Much like other financial products, a signature loan can be a tool to build your credit in Utah. As long as your lender reports your payment information to the Experian, TransUnion, Equifax, and other credit-reporting agencies, timely repayment should help pull your FICO scores up.
But just like everything else, a Salt Lake City signature loan can also cause harm to your credit as much as it can do it well. Although it is an unsecured loan, it can taint your reputation in the eyes of financial institutions, insurers, and even employers.
So how do you know when does a signature loan is likely to knock points off your FICO scores? Here are some scenarios:
When Your Recent Credit Applications Were Denied
Any credit-based application triggers a hard inquiry or a hard pull. This activity indicates that you are seeking to obtain a debt, which is not necessarily a bad thing. However, it becomes terrible news when your request gets rejected.
While signature loan denial is not the end of the world, it should be a signal that you should rethink your options. It could be the universe’s way of telling you that you might want to swallow your pride and borrow cash from a loved one or else your credit would be damaged.
Nobody is going to stop you from applying again and again immediately after your initial rejection. You might eventually find a willing lender. Having too many hard inquiries on your credit report over the past 12 months will ding credit scores. FICO smells desperation when hard pulls are performed so closely and frequently. It will take 24 months before such inquiries vanish from your credit reports.
When You Are Late
Not getting denied is indicative that many signature lenders still believe that your word is your bond. But then again, successful signature loan applications will leave behind credit inquiries. Also, creditors might think that you are not managing your finances well, for unsecured loans should not be taken out regularly.
Numerous signature loan approvals might not damage your credit that much, but they could easily make you appear a lot riskier. As a result, you might be charged higher interest.
When You Already Have a Lot of Debt
Credit utilization is the second-most critical element of every FICO scorecard. Your debt level represents 30% of your scores. Coupling a signature loan with high credit card usage will tag you as a risky borrower. If you have debts that do not reflect on your credit reports and you do not disclose them to your prospective lender, you might struggle to repay your signature loan on its due date.
When You Lie About Your Income
Unsecured loan lenders invest in sophisticated employment and income verification tools to assess credit risk. If you try and beat the system, you will be fooling both your lender and yourself.
You might get away with the approval, but your lack of sufficient income might render the loan’s repayment term not viable. In the end, late and missed payments will haunt you when you need to seek credit again.
Low credit scores can follow you around, so you should observe best practices when borrowing money at all times, even when there is no security in the equation. Taking out a signature loan is risky enough, do not make it more disadvantageous.