As more and more customers take our Platinum and Prime loans, which are able to be reported to credit bureaus, we wanted to share some thoughts on how to get as much credit-building benefit as possible from these loans.
One quick disclaimer: credit scores like FICO or Vantage are based on lots of information. It’s impossible to say definitively how one reporting trade line will impact your score. What follows is our advice based on our research and experience, and suggestions from our friends at Credit Builders Alliance.
• On-time payments: It’s very important you make each of your payments on time. This is the heaviest weighted factor in determining your credit score. Making payments on time is a strong indicator to your creditors (both current and future) about your credit-worthiness.
• At least six months: Usually a loan of six months generates a stronger credit score than one that is shorter. In some credit scoring models, a minimum of six months is necessary to create a credit score for someone who lacks one. A longer loan isn’t necessarily better, though, and what’s most important is that you take on a loan you know you’ll be able to repay on time.
What Doesn't Matter
• Loan size: You can get the same benefit from a $500 loan as you can from a $1000 loan. What’s most important is that you are taking a loan you’ll be able to repay and that meets your credit needs.
• Number of loans: Taking two six month loans will not have a noticeable difference versus one twelve month loan. And keep in mind, while LendUp does not do a hard credit pull for returning borrowers, other lenders might. Be sure to check since a hard pull can affect your credit score more negatively than a soft pull.
• Prepayment: There is no benefit of paying a loan off early and, as mentioned above, if you pay off a loan before six months, you may be missing out on some of the credit building-benefits.
Want to learn more? Check out our credit education courses!