Whether you’re in need of quick cash for an unexpected emergency, or a business owner needing funds to keep your company afloat, there are times when you may be searching for a short-term loan to take care of your expenses and set your worries aside. But finding the cash you need can be difficult, especially if you don’t have an impressive credit score.
Why Get a Short-Term Loan?
Luckily, short-term loans are an easy way for just about anyone to get access to the funds they need, no matter what the intended purpose. Applying for a short-term loan is fast and simple, and the money is usually deposited to your bank account within a day or two. Within a matter of months, you can have the loan repaid in full and breathe a sigh of relief that you were able to obtain the money you needed in a difficult time.
How All Loans Affect Your Credit Score
With so many obvious benefits, you may be wondering if there’s a catch. Do short-term loans affect your credit rating? Well, in short, the answer is yes: because all loans affect your credit rating. It doesn’t matter if you make a cheap credit card purchase or take out a $200,000 home mortgage—in any situation where you borrow money, your credit score will be affected.
A credit score is a number representing your reliability in paying your bills on time, and your history with debt. If you aren’t making payments on time, your credit score will go down. But if you’ve proven to be timely and responsible with your payments, your credit score will go up. This means that a loan can actually positively affect your credit score over time.
If you want to know the specifics of how a short-term loan will affect your credit score, read on. We’ll explain the nitty-gritty details so you can make an informed decision about whether or not a short-term personal loan is right for you.
How Short-Term Loans Affect Your Credit Score
As we mentioned above, a short-term loan can influence your credit score just like any other type of loan. You’ll build a better credit score when you make payments on time, and late payments can damage your credit score. Your credit score may also take a dip when you’re shopping or applying for a short-term personal loan, or if you use a personal loan to consolidate debt.
How to Avoid a Lower Credit Score
There are many things you can do to keep your credit score up, even while borrowing money with a short-term loan. Check out the details below for tips on how to do just that.
Application Process
If you want to avoid your credit score taking a hit during the shopping and application process, choose a pre-qualify option while searching for the right lender. This means the lender will do a soft inquiry on your credit, which won’t hurt your credit score. You can also use a tool to compare multiple lenders using only one pre-qualification process.
Choosing a Loan
Once you’ve shopped around for a lender, choose a short-term loan with terms you’re confident you can meet. Read all of the fine print and choose a lender with the best interest rates and repayment period, so you have the best chance of making your payments.
You may also want to find out where your lender reports your repayment activity. There are three national credit bureaus, including Equifax, Experian, and TransUnion. If your lender is reporting your repayment to all of these bureaus, you’ll have more consistency for your credit reports. This will help your credit score—assuming you make all of your payments on time.
Missing a Payment
Missing a payment on your short-term loan is one of the fastest ways to hurt your credit score. However, missing a payment by a few days won’t do much damage to your score. If you happen to forget a payment, make sure you have it in as soon as possible to avoid penalties and dings on your credit score. Most payments made within 30 days of the due date will not be reported to the credit bureau.
Find Out More
Want to learn more about short-term loans? Check out Power Finance Texas today. We’ll answer all of your questions about short-term loans, payday loans, and more. We’re proud to help our customers get quick cash when they need it most.