Does Taking Out a Loan Improve Your Credit?
Summary
If you’ve ever heard that “just getting a loan” can help your credit score, you’re not alone. In this episode of Credit Diaries, part of our Extra Credit series for Financial Literacy Month 2025, Ellen Falbo—Chief Credit Officer at Possible—breaks down the truth behind one of the most common credit myths. Yes, having a healthy mix of credit can help your score. But borrowing just for the sake of borrowing? That’s a habit worth rethinking. Ellen walks through how credit diversity works, why lenders look at more than just your score, and what to consider before taking out a loan you don’t actually need. Because every loan costs something—and your money could be better used for savings, investing, or even just an ice cream.
Want to improve your credit the smart way? Watch the full video for practical tips on what really matters when it comes to building credit—and how to make debt work for you, not against you.
Transcript
ELLEN:
It probably will help improve your credit score. I'm not going to lie. I've heard people say that they've taken out a loan not because they need the money, but because they believe that will help improve their credit score. I'm not going to lie, it probably will help improve your credit score. But taking out a loan you don't need is not generally a good financial habit. You're going to end up paying some amount of money for that loan, and that's money out of your pocket that you could use for savings, for investing, or just to treat yourself to an ice cream.
Having diverse types of credit does improve your credit score. If you've had an auto loan and a mortgage and an installment loan and a credit card, that's better than having just had four credit cards. I would generally discourage taking out a loan solely for the purpose of improving your credit. And if you do decide you want to take out a loan to improve your credit, really think about the cost of that loan for your overall financial well-being. You should be very mindful about how you use credit and specifically debt.
