Believe it or not, payday installment loans make up a vital part on your credit score. Even if you do not want to apply for a payday installment loan now, you might need it in the future. Oftentimes, the lack of a previous cash advance payday installment loan may reduce your chances for an approval because you may not be able to establish a FICO score.
The FICO score reflects the borrowers credit history and reports this in a number which is commonly used to reflect credit worthiness. This is because the FICO score gives different weight to various types of loans and debt activity. A FICO (acronym for Fair, Isaac Company) credit score represents your credit history and tells a lender the risk he will take in lending money. The score ranges from 300 to 850, usually with 850 being the perfect FICO credit score.
Since credit scores are the summation of most credit histories, many lenders use these as a deciding factor for what type of loan to approve for a borrower. Credit scores usually affect several very important aspects of the loan. Here are some of the important aspects of credit scores:
- Length and Type of Loan – Lenders depend on credit scores for the basic terms for the loan, including the length and type.
- Interest Rate – This is one of the most important aspects of the loan that is commonly affected by credit scores. Lenders of payday installment loans will charge lower interest rates and monthly payments to those with good credit scores.
However, without previous loans, such as cash advance payday installment loans, you can hardly build your credit score. Without a payday installment loan on your record, you may not be able to have a good variety of credit. This usually accounts for 10% in the FICO formula. This may not mean that you must apply for a payday installment loan to obtain good credit scores. It only implies that getting loans is one way of establishing credit scores. Aside from getting a variety of lines of credit, you must never forget the most important thing, always pay on time and manage your loans or credit responsibly. Having too many loans will also be not good for you.
In addition, you might lose a few points on your FICO credit score because of not getting a payday installment loan. This could make loans more expensive since most lenders set interest rates based on what tier your credit score falls. As of 2011, the most common tier is between 760 and 850. If your credit score is below this range, except to have a few more percentage points added to your interest rate.
Although applying for a payday installment loan is helpful in building your credit scores in some cases it may not be a wise choice. Any debt can be harmful to your financial state. But just as loans affect credit scores, these credit scores will also affect your loans. So, handle both of them responsibly.