Using Debt Consolidation to Improve your Credit
Paying off high interest rate credit cards with a St. Paul Federal personal loan is smart on so many levels. Not only can it save you money by reducing your interest rate or monthly payments, it could also help improve your credit score. The reason is in how the credit score is calculated.
The most important factor in determining your credit score is your history in paying back the money you’ve borrowed, but there are two other important factors.
- The percentage of your open revolving credit lines (think credit cards) that you’ve used. This is called capacity and it’s calculated by dividing your total balances by your total credit limits. The lower this number (meaning the less you’ve used) the higher the impact to your score.
- The type of loans you have also matters. The credit score calculator, commonly called FICO after the company that developed it (Fair Isaac and Co.) gives you a higher score when your loans have set payments and terms and a lower score for credit cards. (FICO tries to predict performance, and credit card use can be less predictable.)
When you pay off your credit cards with a St. Paul personal loan, you do two things.
- You improve your capacity by paying off credit card balances. It’s not uncommon to pay them off entirely.
- You open a new loan with a set payment, interest rate, and payoff date.
Now that you know a little more about how your credit score is calculated, you’ll definitely want to pay off those credit cards with a St. Paul Federal personal loan. It’s quick and easy.