Building Your Credit with an Installment Loan

An installment loan is an excellent way to build your credit while working towards ownership of a large asset, or to accelerate debt repayment though a consolidation loan. Put simply, an installment loan is a specific amount of money that you get from a lender, that is then paid back (with interest) over a predetermined amount of time, for example, a mortgage or car loan. 

Installment loans can help you build/repair your credit score by providing you the opportunity to show a positive payment history.


How can I use my installment loan to improve my credit score?

With all forms of credit, repayment is key in building your score so you can access more credit and at better interest rates. Here are some tips to help you optimize your payment habits:

  • Select a shorter repayment term. If your budget allows, try to reduce the repayment length of your loan. For example, signing up for a three-year vs. a five-year car loan. While the payments will be higher with the shorter loan term, you will pay less interest over the life of the loan.  
  • Select more frequent payments. With most installment loans, you will have the option to select a weekly, bi-weekly, or a monthly repayment schedule. The more frequently you make payments, the more of your money goes to paying down the principal balance as opposed to the interest.
  • Always pay on time. No matter the length or payment frequency of your installment loan, always ensure that you make your payments on time and in full. Payment history is a critical metric in calculating your credit score so protect yourself from missed payments by setting up an automatic withdrawal.
  • Accelerate your repayment. Whenever possible pay more money against your loan to help reduce the principal balance. The quicker you pay it off, the less interest you pay. That being said, if you have come into a windfall and are considering paying off your loan in full, check your loan agreement for a prepayment penalty fee. This fee, typically calculated as a percentage of your loan balance, could potentially outweigh the interest you would save by maintaining the agreed upon repayment schedule. Most installment loans allow for accelerated payments but may have a cap on how much extra you can pay per year.


What do I do if I can’t make a payment on my installment loan?

While maintaining a regular repayment schedule is critical to improving your credit score, life happens, and you might find yourself in a position where you can’t make a payment. Here are some tips for managing an irregular payment.

  • Take out insurance on your loan. In some instances, like a mortgage or a car loan, your lender will require you to take out insurance on the loan. This will protect their/your investment should the asset be destroyed in an accident or if you lose the physical ability to continue to pay. For smaller loan products, you may not be legally required to take out insurance, but it is a good way to protect yourself should you lose your income. Talk to your lender about your Loan Protection Plan options to make sure you can take care of your payments, no matter what.
  • Reach out to your lender. If you anticipate not being able to make a payment, even if it’s just one, reach out to your lender. They can offer you advice on your options. For example, some loan products offer a “payment vacation” that allows you to miss a payment without it affecting your credit score, though other penalties may apply. Additionally, if you anticipate repayment being a long-term issue, your lender can help you restructure your payment schedule to help you maintain regular payments.


I really need to improve my credit score. Are there other tools I can use?

With 1 in 3 of our clients graduating back to prime credit, we provide our customers with the tools and resources they need to improve their credit score. One of these tools unique to goeasy Ltd. is the Credit Optimizer.

The Credit Optimizer is a special calculator that allows you to enter your target credit score, and then makes recommendations on how you can get there. The Credit Optimizer also comes with a Money Calculator that provides you with best practices for any additional funds you might find yourself with. For example, if you put your extra funds on Card 1 (lower balance, but higher interest), your score will improve faster than if you put the money on Card 2 (higher balance, but lower interest). The credit optimizer gives you the guidance you need to reach your credit score goals the fastest.

An installment loan, when properly managed, is an excellent way to build/repair your credit and to put you on a path towards a better tomorrow. Whether you need a loan to consolidate your debts, to purchase a car, or to renovate your home, we can help you find a loan product that meets your needs and financial goals. Contact your local easyfinancial branch to learn more.

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