How to Raise Your Credit Score by Borrowing Money Through Prosper.com

November 6th, 2007 • Related • Filed Under • by admin

Your credit score is determined if you can afford a home loan, rent an apartment, get a cell phone, and some times it even determines whether or not you’ll get a job. Fair Isaac Credit Scores (FICO Scores) are being used increasingly to determine whether or not we are financially responsible individuals, so it’s very important to make sure that your credit score is sitting at a reasonable number.
Many people will try to sell you fancy books and techniques on how you can raise your credit score and some of those techniques will work if you already have a lot of debt, but what if you’ve just never really had credit? Maybe you got a credit card in college and just never got around to using it very much an don’t have really much of any debt to speak of. In this case, the best way to raise your credit score is to borrow some money at a reasonable interest rate and then pay it off early or on time.

The idea is that you’ll borrow a small amount of money, say $500 from a bank or peer-to-peer lending site, pay it off as the loan matures, and then your credit score will be positively effected because there will be an additional type of credit on your credit report, there will be additional on-time payments, and an increased length in credit history.

Since you’re borrowing money you don’t really need to borrow, it’s best to keep the process relatively small, say $500 or $1,000.00. You can borrow money from either your local bank or one of the new person-to-person lending sites such as Prosper.com or Lending Club. Prosper is a great choice for people who want to rebuild their credit, as the company reports on-time payments and balance payoffs to the three major credit bureaus, where as some banks and credit cards only report your information to the credit bureaus if you are late on a payment.

You’ll probably have to pay an interest rate of anywhere from 6% to 8%, which isn’t the best rate in the world, but for the amount of money we’re talking about, it’s not that big of a deal, especially if you put the money from the loan in an interest bearing account while you’re paying off the loan. If you borrowed $500 at 7% and put it in a money market account at 5%, and then had the payments automatically drafted out of your money market account, you’d end up paying a mere $10.00 in interest on the loan, which is nothing compared to the amount of money you’ll save when it comes time to purchase a car or a home.

The actual tangible benefits of taking out a small person loan and then paying it off will be a bit hard to determine, but having a better credit score will definitely be worth the $10.00 you pay when it comes time to purchase an automobile or a home.