Will Obtaining a Personal Loan Raise Your Credit Rating?
Do you wish to apply for instant personal loans to meet urgent requirements? If yes, you will be amazed to learn that a personal loan can help you raise your credit rating. CIBIL and other credit bureaus maintain individual credit scores in India, which hovers between 300-900. A score above 750 is usually taken as credit-worthy by most banks and financial institutions. Several factors are taken into account by these bureaus for credit score calculation. Some include the length of credit history, utilization of credit, credit history, new credit, and credit mix. A personal loan will positively impact your credit rating than a credit card. It will reduce the credit utilization ratio, a crucial factor for credit bureaus. It also positively affects the credit mix and credit history length.
Sounds interesting? Here’s learning more about how personal loans can help you improve your credit score.
Timely Repayments Can Improve Credit Score
If there is any financial need that you have to cover swiftly, it is better to apply for instant personal loans instead of depleting your savings. However, to raise your credit score and rating, making timely payments is essential. Pay your EMIs within the deadline without any defaults or misses.
Diversify Credit Mix for Better Rating
Another way in which personal loans positively impact credit scores is through a diversified credit mix. It means a mixture of installment credit like personal loans, and revolving credit, such as credit cards. If your credit report mainly has credit cards, adding installment credit will diversify the credit mix. It will naturally boost your credit score as a result. It is one of the biggest positives of taking a personal loan to improve your credit rating.
Avoid Over-Borrowing and Manage Debts Responsibly
While you can rely on personal loans to raise your credit rating, responsible borrowing is always a good strategy. Do not borrow more than you can afford. If possible, take a personal loan to consolidate other debts, including credit card dues (which often have higher interest charges). It will lower your utilization rate for credit cards and raise your credit score accordingly. Successfully managing and repaying a personal loan will demonstrate your creditworthiness to lenders and improve your credit rating considerably. It will also help you get loans more conveniently in the future.
Conclusion
Stressing on proper personal loan management is essential in this context. You should responsibly repay your loan and avoid over-borrowing. Before applying for a personal loan, check your eligibility and repayment ability carefully. Prioritize loan repayment in your monthly budget to avoid misses or defaults. With suitable financial planning and timely loan repayment, you can improve your credit rating in the near future. A good credit rating and high credit score will be highly beneficial if you plan to take loans in the future. It matters immensely, especially when you apply for big-ticket loans like home loans or car loans down the line.
FAQs
1. What happens if I miss a personal loan EMI?
If you miss paying a personal loan EMI, the lender will contact you after repeated reminders and notifications. If you can convince the lender about your genuine inability to pay the EMI, an extension may be granted. However, failure to pay the EMI within this duration will lead to penalties and other charges.
2. Can self-employed borrowers get personal loans?
Yes, self-employed borrowers can apply for personal loans across banks and other financial institutions. They will have to fulfill different eligibility conditions in comparison to salaried borrowers in terms of their income proof.
