Personal loan to start building credit
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I’d like to start building my credit, so I want to get a loan for say, $3000 and then pay it back in 4 months instead of the original 11 months they gave me. Will this build me good credit?
It’s a bad idea
What builds credit is a stream of timely payments, whether credit card statements or installment loans payments over time.
You need at least 6 month of timely payments for just having a credit score, and at least 24 months for a decent credit score.
Credit scores are 90% based on your credit activity from the previous 24 months.
Installment loans build credit by making payments over time. Paying off installment loans early does NOTHING extra for your score.
Taking a personal loan just for building credit is an expensive way to jump-start your credit. Having a credit card is much cheaper, and builds credit just the same.
You may need to start with a secured credit card, but it’s still smarter option than installment loan. Use the card on a regular basis for small purchases such as gas or groceries. Wait for the statements and pay the in full every month. That will build you credit and avoid interest.
See establishing-credit-history.html for more information.
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