Improve Your Credit: Installment Loans

March 14, 2012 at 8:17 am Leave a comment

 Improve Your Credit

Poor credit can be a big problem when you’re trying to get a mortgage loan, but improving your credit isn’t that difficult if you know how to do it. One way to improve your credit is to get and make regular payments on an installment loan. This works best if you have a limited credit history, and keep in mind that a new installment loan is also going to increase your debt ratio; here’s how to do it right to both improve your credit and also keep it from causing problems with getting a mortgage loan:

Make Regular Payments for a Fixed Period of Time

An installment loan is a type of loan where you make a fixed payment for a fixed period of time. Common types of installment loans include car loans and personal loans. If you don’t already have an installment loan, consider getting one. You may have to pay a higher interest rate if you have bad credit, but getting an installment loan and making regular payments can help boost your credit score. Don’t get an installment loan if you’re not going to be able to keep up on the payments, though; the point is to pay on-time to boost your credit, and if you’re not able to do that, an installment loan can actually hurt your credit score.

Look at Your Total Debt Ratio

When applying for an installment loan, don’t forget that this loan could count against you when applying for a mortgage. When you apply for a mortgage, a lender will look at all of your outstanding debt and decide if you make enough money to pay all of your bills. Generally, lenders look at your debt-to-income ratio; how much money you have to pay out every month versus how much money you make. Different lenders follow different guidelines, but a good “safe” ratio is to have a debt-to-income ratio of no more than 33% of your total income. If getting an installment loan is going to put you over this ratio, make sure you can pay it off before you intend to apply for a home loan.

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Entry filed under: Credit.

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Don Grimes

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Don Grimes
"Your Residential Mortgage Specialists"
Senior Mortgage Loan Officer
NMLS: #130686

Michigan Mutual, Inc
Office: (517) 507-0151
Toll Free: (800) 521-1642
Mobile: (517) 927-8110
don@DonGrimes.com
www.DonGrimes.com

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