When you have bad credit, the only way to improve your credit rating is to pay your bills on time and eventually take out new lines of credit. Taking out a loan will improve your credit rating over time, as long as the loan amount isn't too much and you make on-time monthly payments.
Loan Amounts
To improve your credit rating by taking out a loan, consider the loan amount. If the loan amount is too high, then it may look as though you are taking on too much additional debt. When your credit rating is already low, taking on too much additional debt makes you look like a high default risk to creditors. Stick to a loan amount within your financial means to ensure you can make your payments on time for the loan's duration.
Secured Loans
Secured loans may be easier to get when you are trying to improve your credit rating because they offer the bank collateral in exchange for the loan. A secured loan may also help you stay within your budget because the loan amount is generally not more than the value of the collateral. Staying within your budget is essential when it comes to your ability to make on-time monthly payments.
Unsecured Loans
Getting an unsecured loan may be more difficult if your credit rating is already low. If you obtain an unsecured loan for trying to improve your credit rating, expect to pay a higher interest rate because you are not pledging any collateral in exchange for the loan. As long as you make your payments on time, an unsecured loan will improve your credit rating.
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