Building Credit Using a Personal Loan: Dos and Don’ts

Building your credit score is important for several reasons. When your credit is in good standing, it will be less hassle to obtain a loan with a low-interest rate and advantageous repayment term. Moreover, many employers today look at your credit profile as part of the hiring process. 

There are different approaches to build your credit score, and one of them is to take out a personal loan. Compared to credit cards, personal loan lenders like Personal Money Store offer more advantageous annual percentage rates to borrowers with no credit. The repayment scheme also makes it easier for you to pay the loan because it’s broken down into monthly installments. 

Yes, there are advantages of using a personal loan to establish your credit, but you also have to be cautious of the risks. For that matter, take note of these “dos and don’ts” when choosing this borrowing option to build your credit score. 

Do Look for the Lowest Interest Rates

The interest rate should be your top considerations when applying for a personal loan. Nowadays, this loan type is offered almost everywhere – at banks, credit unions, and online. In other words, you have a wide range of personal loan providers to compare. 

When choosing a lender, always go for the one that offers a lower interest rate than others. 

Don’t Send a Loan Application to Multiple Lenders

It’s not recommended to submit a formal loan application to multiple personal loan providers at the same time. Some newbie borrowers apply for a loan to different lenders to boost their shot at getting a loan. This is not a smart move because your loan application shows on your credit report, which can hurt your credit score. 

You can search for multiple lenders and compare their average interest rates, but don’t send a formal loan application yet. Pick the one that fits your financial circumstances and which you think you have more chances of getting approved. 

Do Consider What You Can Afford

Some borrowers take out loans that they could hardly afford, and that’s the reason why they missed payments or default on their loans. So, before you apply for a loan, you should see to it that you choose a loan amount and interest rate that you can afford to pay every month. 

Pick a small loan amount for you to have no problem repaying it. You can start small since your primary purpose here is to build your credit score. 

Don’t Work with a Lender That Has No Credit License

More and more borrowers are looking for personal loans online. While you can find online lenders who have credit licenses and follow government regulations, there are also frauds and scammers. Thus, you have to take extra precautions when searching for a personal loan on the internet. 

Make sure that the lender you choose doesn’t charge exorbitant rates and extra fees. Always ask if the company has a credit license to operate, and always check online reviews on the lender’s service. 

Do Check The Terms of Repayment

You should also consider the terms of repayment of the loan you want to get to ensure that it suits your current circumstances. Some personal loan providers charge fees that can add up to the cost of the loan. For example, there are lenders that impose early-payment penalties if you pay a portion of the entire loan amount before the loan’s maturity date. 

Moreover, it’s crucial to consider how long you should pay the loan. Typically, personal loans have loan terms ranging from 1 year to 5 years. 

Don’t Provide False Information in Your Loan Application

Withholding or giving false information in your loan application is a big no-no. Some newbie borrowers lie in their loan applications to increase their chances of getting approval. They don’t know that lenders do a great job of evaluating if a borrower is lying or not. 

When you’re caught being dishonest, you’ll get rejected for the loan or, worse, get banned from applying to the same lender again. 

Do Pay Your Personal Loan On Time

Do you want to establish a good credit profile, right? Then, make it your responsibility to pay your loan on schedule once you get approved for it. Missing payments or not paying your loan in full by the end of its maturity date will show on your credit history, and this can lower your credit score. 

You can avoid that situation from happening by making sure that you can afford the monthly payments. It’s also crucial to set a budget plan so that you can make on-time payments every month. 


Using a personal loan is among the best methods for building your credit score. Just make sure that you know the top considerations when taking out a personal loan. Review this blog article if you want to learn the “dos and don’ts” of getting this loan option.

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