Sometimes, bad credit happens. If you find yourself in a situation with a weak FICO score (FICO scores are used to determine credit worthiness in 90 percent of loan decisions), you might consider strengthening your creditworthiness by taking out a small installment loan – one with a pre-determined interest rate and length of repayment – to demonstrate credit worthiness. You can not only use the loan for a major expense but since you will repay it according to the length and terms negotiated with the lender, your credit score will improve once the loan is repaid.
According to a recent article in Money.com, a “credit builder” loan such as an installment loan could demonstrate an improvement in your FICO score in as little as a few months, when repayments are made on schedule. In fact, an installment loan may be a better option to rebuild credit than trying to open up a credit card which may carry very high (or even variable) interest rates – creating both an additional financial burden and unpredictability. They are also better than getting a payday loan for this purpose because traditional installment loan lenders report payment history to credit bureaus whereas payday lenders do not.