Drawn credit score scale

Can personal loans help improve your credit score? If handled correctly, the answer is yes. Here’s a quick list of four ways your loan can improve bad credit, and what that means for your borrowing experience.

Here are four ways an installment loan can improve your credit score.

Installment loans are not the only way to build credit. In fact, they’re probably not even the best way, since they will cost you money in interest and fees. However, an installment loan is a good option for emergencies and unexpected expenses. And while you’re borrowing, you might as well reap the benefits of a healthy boost to your credit score.

It’s worth noting that not all installment loans carry the same weight to improve your credit score. It’s a scale. The larger and more reputable the loan, the greater its effect on your credit score. So something like a home loan or car loan, when paid on time, will boost your credit score more than a small, four-figure personal loan. However, a personal loan, like the ones we offer here at Helix by Lead Bank, can help you take steps toward qualifying for those larger loans and also help you build healthy financial habits.


They Diversify Your Lines of Credit

It would be convenient to simply borrow once and pay on it faithfully until your credit score is maxed out. Unfortunately, that’s not how it works. A percentage of your credit score is determined by how many different lines of credit you’re successfully paying on at any given time. FICO calls this “Credit Mix,” and it accounts for 10% of your credit score. So if you already have a few accounts open, such as a credit card and a student loan, an online loan can diversify that portfolio further. This is a solid strategy as long as you have a definite plan to repay each loan. Obviously, failure to repay your loans or credit cards will hurt your credit score, so be sure to plan each month’s payment into your regular budget.

They Improve Your Payment History

A long, steady history of faithful repayment is crucial to a good credit score. Lenders want to know you won’t be erratic or unpredictable in your repayment patterns. This reduces their risk and improves ROI prospects. 

But this standard can be frustrating for new borrowers, who haven’t had the chance to make those payments and build that history. To make matters worse, getting approved for a loan of any kind usually requires a decent credit score. Therefore, getting started sometimes seems impossible. 

At Helix by Lead Bank, we understand this struggle and want to work with you to overcome it. Most of our customers are considered “sub-prime” by the lending industry, which means they have credit scores ranked as “fair” or “poor.” Yet overwhelmingly, they’re able to repay their loans on time or early, and enjoy a nice boost to their credit score. 

They Create a Relationship With a Future Lender

This is an indirect step, but it does help. Lenders keep records of their customers, and when you establish a good relationship with one through faithful repayment, it can open the door to those larger loans, which are more impactful to your credit score. You might even end up borrowing a home loan from the same lender you used to begin your credit journey with a smaller personal loan. 

You’ll also get a good impression of the lender. Before taking out a large loan, it’s important to get a feel for how a lender operates. Do they avoid hidden fees like Helix? What’s their customer service experience like? Are their loan officers trained to answer all of your questions? A personal loan provides a good introduction before you someday dive into a much larger loan.

They Save You Money Every Month

Saving money can work wonders for your credit. This seems counterintuitive, since a well-stocked savings account can prevent the need for you to take out an emergency loan at all, but it’s not just about borrowing when you need to. It’s about borrowing when you can.

Having money in savings puts you in control of your borrowing choices. If you have $1,000 in savings and you need to purchase something for $1,000, you can confidently put it on your credit card, knowing there’s no risk for you. You can pay that balance the following month, and that substantial purchase will go on your repayment history and improve your credit score.

So how can you save money every month with an installment loan? You might be able to consolidate other, smaller loans, using a large loan with a lower interest rate. Some lenders have debt consolidation programs specifically tailored to this situation. Credit card debt consolidation is very common. Lenders offer to “buy” that debt from you, consolidating it into a single larger loan with lower monthly payments and a lower interest rate.


This might conflict with our first point of diversifying your credit, so that’s something you’ll have to weigh.

So yes, an installment loan can help improve your credit. At Helix by Lead Bank, we want our customers and potential customers to be as educated as possible about the borrowing process, its effects on a credit score, and the responsibilities it carries. Check back here often for more helpful information about loans, credit, and the road to financial stability.

If you need a personal loan, apply with Helix today. The application process takes just five minutes. You’ll receive a decision instantly, and if you’re approved, you’ll see the money in your bank account within one business day. With timely repayment of your personal loan, you’ll begin to see a positive improvement in your credit score.