How To Improve Your Credit Score Through Personal Loans & Credit Cards?

Yes, having both a personal loan and a credit card can help your credit score, provided you use them wisely. Timely payments, maintaining a low credit‑card utilisation rate and showing a mix of credit‑types improve your credit profile. However, mis‑managing these facilities can harm your score instead.

One of the most crucial eligibility parameters that lenders consider before approving loan applications is the CIBIL score. This three-digit number represents your credit worthiness and shows whether you are a dependable borrower or not. 

A CIBIL score of 750 or more helps you get a personal loan easily and at affordable rates. If your CIBIL score is not healthy, you can improve it with a personal loan or a credit card.

You may see some changes in your CIBIL score when you use a personal loan or a credit card. The points below explain how these products can affect your score.

Pay Off Existing Loans

You may face high interest and extra charges when you miss instalments. These charges are called penalties. A personal loan with a lower interest rate can help you clear these pending amounts. This creates a steady repayment record, which supports a better CIBIL Score over time.

Debt Consolidation

You can combine many loans into one personal loan. This means you pay one fixed EMI, which is an Equated Monthly Instalment. This keeps your payments simple and may reduce your total interest cost. It can also lower your credit utilisation ratio, which supports your CIBIL Score.

If you are wondering how a personal loan affects your CIBIL Score, note that it can temporarily lower the score. Regular EMI repayments help improve it over time. Defaulting on repayments significantly harms your score.

How a personal loan affects your CIBIL Score depends on how you use your credit. You can see the key impacts below.

• Improves Your Payment History

A personal loan can help you clear pending dues in a structured way. This reduces the chance of missed payments. A steady payment record supports a stronger CIBIL Score because payment history is an important factor.

• Increases Credit Mix

Your credit mix includes credit cards, secured loans, and unsecured loans. A personal loan is an unsecured loan. Adding it to your credit profile can improve your overall mix. A balanced credit mix supports a better CIBIL Score.

• Avoid Multiple Personal Loan Applications

Many loan applications create several hard enquiries. A hard enquiry means a lender checks your credit report. Frequent checks can lower your CIBIL Score. It may also show higher credit risk.

• Lowers Your Credit Utilisation

Credit utilisation is the share of your credit card limit that you use. A lower utilisation level supports a better CIBIL Score. A personal loan can reduce your credit card balance and lower your utilisation.

• Timely Payments

Timely payments show responsible credit behaviour. Regular repayments support a higher CIBIL Score. They also help build a stable repayment pattern.

You can use credit cards for building credit when you follow responsible usage. You can see the key points below.

1. Increase The Use Of Your Credit Card

Credit cards offer easy access to credit for everyday needs like shopping and bills. More people across India use them regularly for payments. This trend shows that credit cards for building credit have become a common practice. 

2. Pay Your Credit Card Bills On Time

Timely bill payments help you avoid high-interest charges. A clean payment record supports a better CIBIL Score over time. It also shows steady credit behaviour. 

3. Don’t Settle Your Balance In One Go

You may think about a settlement when you cannot clear your dues. A settlement means you pay less than the total amount you owe. This creates a “Settled” mark in your credit report. This mark stays for many years and affects your CIBIL Score negatively. It also suggests higher credit risk.

These points explain how to use a credit card to raise your credit score in a simple way.

Personal loan habits can affect your CIBIL Score in many ways. You can see the key points below.

Hard Enquiries

A hard enquiry takes place when a lender checks your CIBIL Score. Many hard inquiries in a short time can reduce your score. This happens because it signals frequent credit use.

Taking Many Debts At The Same Time

When you apply for several loans at once, lenders may view this as high credit risk. This can impact your CIBIL Score. Many active debts also increase your repayment load and affect your credit profile.

Paying off your personal loan on time improves your repayment history. This is the most important factor in your CIBIL score. Lenders see you as a reliable person when you make all EMIs on schedule. Your score rises gradually with consistent payments, and missing even one payment can harm your score for months. Always pay the due by the payment date.