There is a way to actually improve your personal credit rating by obtaining a home equity loan. Even with a not so good credit score you can get a loan if your house has built up some equity. The house is used as collateral so if you are current on those payments and there is enough equity. Your home did not lose value just because you’ve run behind on other payments. The worth of your property doesn’t decline with your credit score. Lenders will still grant homeowners a loan since the house is the collateral. This makes it a safe loan for banks as if the owner defaults on the payments the house can be sold to make up the difference.
A home equity loan does not have to be used to make improvements on the house. Actually, there is nothing to stipulate what the money must be spent on. Therefore, it is advisable to use a home equity loan to consolidate other loans. Lumping several smaller bills into a single payment can be much more manageable. One medium payment can be a lot easier to maintain than several small ones.
Using a home equity loan to consolidate several loans may also serve to save quite a bit of money. Loans against equity are usually given at a lower interest rate which will save more money in the long run. More manageable payments are easier to make on time. Each payment that is not late will help to increase your credit rating.
Paying off several smaller debts will also help to raise your credit score. Another benefit of paying off the smaller bills is that credit cards are not sitting at their maximum balances. This will help the credit rating too.
If your credit rating is real low the interest rate for a home equity loan can be considerably higher. However, even this increased amount will generally be less than the rates charged on other types of loans.
It is important to remember that in order to benefit from an increased credit score one needs to not use the credit cards they just paid off. If the cards are charged back up to their limits it will again work against the credit score you are hoping to improve. Pay off the bills and then don’t use the credit cards! This will help increase the limits on the cards, as well as credit ratings.
