If you want to receive a personal loan for yourself, having a good credit score is one of the things that can help you get one. If you have a credit score of 750 or higher, you will have an easier time getting a personal loan with reduced interest rates. There are several strategies to improve your credit score.
Having a good mix of credit will help you maintain a good credit score, but don’t go crazy with too many different types of credit. You must make a regular monthly payment, just as you would with a personal loan. Interest and a portion of the principal are included in the predetermined monthly payment. A personal loan in India with a lower interest rate might sometimes help you pay off high-interest credit card debt.
Taking out a personal loan can help you improve your credit score in different ways.
Many people are unaware that paying off personal loans on time might improve your credit score. Here are the different ways we can do that –
Build a good payment history
To establish a positive payment history, always make your loan payments on time. If you have an excellent payment history, your credit bureau score will improve. Always remember to pay your bills on time and in full each month. Standard Chartered assists its customers in establishing a positive payment history by allowing them to set up automated payments.
Lower your credit utilization
Credit utilization refers to how much you owe in relation to your credit card’s spending limit (s). The majority of adults have a variety of revolving credit lines, including high-interest credit cards. Adding a personal loan to the mix can help you boost your credit score by lowering your credit utilization score.
Enhancing the credit mix
Credit mix is factored into the credit scoring process. The diversification of the many sorts of loans or lines of credit you are now paying off is referred to as credit mix. Adding a personal loan to the mix can help you improve your credit score because it shows that you’ve dealt with various sorts of loans before.
Negative Impact on Your Credit Score Through Personal Loan
Here’s what you should know about the possible negative influence on your credit score —
Hard inquiries on credit report
Each time you apply for a loan through a bank or personal loan app, a hard inquiry is made on your credit record by the potential lenders. While this has a minor impact if just one inquiry is done, it can pile up over time and have a detrimental impact if several questions are made. Keep in mind that each time a potential lender conducts a hard inquiry, you will lose points. If your credit score is currently low, you don’t want it to drop more in the coming months.
Adding onto mountain of debt
If you currently have delinquent credit card obligations, a personal loan could be detrimental to your credit score. You should always try to replace a bad form of credit with a good form of credit if you already have one, such as a high-interest credit card. So, before you sign, double-check the terms of your personal loan.
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