Increase Credit Score by Borrowing Money

The majority of borrowers usually think that they can increase their credit score by paying off their debt or getting rid of their loans and credit cards. While paying off your debt is a good practice, the latter is not.

Without a doubt, paying off your debt improves your credit score. Lenders want to make sure that your debt-to-income ratio is low and they do not prefer maxed-out credit cards.

Lenders decide whether or not to give you a loan by considering your ability to fully pay the principal plus interest on time. To do this, they check your credit report since it reflects how you have previously managed loans.

Although you have a debt, you must handle it responsibly so that you can have a good credit report and a high credit score. First, you must be aware of the two types of loans. The first type is an installment loan and the second type is a revolving loan.

An installment loan is a loan that is given to you for only once and you pay it back a later time. After paying off the loan, you cannot avail of it again. For instance, auto and mortgage loan are installment loans.

On the other hand, a revolving loan is a loan that can be availed for a number of times, for instance, a credit card. You can borrow money up to a certain credit limit, pay it off, and borrow once again. For instance, your credit card is a revolving loan.

The second thing to be aware of is that lenders prefer that you have both types of loans in your credit report because it shows your responsibility in borrowing money and your ability to handle debt.

Therefore, in order to keep a high credit score, you must borrow money and pay them back responsibly, particularly, on time and in full.

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