Installment loans allow borrowers to receive a lump sum of cash upfront and pay it back in fixed monthly payments over an agreed-upon timeframe. These types of personal loans are available from banks, credit unions, online lenders, and other financial institutions. When used responsibly, installment loans can be an effective way to establish, rebuild, or improve your credit score.

Some lenders now offer additional incentives like rewards programs and extended 5+ year repayment terms to further attract borrowers looking to actively build their credit. This comprehensive guide explores how installment loans can aid your credit-building goals, the benefits of long payback schedules, and reward programs that offer extra motivation to make on-time payments.

How Do Installment Loans Help Build Credit Scores?

There are a few key factors that make installment loans useful for boosting your credit score:

Payment History

As you make on-time monthly payments on an installment loan, this positive payment activity gets reported to the three major credit bureaus – Experian, Equifax, and TransUnion. Timely payments demonstrate to other lenders that you are capable of responsibly managing debt obligations.

The payment history segment makes up a significant portion of your overall credit score. By consistently making payments by the due date, you build a track record of reliability that raises your creditworthiness. Payment history on installment loans can help counteract negatives marks from late payments on other accounts.

Credit Mix

Credit scoring models like your credit mix – the different types of loans and accounts you manage such as credit cards, auto loans, mortgages, and installment loans. Having an active installment loan adds diversity to your credit profile beyond just revolving credit card accounts. This mix of account types has a modest positive influence on your score.

Lower Credit Utilization

Paying down an installment loan over time lowers your overall credit utilization rate – the percentage of your total available credit that is currently being used. Lower utilization is better for your score. As you pay down an installment loan balance month-by-month, it helps decrease your overall credit utilization.

Quick Impact For Credit Newbies

For those new to credit or starting with a “thin” credit file, opening an installment loan can jumpstart the process of establishing positive history, mix of accounts, and lowered utilization. Compared to waiting months or years to accumulate impactful history from just a credit card, the quick boost from an installment loan can be significant.

Who Benefits Most From Installment Loans For Credit Building?

Installment loans are particularly useful credit-building tools for those with:

  • Fair credit – Installment loans are accessible for those with average credit scores around 640 who may not qualify for extremely low rates but can still get approved. Making consistent payments can help fair credit borrowers graduate to good credit tiers.
  • Limited credit history – As mentioned above, installment loans allow those new to credit or with thin files to quickly begin establishing a track record and seeing score improvements in months rather than years. A primary driver of scores is your history, so installment loans generate valuable data points.
  • Past payment problems – Missed payments or collections can severely depress credit scores. Responsibly paying installment loan obligations can help demonstrate you’ve moved past those issues and rebuilt sustainable payment habits. On-time payments counteract old negatives.
  • High credit card balances – Paying down an installment loan instead of maxing out cards lowers your overall credit utilization and can boost scores. Installment loans help avoid maxed-out cards from skewing utilization.
  • Large upcoming expenses – For those needing to finance a major planned purchase like a home, auto, or education in the next few years, improving credit scores now through an installment loan helps qualify for better loan terms later.

What Are The Benefits Of Long 5+ Year Installment Loan Terms?

Many lenders now offer extended installment loan repayment terms of 5 years or longer. The benefits of a long term include:

  • Lower payments – With a 5-year, 7-year, or even 10-year term, the monthly payments are significantly reduced compared to a 2 or 3-year installment loan. This greatly improves affordability, especially for larger loan amounts.
  • Less payment stress – Lower monthly payments free up more room in your budget and reduce the risk of missing payments due to unexpected expenses, income changes, or other financial surprises.
  • Build credit with discipline – Lower payments make it easier to stay on track and build credit through consistent on-time repayments over many years. Lower risk of setbacks.
  • Access larger loans – Extended terms allow qualified borrowers to take out larger installment loans while keeping payments manageable. This provides access to more capital when needed.
  • Pay over major purchases – The lengthy terms better align with financing major expenses like autos, educational courses, home repairs that provide value over many years.
  • Flexibility – While structured as a long-term loan, nothing stops a borrower from making larger payments to pay off the balance early if possible. The long term provides flexibility.

The tradeoffs are that interest charges accumulate over the extended repayment schedule, increasing your total costs. However, for many, this cost may be worth the credit-building benefits and cash flow flexibility.

Do Installment Loan Rewards Programs Help With Credit Building?

Some installment lenders entice borrowers by offering rewards points, cash back, or purchase rewards for on-time monthly payments. These perks provide extra motivation to stay diligent about timely payments and continue building your credit history.

Typical rewards offered for on-time installment loan payments include:

  • Points or cash back – Accrue points or a certain percentage cash back for every on-time payment, usually every month of the loan’s term. These accumulate and can be redeemed for statement credits, gift cards, or other prizes.
  • Free months – Make 12 consecutive on-time payments, get the next 1 or 2 months payment free. Helps accelerate repayment.
  • Loan discounts – Earn a discount off your next loan’s interest rate for on-time repayment of your current installment loan.
  • Prize giveaways – Lender giveaways and sweepstakes entries for on-time payers. Chance to win extra prizes like electronics, free credit monitoring services, additional cash payouts.
  • Early payoff rewards – Lump sum cash rewards for fully paying off installment loans early. Rewards capitalizing on borrower’s financial discipline.

Much like credit card reward programs, these incentives give borrowers another reason to be diligent about payments. This indirectly supports credit-building by promoting timely payment habits. Rewards make the process more engaging and fun.

Key Takeaways: How Installment Loans Help Build Credit

Here are some key tips to summarize how installment loans can aid your credit-building goals:

  • Make payments on time – Consistent timely payments are essential for credit building. Sign up for autopay or calendar reminders.
  • Stick to long terms – Give yourself the flexibility of lower payments over 5+ year terms to support on-time payments.
  • Keep balances low – Pay down balances instead of maxing out available credit. Lower utilization helps scores.
  • Open installment loans early – Those with thin credit histories benefit the most from the quick boost of installment loans.
  • Research lender rewards – Bonuses and cash back can provide extra motivation to stay on track with payments.
  • Be patient – Credit building takes time. Stick with the process and let your diligent payment history accumulate.

Frequently Asked Questions

What credit score is needed for an installment loan?

Installment lenders often approve borrowers starting in the fair credit range around 640 FICO. Each lender has specific underwriting standards. Those with very poor scores may get declined or offered predatory terms. Excellent scores in the 700+ range qualify for top rates.

Where can I get an installment loan?

You can apply for installment loans from banks, credit unions, online consumer lenders, peer-to-peer lending platforms, and other financial institutions. Pre-qualifying online can show your estimated rates and chances of approval.

How much can I borrow with an installment loan?

Loan amounts range widely from a few thousand dollars from some lenders to over $100,000 from others. Loan size depends on factors like income, credit score, debt-to-income ratio, and the lender’s standards.

Should I take a long or short term installment loan?

Long 5+ year terms make payments more affordable but cost more overall in interest. Shorter 2-3 year terms have higher payments but less interest. Choose the term length based on factors like your budget, total loan costs, and credit goals.

How do installment loan rewards programs work?

Rewards programs give points, cashback, discounts, sweepstakes entries, or other perks for on-time monthly payments. The rewards incentivize timely payments while allowing borrowers to pay back loans as usual.


When used responsibly, installment loans can be powerful tools for establishing, rebuilding, or raising your credit score over time. The consistent payment history, mix of accounts, lowered utilization, and quick boost for credit newbies are key benefits. Extended long term loans and motivational rewards programs make installment lending an attractive credit# Continued…


When used responsibly, installment loans can be powerful tools for establishing, rebuilding, or raising your credit score over time. The consistent payment history, mix of accounts, lowered utilization, and quick boost for credit newbies are key benefits. Extended long term loans and motivational rewards programs make installment lending an attractive credit-building option.

With an educational, patient approach, the compounding effects of diligent installment loan payments enable borrowers to unlock better credit scores, lower rates, and maximize savings over the long run. Avoid treating the loans as “free money” and stick to your repayment schedule. While frustrating speed bumps can happen on the path to better credit, staying disciplined with on-time installment loan payments will help you reach your financial goals.

Summary of Key Tips:

  • Make on-time payments each month to build your credit history. Sign up for autopay for convenience.
  • Consider a long 5-7 year repayment term to lower monthly payments and the risk of missed payments. But expect to pay more interest over the life of the loan.
  • Keep credit card and installment loan balances well below their limits to reduce your credit utilization rate.
  • Open an installment loan early to start accumulating positive history if new to credit or rebuilding credit.
  • Take advantage of lender rewards programs for extra motivation to make consistent on-time payments.
  • Be patient and stick with responsible credit habits. Improving credit scores takes diligent time and effort.
  • Use installment loans as a tool, not free money. Avoid the temptation to overspend or take out more debt than absolutely needed.
  • Research lenders thoroughly and compare all terms, rates and fees before committing to any loan.

By leveraging installment loans strategically and making education a priority, you can pave the way for improved financial well-being and a credit score that opens doors to valued opportunities.