Took Out a Loan Just for Fun – What Happened to My Credit Score Will Blow Your Mind!

I never imagined I’d take out a personal loan just to boost my credit score. At the time, I didn’t need the money, but the strategic move turned out to be one of the best financial decisions I’ve made. By borrowing $2,000 with a two-year term, I nudged my credit score from “good” to “very good” and unlocked new financial possibilities.

When I graduated college, my primary financial goal was to stay out of debt. I didn’t take out student loans, choosing a school that offered scholarships instead. Loans seemed like a burden to avoid. But as I began to consider moving out, getting a credit card, and planning for a home purchase, I realized that a strong credit score would be essential. I decided to take an unconventional route to build credit: I took out a personal loan, purely to improve my financial standing.

Using a Loan to Build Credit

I was cautious about taking on debt, but with some research, I found a way to make the loan work in my favor. After discussing it with my father and a banker, I decided on a $2,000 loan over two years. This term gave me the chance to demonstrate consistent, reliable payments, which would positively impact my score.

Some friends of mine were using starter credit cards to build credit. They would make small purchases and pay them off monthly to show financial responsibility. For me, a loan was a more straightforward choice that minimized the risk of running up credit card debt. Once I received the funds, I opened a separate bank account to keep the money untouched. Setting up automatic monthly payments from this account helped me ensure I never missed a due date. All I ever paid was the interest, which came to about $150 over two years — a small price for long-term benefits.

My dad, with his excellent credit, cosigned the loan, helping me secure a favorable interest rate just under 7%. His credit support allowed me to keep costs low while making a positive impression on my credit report.

How the Loan Boosted My Credit Score

Before I took out the loan, my credit was classified as “good” under FICO’s range of 670 to 739. My dad had unknowingly helped me establish this solid foundation when he made me an authorized user on his credit card. I didn’t realize the impact of that favor until years later, during a bank visit to apply for my loan.

After two years of on-time payments, my credit score climbed into the “very good” range, opening doors to better opportunities. With this credit score, I had access to some of the best credit cards on the market. I applied for a top-rated Chase card with travel rewards and a generous sign-up bonus, which allowed me to save on travel and earn rewards.

Beyond the immediate perks, having a very good credit score has provided peace of mind. Over the years, whenever I needed to carry a balance on my credit card, my lower interest rate reduced the costs. When it came time to rent apartments as we moved frequently for my husband’s job and graduate school, my strong credit score made securing leases much easier.

A Strategic Loan for Long-Term Savings

In 2022, my husband and I were ready to buy our first home. Thanks to our high credit scores, we qualified for a low mortgage rate and minimized our private mortgage insurance. The $150 I paid in loan interest may save me tens of thousands over the life of our mortgage — a small cost for substantial long-term savings.

Initially, I was worried that taking out a loan would be a financial misstep. But by approaching it strategically, this loan has helped me secure a better financial future, from credit cards to our mortgage. Sometimes, the smartest financial moves are the least obvious.