There are many people that would like to improve their credit score. It can be a good idea to try different things to see whether you can improve it. This is because it can be really important in helping you to secure a competitively priced loan, a home to rent or even certain jobs. It therefore can be critical to do everything you can to make it looks better. There are different things that you can do and sometimes it is even suggested that you borrow money.
Why Borrow Money?
The reason that borrowing money does get suggested as a potential solution is because repaying a loan will show that you can potentially be trusted to repay other loans. However, if you already have loans, then getting another will not make any difference. This is more for people who have not borrowed before as they have never had the opportunity to be able to show that they are capable of repaying money. If they have their name on insurance policies and utility bills, this can show that they are responsible enough to be able to make regular payments and there is very little difference between regular payments and repayments and so this might be enough to show that you can be trusted. People do say that you cannot borrow unless you have borrowed before, which cannot be true as we all have to start somewhere but there are also risks of borrowing which it is worth thinking about before you decide to do it.
Risks of Borrowing
When we borrow money, we have to repay it. Often there will be a regular repayment to be made each month, although some loans work a bit differently. Making these payments is something which we commit to when we sign up for the loan and if we miss any, then it will not reflect well on us. Not only will we have extra fees to pay as a result of missing the payment, which will then make the loan more expensive, but we will also have that showing on our credit record and that could put people off. Therefore, if you are taking out the loan to improve your credit record and end up not repaying it will actually have the reverse effect and make it look worse.
Borrowing money can also make it look like we are not good at managing money. It can depend on the type of borrowing, but if it is a loan which can be arranged very quickly, that could indicate that we have lost control of our money and needed some in an emergency. This will put off most lenders, even if the loan is repaid on time, so you need to be very cautious of that.
It is also worth considering the cost of borrowing. If you take out a loan there will be interest and fees to pay for it. You have to think about whether that cost is worth paying just to try to improve your credit record. Consider whether you are really only taking out the loan so you can have some fun with the money and using the improvement of your credit score as an excuse so that you can have fun with the money. It is an extremely risky thing to try and you never know whether it will improve your situation or actually make it worse so make sure that you think it through really carefully. Also make sure that you are aware of the types of borrowing that will look good and what will not. You will find that mortgages will look good as that is seen as a very useful way to buy a home and lots of people use them. However, extending your overdraft could look bad because it will indicate you need some money really quickly and that you have not been able to manage your money well enough in order to be organised.