It might surprise you to know that online loans can actually help you build a positive credit record. Sounds confusing?

Here’s  how it works.

First of all, let’s understand what a credit record is. Whenever you apply for a quick loan or an account at any store, the company in question will check your credit record. It is basically a summary of all the debt you have ever had during your lifetime. This report will tell the lender if you are faithfully repaying your debt every month, how much existing debt you have, and how many times you have skipped payments.

Before you stress out

Remember that very few people can afford to live life completely debt free. Think about it: who can afford to buy a house or a car in cash? It is virtually impossible. We all have a little debt – and lenders understand that completely. What matters however, is how you handle this debt.

Before a borrower is granted an online loan, the lender needs to know that the

borrower can be trusted with the repayment. Yes, you have guessed it – if your credit score is bad, a lender won’t take the risk of giving you money, but here is where another interesting fact comes into play: having no record of any debt whatsoever actually works against the borrower.

Why is this? Won’t this prove that I can afford a loan because I don’t have any other debt?

Unfortunately, not.

An online loan is, believe it or not, is a good way of building a credit record – as long as you honor your credit agreement of course. It shows that you can be trusted with something as small And as a result, a bank will feel much more confident granting you a larger loan for something big like a car or a house.

Live your life as debt free as possible, but make sure you can prove your trustworthiness when you need to.

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