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How to Build Credit with a Military Personal Loan

two friends talk about personal loans and credit building while working out.


In today’s financial landscape, having a strong credit score is crucial, especially in the military. Whether you are funding home improvements, seeking security clearance for a government job, or even hoping to get the best rates on your insurance, your credit score is mission-critical or positive financial outcomes. But did you know that personal loans can be a powerful way to build and strengthen your credit? Keep reading to learn how personal loans can improve your credit score, boost your financial health, and help you achieve your long-term goals.

Understanding Credit

Credit serves as a financial safety net, providing the opportunity to borrow funds with the promise of repaying it later (often with interest). It is a great solution for making purchases when cash is not immediately available.

To obtain credit, you must apply through a lender like a military bank, and approval depends on your financial history and reliability. A good credit status indicates that you have a solid track record of responsible financial management, with credit scores playing a pivotal role and reflecting your creditworthiness.

Understanding Personal Loans for Military Members

Personal loans are unsecured loans that can be used for many purposes, such as consolidating debt, funding a PCS move, or covering unexpected expenses. Unlike secured loans, personal loans don't have a collateral requirement, making them available to a wider audience.

Wondering how the process works? An individual borrows a lump sum from a lender and repays it in fixed monthly installments over a set period, typically between 6 to 48 months. The interest rate remains consistent throughout the loan's duration, giving you a clear picture of your monthly repayments.

In the armed forces community, personal loans are sometimes called “military personal loans,” “military loans,” “personal military loans,” “active-duty military loans,” and “armed forces loans.” No matter what you call them, lenders typically offer better terms for these loans if you have a good credit score. This means that the higher your credit score, the more likely you are to get favorable loan conditions, which can save you money over time.

How Military Personal Loans Can Help Build Credit

Taking out a military personal loan is a big decision, especially for those who are new to handling their finances. But when managed carefully, these loans can help improve your credit score. Here’s how:

1. Payment History

Your payment history makes up 35% of your credit sore. When you repay your loan on time, the lender reports your responsible credit behavior to the three major credit bureaus—Experian, TransUnion, and Equifax. Ultimately, your consistent, on-time payments build a history of your reliability as a borrower, which can greatly improve your credit score.

2. Credit Utilization Ratio

The ratio of the credit you use in relation to your available credit is called a credit utilization ratio. This represents 30% of your credit score. Military personal loans can lower your credit utilization ratio by consolidating revolving debt, thereby helping your credit score.

3. Duration of Credit History

The length of your credit history contributes 15% to your credit score. A longer credit history highlights your ability to manage credit over time. Therefore, if you have a limited credit history, a military personal loan can help you start building a positive credit profile.

4. Credit Mix

A varied mix of credit accounts—including credit cards, personal loans, and mortgages—can favorably influence your credit score. Having this mix shows lenders that you can responsibly handle different types of credit, contributing to 10% of your score.

Potential Risks of Using Military Personal Loans to Build Credit

While personal loans have numerous benefits, they come with potential risks if not managed properly:

  • Impact of Hard Inquiries: When you apply for a military personal loan or any form of credit, there will be a “hard credit inquiry,” which is when a lender requests to look at your credit file to determine your creditworthiness. This may temporarily lower your score if you only have one application open. However, multiple inquiries in a short period of time can have a more severe negative impact.
  • High Interest Rates: For borrowers with poor credit, personal loans can have high-interest rates. This makes the loan more expensive overall.
  • Debt Accumulation: Mismanaging military personal loans can lead to a cycle of debt, especially if loans are used to pay off existing debts.
  • Missed Payments: Late payments or defaulting on a loan can lower your credit score, making future credit harder to obtain.
  • Non-Reporting Lenders: Not all lenders report positive repayment history to credit bureaus. Ensure your lender does so in order to benefit your credit score.

Additional Ways to Build Credit

Military personal loans aren't the only way to build credit in the military. Here are some alternatives:

Option 1: Credit Cards and Secured Credit Cards

Responsible use of credit cards—especially secured credit cards—can help build credit. Secured credit cards require a security deposit, which reduces the risk for the lender. They are a great option for those with little-to-no credit history because your reliable, on-time payments are reported to the three major credit bureaus.

Option 2: Take Care of Current Accounts

Focusing on paying off existing credit accounts can greatly benefit your credit score. Make sure that your lenders communicate your payments to Experian, TransUnion, and Equifax and prioritize clearing high-interest debt first. You can also use resources like our Credit Card Pay Off Calculator and Existing Loan Calculator to analyze your current credit accounts and plan your repayment of the remaining balances.

Option 3: Report Other Payments

Some services allow you to report your alternative payments (like rent, utility bills, and subscription services) to credit bureaus. These payments can contribute to your credit history and highlight your responsible financial behavior.

Bottom Line

So where does this leave us? If you have consistent income and strong credit that makes you eligible for low interest rates, borrowing with a military personal loan can be a smart strategy to boost your credit score and fund your financial goals. But remember two things: 1) Verify that your lender reports your positive payment history to the credit bureaus, and 2) Be absolutely certain you can pay back the loan before you apply.

For those lacking credit history or consistent earnings, you should consider other options instead. These factors can have a major impact on your interest rates and ability to repay a loan.

Find the Best Military Personal Loan for Your Needs

The financial needs of military personnel are different from those of civilians, and personal loans provide much-needed stability and security amidst frequent relocations, deployments, and other monetary pressures.

Wondering how to get a loan in the military? Consider applying for the Access Loan1 with Armed Forces Bank. The Access Loan is one of the best personal loans for veterans, active-duty personnel, military retirees, and their families because it was created with the military community in mind.

Whether you are paying for educational expenses, moving across the country, or growing your family, Armed Forces Bank is here to support you every step of the way. Apply for a military personal loan1 today to enjoy flexible terms and competitive interest rates!

Still searching for more credit-building solutions? Explore our Credit Builder Secured Credit Card2 and improve your standing with each transaction.


 

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1 Subject to credit approval. Restrictions Apply. Direct deposit relationship required. Origination fee applies, 10% or $100 whichever is less. Annual Percentage Rate (APR) is based on credit score. Only one personal loan allowed to any borrower at any time. Loan terms are based on the loan amount.

2 Subject to credit approval. Transaction and Penalty fees apply.  Credit Builder Savings account required. $5.00 quarterly fee charged to the Credit Builder Savings account if not enrolled in eStatements. Improved credit score is not guaranteed. Credit score is determined by credit reporting agencies based on multiple factors, but satisfactory performance on a credit card product can improve your credit score. Default on a credit card, including missed or late payments can damage your credit score. Once added, funds cannot be withdrawn from the Credit Builder Savings account and the Credit Builder Card without closing the savings account and the credit card.