the same time. Here are a few tips to help you start the lending process.
Borrow with purpose
You don’t have to take on debt just for the sake of building your credit. Take out a personal loan for something you need. You can use your loan to pay for a car, medical expenses or a vacation.
Whatever the case, be purposeful with your money. When you borrow with purpose, you’re making a careful choice for your future, in addition to providing for a current need.
Choose automatic payments
Although personal loans can help your credit, one late payment can have a negative impact. Paying on time is essential to building credit. Set up automatic payments through your bank account to ensure you make your payment on time.
Future lenders will check your score and see how often you make late payments. This can be harmful when applying for an auto loan or home mortgage. You want to show you can make your payments on time, every time.
Avoid racking up debt
When you use a personal loan to pay off your high-interest cards, it can be tempting to use all the available credit you now have. To handle this, return your credit cards to a zero balance each month or cancel them. Know canceling your credit cards can affect your utilization ratio. This is still preferable to maxing out your cards.
Personal loans at FirstBank Southwest
If you would like to learn more about personal loans, contact a loan officer at FirstBank Southwest. We can help you fund* your education, wedding expenses, vacation, home improvement needs, and more. If you are a homeowner, you can apply for a Home Equity loan. Stop by your nearest FirstBank Southwest location or call us at 806.355.9661.
*With approved credit. Some restrictions apply.