We are used to believing that Wikipedia knows everything. Yet, there’s a huge gap in its knowledge – borrowing money. If you rely on Wikipedia when reading about this financial topic, you can make pocket-emptying mistakes.
We should know all the facts before a crisis starts. And when we need information – we are searching on the web. The main thing is to filter all the information and to choose the valuable facts. We have made it instead of you. Move on to read the list of 7 things Wikipedia cannot inform you about personal loans.
A Personal Loan Can Boost Your Credit Score
It may sound strange, but the personal loan can boost your credit if you are smart about it. You can consolidate the balances of your credit cards with debts on them. A credit card has a lower standing on a credit report than personal loans do. If you consolidate your multiple credit card debts into one personal loan payment every month, it may not only simplify your finances but improve your credit as well.
Credit Bureaus Can Be Mistaken
The fact not everybody knows: from time to time, credit bureaus make a blunder. Sometimes the old debts you have repaid can remain on your account or you may carry a debt of another person with a similar name.
Sometimes one and the same debt can be reported to your account a couple of times.
Don’t start panicking immediately. Credit bureaus have 30 days to correct a mistake, so be patient.
Always check your credit report for mistakes to correct them before applying for the next personal loan.
Make Credit Utilization Ratio Help You
Credit Utilization Ratio is the amount of your available credit that is compared to the amount of credit you are using. It is one of the factors to be considered by your potential lender.
Even if you are repaying your loans on time, this ratio can look bad to a prospective lender. For instance, if you charge over 50% of your credit on a regular basis, such amount is reported to the credit bureaus. If it becomes your habit, your ratio will be really high. The ideal ratio should be lower than 30%.
To lower your ratio, apply for an extra credit. Ask your credit card providers to raise your credit limits or apply for another credit card.
After this, make consistent spending to keep your ratio low.
Difference between Personal Loans and Credit Cards
A credit card is a revolving type of debt. It means that one can use this card over and over in case you repay it. You can decide to pay the full balance, the minimum payment or something in between.
A personal loan is a lump-sum amount you get upfront and repay it once a month.
It’s better to use personal loans for large-scale purchases that you will have to repay over a year. And credit card can be repaid in a year.
If you pay with your credit card with a purchase that cost too much, you will pay more interest than for a personal loan.
You Can Consolidate Your Credit Card Debt with a Personal Loan
If it’s hard for you to keep track of all your high-interest debts, it is a good idea to take out a low-interest personal loan. If you have a student loan, a car loan plus a couple of credit cards, it may take you years to pay them all down.
When borrowing a personal loan to consolidate them, it is possible to repay them altogether faster and save money in a long run.
Search for the Best Lender, Do not Apply Everywhere
When looking for a personal loan, is important to shop around for the best lender. Ensure that you don’t apply for too many loans simultaneously. Every time a prospective lender checks your credit score, your credit rating will take a hit.
Your score will drop every time you apply for a personal loan. Such process is known as ”hard inquiry”. Such inquiries are on your report for the next two years. There is no sense to damage your financial status by applying for every proposition you see. Though our lenders usually perform a soft credit check that does not harm your credit score.
Stick to Budgeting
If you have crafted a budget but don’t stick to it, it is a high time to analyze why your money fades away each month. Try to use a spreadsheet or a budgeting app. They will help you keep track of your finances. Make sure that the personal loan you would like to take out fits your budget.
Ensure that you can repay $300 each month for the entire life of the loan.
Take these tips one at a time, and you’ll observe how your financial situation is getting better and better every day.