James Belle has been writing about loans and credit cards for over 2 years. During that time, he has written tips on loans with bad credit and credit cards for bad credit borrowers amongst many others.
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Often when people are in need of borrowing, it’s a choice between a credit card and a loan as these are the most common forms of borrowing in modern society.
So which one is the better option? You may ask.
Generally it depends on 2 factors; 1- your credit rating and 2- how much you need to borrow, but in both cases, there are reasons to say a credit card would be better than a loan:
1. Ease of getting credit
If you have good credit, you wouldn’t have much difficulty getting either a loan or a credit card. Therefore, this area applies to people with bad credit:
If you have bad credit history, you might find difficulty with either option but credit cards would easier to get than a loan, this is because lenders would find it considerably easier to scale risk on a credit card than they would have on a loan; a credit card can start off with a low credit limit and then increase as you prove your credit worthiness. By contrast, a loan once given, that’s it, there can not be adjustments along the way.
2. Flexibility
A loan is a one off; you take the money in one swoop and start paying interest on it immediately. A credit card on the other hand; the money is simply made available to you, you can spend it in bits and you’d only pay interest on what you’ve spent.
Furthermore, the money you’ve paid back in the past is made available; this is convenient if you need a supplemental source of money for emergencies.
3. Credit score improvement
Typically credit cards update your FICO score on a monthly or quarterly basis, this means that continuous use of a credit card, be it good or a bad credit card, will improve your credit score.
The opposite is also true; if you keep missing payments or making payments late, credit cards will report badly on you and that will reduce your credit score.
By contrast, a loan once you take it out, your credit score will go down by a few points. And although your credit rating improves as you pay off the loan, once you pay it off in full, it can no longer help you.
In short, a loan it a single item in your credit history where as a credit card is an ongoing process; which is more beneficial in terms of proving that you’re financially responsible.
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