Maximize Your Score: Boosting Credit with Strategic Personal Loans and Debt Management

A good credit score opens the door to financial opportunity, dictating both the amount you can borrow and the interest rate you pay. When your score is low, even for reasons beyond your control, finding a path back can feel overwhelming. I know this situation well. I’ve personally used the strategic application of installment loans or personal loans to methodically build my credit history and maximize my score. As of a few weeks ago, my credit score was 788.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Updated on November 26, 2025.

Key Points:

• Unreported Debt: Most monthly household bills (utilities, services, taxes) won’t help your score, even if paid timely, because they are not reported to credit bureaus.
• The Power Swap: Convert unreported debt into reported debt (via credit cards or personal loans) to build a positive payment history and credit utilization ratio.
• Strategic Payments: Use credit cards to pay recurring monthly bills when possible, then pay the card off immediately.
• Rent Credit: More states are beginning to mandate or allow rent payments to reflect on credit reports, a significant positive change that is long overdue.

The Difference Between a Personal Loan vs. a Credit Card?

Understanding the difference between these two types of debt is the first step toward improving your credit scoren.

• Credit Card (Revolving Credit): You are given a maximum limit, and the balance increases and decreases as you use and pay it off. This balance is fluid, or “revolving.”
• Personal Loan (Installment Loan): You receive a fixed lump sum, and you pay it back with a fixed payment amount over a pre-determined period. The debt is installed across time.

I previously detailed getting a personal loan to pay for my garage. While I could have put the large expense on a credit card, installment loans, especially for high amounts, are harder to qualify for, which makes successfully managing them a positive signal to credit bureaus. The funds were transferred directly to my account, I paid the contractor, and in the eyes of the credit bureaus, I gained a strong, new installment payment history.

A Good Credit Score Depends on Your Credit Utilization Ratio

For decades, I’ve used this system successfully, which has resulted in credit card companies continually increasing my maximum balances. Just last week, I received notice of another $3,500 increase.

This is critical because the single most important factor (after payment history) is your Credit Utilization Ratio, which is the ratio of the amount you owe versus your total available credit.

Credit Utilization Ratio = Total Balance Owed/Total Available Credit

The larger the gap between what you owe and your maximum balance, the better your credit score. It is generally best to keep this ratio at 30% or less, while aiming for under 10%.

By making timely payments and having high credit limits, my credit score has substantially increased this year, a fact regularly noted in my Credit Karma alerts.

Converting Unreported Debt into Credit-Building History

Note that paying with a credit card often incurs an additional fee. For example, when I pay my taxes to the Internal Revenue Service (IRS) with my credit card, I pay approximately three dollars more.

To me, that small cost (about $40 a year) is absolutely worth it, especially because most of my income is from self-employment. Self-employment income is generally viewed as less stable by lenders compared to W2 employment, meaning I need every credit boost I can get.

Taxes and Utilities: The Unreported Debt Trap

If I were to pay the IRS directly from my checking account, that would have zero effect on my credit score, even though it’s still debt I’m managing. However, by using my credit card to pay the tax, and then paying off the credit card balance in full by the end of the month, my credit score benefits in two ways:

1. A perfect payment history is recorded on the credit card.
2. My credit utilization ratio stays low (or is paid down quickly).

The same tactic applies to most household bills:

• Your utility bill is not listed on your credit report. A utility company will only look at your credit report to determine your deposit. While you don’t get “credit” for paying it timely, you will get negative marks if you don’t pay and the account goes to collections.
• Similarly, debts for professional services like a lawyer or dentist are generally not reported.

The Fix: I pay my utility bill and cell phone bill with my credit card and pay the card off at the end of the month. I once rented office space from a corporation that allowed me to pay the $2,500 monthly rent with a card. That monthly chunk, paid off instantly, resulted in endless reward points and plenty of free hotel stays, which I certainly enjoyed on motorcycle rides through the Florida Keys and down Duval Street, but we will leave that for another day.

The Personal Loan Strategy for Tax Debt

I’ve used personal loans in the past and plan to take out a new loan later this year to pay off my outstanding taxes. The logic is simple: I might as well get “credit,” no pun intended, for paying my taxes.

This strategy only works if the numbers make sense. The interest rate on the personal loan should be close to or comparable to the interest I am currently paying on my outstanding taxes. The goal is to avoid sinking deeper into debt by paying substantially more in interest just to improve a score.

A Long Overdue Change: Rent Reporting

The good news is that states are finally catching up to reality: Some states are beginning to allow or require your monthly rent payments to be included in your credit score calculation.

This only makes sense. If you are evicted for non-payment, that negative mark will land on your report, making it difficult to rent elsewhere. But if you made payments timely for ten years, you got… nothing. That is neither fair nor logical. Unfortunately, the credit scoring system isn’t perfect, but we must learn the rules and tricks of the trade to our advantage.

The Professor’s Take

Remember, if the opportunity arises to use reported debt like a credit card or a personal loan) to pay off unreported debt like government taxes or utilities), and the numbers (interest rates) make sense, consider it.

There is no point in losing or giving away positive credit points, especially since you never know when an emergency may arise, requiring you to access quick, affordable loans. By being strategic, you ensure your credit file is always in the strongest position possible.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.

Updated initially on January 3, 2025.