If improving your credit score feels like a mystery or something out of reach, you're not alone. But in reality, your credit score is simply a reflection of how you’ve managed your debts over time. While you can’t undo past missteps, you can take strategic steps to rebuild your credit profile—and one of those steps may involve using an installment loan effectively.
In this guide, we’ll walk you through how installment loans work and how they can impact your credit—both positively and negatively.
What Is an Installment Loan?
Installment loans are a type of structured credit where you borrow a fixed amount and repay it in equal monthly payments over a set period of time. Unlike payday or title loans that require a lump-sum repayment, installment loans are designed for manageability.
Each monthly payment includes a portion of the loan principal along with interest. The terms typically remain consistent throughout the loan, which helps you plan your budget and stay on track. At Certes Financial Pros LLC, borrowers may be eligible for installment loans of up to $5,000, with repayment terms ranging from 3 to 24 months, and APR between 6.99% and 35.99%. All loan details—including monthly payments and the full cost of the loan—are clearly disclosed upfront.
Installment loans can take many forms, including personal loans, student loans, car loans, and mortgage loans. They differ from revolving credit like credit cards, which allow ongoing borrowing and require varied monthly payments.
Can You Use an Installment Loan to Build Credit?
While taking out a loan solely to build credit isn't always recommended, there is one exception—credit-builder loans. These are specialized installment loans meant to help individuals with little or no credit history establish a record of on-time payments.
With a credit-builder loan, the borrowed funds are held in a secured savings account. You make regular payments, and once the loan is fully repaid, you gain access to the money. These payments are reported to credit bureaus, helping you establish a positive payment history.
However, just like with any loan, missing payments can damage your score. And borrowing more than you can comfortably repay may negatively affect your financial health.
How Do Installment Loans Influence Your Credit Score?
Installment loans affect your credit score in a few key ways—some beneficial, some potentially harmful:
Positive Impacts
- Builds Payment History (35% of FICO Score): On-time payments show lenders you’re a reliable borrower. A consistent payment history is one of the most important factors influencing your credit score. Setting up automatic payments can help you stay on schedule.
- Improves Credit Utilization Ratio: If you use an installment loan to consolidate and pay off credit card debt, you may see your revolving credit utilization go down. This can boost your score, as credit utilization accounts for about 30% of your FICO score.
- Adds to Your Credit Mix (10% of FICO Score): Having a mix of different credit types—such as installment loans, credit cards, and auto loans—can improve your score. It shows lenders that you’re capable of managing different forms of debt responsibly.
Potential Downsides
- Late or Missed Payments: A single missed payment can significantly lower your score. Make sure you’re financially prepared to meet the repayment terms before taking out a loan.
- High Total Debt Load: Adding a new loan to existing obligations (such as credit card debt or student loans) may increase your debt-to-income ratio. This can make it harder to qualify for future loans or result in higher interest rates.
- Hard Inquiries: Every time you apply for a loan, a hard inquiry appears on your credit report, which may temporarily reduce your score. Applying for multiple loans in a short period can compound this effect.
Other Ways to Strengthen Your Credit
In addition to responsibly using installment loans, you can take several other actions to support long-term credit health:
- Pay Off Credit Card Balances: Keep credit card usage below 30% of your available limit and try to pay off balances in full each month. This demonstrates responsible credit management and helps maintain or improve your score.
- Review Your Credit Report Regularly: You’re entitled to a free credit report annually from each major credit bureau. Checking your report can help you spot errors, track your progress, and identify areas for improvement.
- Use Tools Like Experian Boost: Services like Experian Boost allow you to add utility bills, streaming services, and other regular payments to your credit history. These additions can positively affect your score if paid on time.
Frequently Asked Questions
Below are answers to some common questions about installment loans:
Installment loans are a type of closed-end credit, meaning you repay a fixed loan amount over a set period known as the loan term. For instance, a car loan might have a term of five years with a monthly payment of $500. You’d make these fixed payments every month until the full balance is paid off. Unlike revolving credit options such as credit cards or lines of credit, installment loans do not allow you to reuse the funds you repay; once you pay down the balance, that credit is no longer available.
You have several ways to shorten your loan term. For example, making payments every two weeks instead of monthly can reduce the overall interest and duration. Alternatively, rounding up your monthly payments, making extra payments once a year, or refinancing can also help you pay off your loan sooner.
There’s no strict limit on the number of installment loans you can hold simultaneously. Approval depends on factors like your credit score, income, and debt-to-income ratio. However, carrying multiple loans can negatively affect your credit over time, so it’s wise to be cautious.
Installment loans are available through a variety of lenders including banks (which typically provide the lowest APRs), online lenders, and credit unions. Our platform connects you with multiple trusted lenders offering loans up to $5,000 with repayment terms ranging from 3 to 24 months, and APRs between 6.99% and 35.99%. Please note, we are a loan matching service—not a lender—and submitting an application does not guarantee approval. Loan offers vary by lender and depend on your credit profile.
The key distinction is that installment loans provide a fixed sum upfront, repaid in regular monthly payments over the agreed term. Revolving credit, like credit cards or lines of credit, lets you borrow repeatedly up to a limit and repay on a flexible schedule.
Summary
Now that you have a better understanding of installment loans, their impact on your credit score, and whether taking one to build credit makes sense, you can take the next step. If you’re interested in applying for an installment loan to help improve your credit, simply fill out our online form. Our trusted lending partners provide easy options for borrowers with both good and bad credit. Submit your request today to explore available offers!
