Which is Better for Raising Your Credit Score – Personal Loan or Credit Card?

Personal loans may not always be easy to come by, especially if you have problems with your credit score.  Having a low credit score can make it quite difficult to secure that loan you want to get in order to raise your credit score.  While you can qualify for a secured loan, it will be tough to find a lender who won’t hold that awful credit score against you.  That’s why a credit card is the better option if you have bad credit:  It takes less time to qualify for it, and you can get started on raising your credit score right away.

Calculate the Interest Rates Involved With Every Credit Card

When you’re looking for that first credit card to help you raise your score, be sure to calculate any interest rates associated with every one.  If you are committed to paying back what you owe anyway, you shouldn’t be discouraged or repulsed by the rate of interest.  Since your credit is less than ideal, you probably won’t get approved for a normal credit card, which is why your best bet is to apply for a secured credit card.  This typically involves putting up a few hundred dollars as a deposit to secure a credit line, and then proving to the bank that you’re able to pay off any new balances each month.

Score Loans Credit Card

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RAISE by drp, on Flickr.  This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Be Sure to Pay Off Debts as Soon as Possible

Another reason why having a credit card is the more efficient way to raise your credit score is because you can take action right away to demonstrate your commitment to better credit scores.  You can do this by paying off your debts as early as you possibly can.  When you accumulate debt on your credit card, ensure that its total amount never exceeds 30 per cent of the card’s limit.  Exercising this style of discipline will boost you to staying on top of your debt, which will help you to boost your score quicker than you could have ever imagined.

raise your credit score

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Establish Direct Debit to Help You Out

Setting up direct debit as well as standing orders will ensure that all of your bills are paid off when they should be – at their due date.  This tactic is a check against your unreliable memory.  If you only depend on your memory, then you can easily forget to pay for something.  If this does happen, your credit score will immediately suffer.  When you automate your payments, you will always be on time with your bills and never run this risk.

For all of the reasons cited above, it is so much better to get and use a credit card to help you raise your credit score instead of a personal loan.  Many people will tell you that getting a personal loan when you already have a bad credit score is a recipe for disaster – and they would be right.  With a secured credit card, you don’t have to risk as much or wait too long to be approved, and you can start demonstrating your improved credit habits immediately.


Arnel Ariate is the webmaster of Money Soldiers.

Click Here to Leave a Comment Below 1 comments
Jim - March 2, 2014

if you happen to be a) young or b) the kind of person who buys only what you can pay for with “liquid capital” (i.e., your checking account), then forget about getting a decent rate on silly things like a mortgage or car loan!

Why is it that paying your bills on time isn’t reported on your credit (even though your credit score affects things like your car insurance rates!), but not paying them is adversely reported? Seems a bit like stacking the deck to me!


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