The credit reports compiled at the national credit bureaus (Experian, Equifax, and TransUnion) document your history of borrowing money and repaying debts. Each loan reflected on your credit report broadens and extends your credit history.
As long as you make payments on a timely basis, in the full amount required under the loan terms, an installment loan will reflect positively on your ability to manage debt responsibly, and it will tend to improve your credit score.
An additional benefit of an installment loan can be enhancing your credit mix the number and variety of loans (or accounts) that appear on your credit report.
Credit scoring models the statistical algorithms that distill the contents of your credit reports into three-digit scores generally favor credit histories with a variety of loan types.
More specifically, a blend of installment debt and revolving debt can benefit your credit scores. Revolving accounts are those such as credit cards and certain home-equity loans, which allow you to borrow against specific credit limits, and make payments of varying size each month.
If revolving accounts dominate your credit portfolio, adding an installment loan will improve your credit mix, which will tend to improve your credit scores.
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