One of the most crucial eligibility parameters that lenders consider before approving loan applications is the credit score. This three-digit numerical code represents your credit worthiness, and depicts whether you are a risky-free borrower or not.
In this regard, a credit score of 750 or more can help you obtain personal financing conveniently and at affordable rates. However, if you do not have a healthy credit score, you can boost it through a personal loan or credit card.
To know how does personal loan affect CIBIL score, read through the following sections
There are several benefits of taking a personal loan or a credit card to boost credit score. Find about them below:
If you have not paid your past dues and have frequently missed instalments, the penal interest, as well as the interest on the credit card or unpaid loan, will be high. Obtaining a personal loan at low interest can help you in such a situation, as it will aid you in paying off your debts and eventually increasing your credit score.
Apart from the above-mentioned point, you can consolidate your debts with a single personal loan. This will lower the interest you pay on your loans and ensure that your repayment is hassle-free via EMIs of the personal loan.
If you are wondering “how does personal loan affect credit score?” then you must know that, in the short-term a personal loan can pull your credit score down. However, if you make regular EMI repayments, you do not need to worry, as this will eventually increase your credit score.
Note that defaulting on your loan repayment can significantly hamper your credit score.
Your answer to ‘does personal loan affect CIBIL score’ lies in the way you utilise your credit. Obtaining a personal loan can help you in the following ways:
Through a personal loan, you can repay your existing debts with ease without worrying about loan defaulting. This improves your credit history.
When you maintain a good credit mix between credit cards and secured and unsecured financing, you boost your credit score. You can leverage a personal loan to help you attain this objective.
Note the following points to boost your credit score while repaying your personal financing:
Multiple personal loan applications depict that you are credit hungry and might not repay the loan on time. This, in turn, puts a negative impact and can harm your credit score.
Credit utilisation refers to the amount you owe with respect to the spending limit on your credit card. Most individuals have a mix of revolving credit lines with high interest rates. You can reduce your credit utilisation through a personal loan.
One of the most crucial tips to increase your credit score is to make timely payments of your due. Consider repaying your existing dues on time to boost your credit score.
Apart from knowing how personal loan affects credit score, you must know that you can boost your credit score through the wise usage of credit card as well. Know more in the below pointers:
In recent years, more and more individuals are considering obtaining a credit card, owing to its ease of usage and ready availability of credit. As per March 2022 data by the Reserve Bank of India, the average spend by credit card users in India was around Rs. 14,500 per month.
You can boost your credit score through a credit card in the following ways:
Similar to a personal loan, paying your credit card bills on time will help you steer clear of heavy interest rates. Additionally, it will increase your credit score gradually.
Upon failing to repay your loan, you may consider approaching your bank to settle your deal. However, this can have a negative impact on your credit score, as it shows that you have not actually paid off your credit. To avoid this, you need to talk with your card issuers and change the “settle” status to “closed”.
To know does personal loan affect CIBIL score, you must note down a few personal loan habits that can impact your credit score negatively:
When a lender runs an inquiry on your credit score, it is called a hard inquiry. Subsequent hard inquiries can have a negative impact on your credit score, though slightly.
Applying or obtaining too many debts at the same time depicts your credit hungry behaviour and shows that you might not repay your debts on time. This negatively hampers your credit score.
Now that you know the leverage of personal loans to increase credit score, you must know the right time to apply for personal financing.
In this regard, consider opting for this credit option under the following circumstances:
You have to pay off significant debt