Unsecured Loans (Unnamed Copywriting) 4 of 5

There are many proven ways to increase your credit score, but one that is rarely utilized is using unsecured loans. With so many available out there, an unsecured loan can be the ticket to increased credit, almost overnight. Conventional wisdom would dictate that getting new debt would be counter-productive to the increase of credit. But, the world of credit reporting is one that tends to defy reason in a lot of ways. To understand how an unsecured personal loan can improve your credit score, you first need to understand a little bit about how credit scores are created.

Your credit score is really nothing more than a complex algorithm. A computer program is fed little bits of financial information about you, and it spits out an arbitrary number that lenders use to determine your “credit-worthiness”. The problem with this method of qualifying borrowers is that it uses so many different areas of information that it is impossible to know exactly how any financial decision will affect your individual score.

A book could (and I’m sure has been) written about all of these criteria that go in to determining your credit score, so I’ll just focus on one main point. When you have debts, they are reported to the credit agencies with a lot of information attached to them. Two of the factors that the lenders send along are your credit limit and your current balance.

These two numbers account for a huge amount of the credit determining program. It’s a bit more complex than this, but for the purpose of explanation, know that the farther these two numbers are apart from each other, the better your credit score will be. A credit card with a balance of 1000 dollars, but with a limit of 10000 dollars is a huge benefit to your score. Whereas, a credit card with a balance of 1000 dollars, but a limit of 800 dollars will consistently lower your credit score each and every month.

Getting an unsecured personal loan to consolidate your credit card debt has numerous benefits outside of all this. But, if you don’t close your credit cards when you pay them off, and more importantly, don’t run them back up, you will suddenly have cards with zero balances and large credit limits. Every month, these cards will require no monthly payment, but will still report to the credit agencies that you’ve made a payment, and your score will steadily increase each time.