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Loans and Your Credit Score

Loans affect your credit score more than almost any other item on your credit report. The types of loans you have, how long you have had loans, the amounts you owe and your payment history on your loans has one of the biggest impacts on your credit score. If you can control your loans, you can boost your credit score. There are a few tips that can get you well on your way to painlessly managing your loans:

If you got a poor deal on a loan – especially a major loan such as a car or home loan – or if your credit rating has improved since you got your loan, you may want to consider refinancing. Refinancing means that you take your loan to another lender in order to enjoy better terms or rates.

You don’t want to do this too often – it prevents you from developing long-term relationships with lenders and results in inquiries on your credit report – but if you have good reasons to refinance, it can actually help you repay your debts. For example, if you can get more reasonable monthly bills that you will actually be able to repay, refinancing can help prevent all those non-payment credit dings that come from not being able to pay your bills. Making your payments more affordable can save you money and can save your credit score.

In the short term, refinancing can push your credit score down, as you will acquire inquiries on your credit report as you look for a new lender and as you close old accounts and open new accounts. In the long term, though, refinancing can be a good way of boosting your credit score. If you are now missing or delaying payments because you cannot afford monthly bills, for example, refinancing a loan or two can be a good way to get back on track and can get you repairing your credit score again.

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