Personal loans can be a great option for your financial emergencies as they do not require any guarantees and are easily formalised. Although infamous for being a costly bond, personal credit can help improve your credit scores when handled intelligently.
Why Credit scores are Important?
Credit scores are a routine factor, whether we are aware of them or not. The better your credit rating, the more credit you have and with lower interest.
Even to avail a personal loan, Credit score matters. The score ranges from 0 to 900.
We all know that credit score consists of many factors and personal loan can help boost all of these if used judicially. These factors are as follows:
- Credit history
- Length of credit period
- Total debt owned
- Type of loans taken
- New debt
Factors that improve credit score via personal loan
So how can Personal loan improve or better your credit score? Well here are some pointers that you should note:
- Pay your old debts: The easiest way to clear your old debts is to take a personal loan. You get through your old debts in this way and restart the payment of debt in new terms. This also helps to improve the history of your payment and ultimately improves your credit.
- Payment on time: Whenever the loan is requested, you reimburse it in instalments decided by the lending institution according to your repayment ability. You can therefore easily pay the instalments on time, which adds to your credit history and improves your credit score.
- Do not apply for multiple loans: you should not appear before the lender as a hungry creditor. Each time you apply for a loan, a hard inquiry is also initiated and it has an impact on your loans. A borrower considers too many difficult inquiries as negative.
- Carefully determine the amount: Determine the amount you actually need for personal loan. The amount of the loan now becomes very important, as you take the loan to repair your credit score. Evaluate the need to take the loan.
- Pay regularly: It makes no sense to take your personal credit loan for improvement if you default or delay EMI payments.
- Do not pre-pay your loan: You should not pay before your loan matures if you have taken a loan in order to create credit builiding. Lenders prefer a longer credit history. Thus, you’re better off if you keep on making regular payments up to a longer term
What Credit Score Is Needed for a Personal Loan?
The higher your credit score, the more likely a lender will approve your application and offer a lower interest rate. Although each of them has its own criteria, lenders generally see scoring above 670 as an indication that a lender is worthy of credit.
In conclusion, A personal loan will cause your credit score slightly to impact in the short term, but on time payments can boost your credit back-up. The most important thing is to pay back the loan on time. Or else it your credit score will take a dip.