Credit Scoring

Will Repaying a Loan Help my Credit Score?

A lot of people want to try out different things to improve their credit score. This can be a sensible idea as if you want to rent a home or borrow money, then you will find that the lender or potential landlord will take a look at your credit record to find out if they feel that they can trust you enough to take you on. Therefore, anything that you can do which will improve your credit record can make a significant difference to whether you might be able to get the loan or whatever you need that your credit record depends on.

What Might Improve my Credit Score?

Knowing what might help your credit score can be a bit hit and miss. This is because there is not a standardised credit score between different people that look at your credit report. They will just look at the details on your credit report and use that to think about whether they feel that they can trust you enough to take you on. Their ideas of what looks good and bad will vary. This means that it can be really hard and a bit of a gamble at times, to know whether doing certain things will help you. However, there are some things that you can try out which could be extremely useful and might benefit you. Repaying a loan could fall into this category.

Repaying a Loan

The most important thing to do when you have a loan is to make sure that you make all of the repayments on time. This sounds obvious but it is not always that easy. It is therefore really important to make sure that you prioritise repaying the loan, along with paying for other necessities, so that you do not miss payments. Any missed payments will generally be frowned upon but will also result in charges which will mean that you will end up paying more for the loan as well. You do not want to have to pay more like this.

It might be that you decide that repaying a loan early might help your credit record. If you have lots of loans, then eliminating one could look much better. It will show that you have less debt and that you will have more money available to pay for other things, such as rent or loan repayments. It might seem ironic that you are paying back a loan so that you can borrow more. But this about future planning. If you want a mortgage, for example, then repaying some of your other debt first will mean that you are more likely to be able to secure a mortgage and be able to borrow the amount of money that you want. Repaying debt will also have advantages for you as well as you will not need to worry about that debt any more. However, it is important to make sure that you do not have a large fee to pay for repaying the loan early. Some will have an ‘early redemption fee’ which will be a charge for paying the loan back early. This will not always be charged and the amount will vary. However, it is important to find out if there is one and how much it is before you decide to repay the loan. It may be worth paying it anyway, because it is less than the interest you would have to pay if you kept the loan, but it may not be and you will need to decide whether you think that it is worth repaying taking the costs into consideration.

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