Personal loan is a prudent choice for financial exigencies as they do not need any security or collateral and have very simple formalities to be met by you. But do you know that you can ameliorate your credit score using a personal loan? Yes, you read it right. You must have come across that it is necessary to hold a strong score to get a loan in the initial stage. However, you must ensure to note that your credit score is not the sole parameter factored in by lenders while deciding your credibility. Few lenders might provide personal loans to you despite a low credit score and others may not. So, you must ensure to have a strong credit score to be eligible for personal loan as the need for such loans can knock at your door any time. CIBIL check online is the only best route out here. You can conduct your CIBIL check online either through the CIBIL site or online financial marketplace for free. Note that, no matter whether it is Axis bank, Bank of India, or SBI CIBIL score check is a must to understand your eligibility chances for loan through these lenders.
Financial planning and management play a crucial role in your life. Computing taxes, managing debts, paying bills are not just crucial for your financial well-being and stability but even impacts other aspects of your life. Despite such impeccable planning of your finances, at times you may find yourself in a scenario where you may be short of funds and a personal loan may be the only credit option available to you to manage your financial life in such tough times. On top of it, if you can maintain a strong financial record while managing your personal loan, then this may allow you in boosting your score, thus assisting you to avail a loan with favourable terms and conditions in the future.
What are the benefits of opting for a personal loan to ameliorate your credit score?
Mentioned here are some of the crucial benefits of using a personal loan to ameliorate your score. Read on to know –
Pay all your old debts in full
Availing a personal loan is one of the simplest ways of repaying your old debt. Additionally, it even assists in ameliorating your past payment record, which in turn, ameliorates your score.
Also Check: SBI CIBIL Score Check
Timely repayments
When you place an application for a loan, you pay the same in instalment form as decided by the lender depending on your potential to repay the same. As you do not require remembering several EMI due dates, you can easily pay your instalment for your single loan on time, which may allow you to contribute to your credit profile and improve your score.
What you must ensure to note while availing a personal loan to ameliorate your score?
∙ Avoid making several personal loan applications
In case you are looking to consolidate your multiple loans through a single online or regular personal loan, opt for the lending bank that meets your finances. Making multiple applications may backfire as every loan rejection may reduce your score and overall, negatively impact your chances for securing a loan.
∙ Select a loan amount that you can comfortably repay
Select loan proceeds that you can repay easily via a fixed installment. For a clear idea, ensure to use an EMI calculator. Using this online EMI calculator, you can get about your EMI that you monthly need to bear.
∙ Compute your DTI (debt to income) ratio
Once you have computed the loan EMI, make sure that the EMI proceeds do not surpass 40 – 50 per cent of your net income (monthly). This ratio is addressed as DTI or debt to income ratio.
∙ Select the lender wisely
Conduct a comparative analysis of lenders offering different personal loans. Select a lender with a great reputation that offers loans at an attractive rate of interest, with transparent fee structure. Also, ensure to opt for the lender that puts customers i.e., you first.
∙ Loan or loan repayment tenure
Loan duration with the lender is even considered. If you make regular payments, then having a longer period may mean having a good chance of creating a strong credit score.
∙ Overall loan amount
The total loan amount and outstanding loan due directly impact your score. If you hold a high due to repayments, then your score may take a hit.
∙ Current loan
Current loan repayment history is also factored in to determine if you qualify for a personal loan.
∙ Make constant payments
There is zero point in availing a personal loan for credit amelioration if you delay or miss out on your EMI repayment. Personal loan and credit cards, both are unsecured and impact your score the most. So, make it a habit to pay your loan EMIs in full and on time.
∙ Avoid prepaying your loan
If you have availed a loan for any debt consolidation, you must not make payment before the loan maturity. Having a longer credit history may be considered as better by many lenders. So, if you continue making timely loan repayments for a higher time period, your score may improve.
∙ Avoid rushing into other credit options
As you begin making monthly installment payments, your credit score may begin ameliorating making you eligible for various kinds of credit options. Such offers might sound very tempting but they may impact your score negatively if you miss out on any repayment.
Using personal loan to your benefit
∙ It is extremely tempting to spend the recently acquired credit via personal loan. However, doing this may negate the very purpose of ameliorating your score, if you are not able to repay the loan EMI on time and in full.
∙ In case you continue making payments for 6 months to a year with your other credit borrowing, then there are high chances that you may get your credit financed at a way lower rate of interest starting from just 10 per cent per annum.
