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You have only one life. While it is great to follow the advice of the older generation, time will fly, leaving you with only memories and learning you get from experiences. With a personal loan, you do not need to worry about meeting expenses to create unforgettable memories or move ahead in your career.
Let us ask: Do you have plans to marry within a year? Or are you dreaming of that long-awaited trip abroad? What about higher studies and career goals of working for the best IT giant?
Of course, all this and more is covered with a personal loan. But, before you start jumping with joy, a little matter of the credit score must be considered. You must be wondering how taking a personal loan will affect your credit score and whether or not it will add to your existing concerns? What steps to follow to calculate the required credit score for a personal loan. Or are you getting loaded with too much information about personal loan-credit score dynamics?
Let’s break all the confusion surrounding the relationship between personal loans and credit scores and know a little more about the impact personal loans have on your credit score.
Relationship Between Credit Score & Personal Loan
Your trusted best friend just told you that if you take a personal loan, your credit score will get out of hand, and you will probably be rejected for any loan you want to opt for in the future.
You read a message in a group with financial experts that taking personal loans doesn’t affect your credit score, and you can take as many loans as you want.
Now you are confused as to whom to believe and what to do?
Well, they are both right, but only to a certain degree.
In the first case, the credit score will get out of hand only if you do not make the EMI payments on time. It is valid for all loans, including personal loans. Even a single delay will impact the overall credit score negatively. But, if you can repay the EMI on time, it will positively impact your credit score. So, your best friend is not wrong, but you must put in the effort to keep your credit score high.
In the second case, we believe you got the wrong message or did not have the whole picture. It is true that you can take as many personal loans as you want, but only, and only if, you meet the eligibility criteria every single time. The same rule applies as mentioned above, pay your EMIs on time to keep the credit score high.
Coming to the Crucial Question – What is the Credit Score Range?
First things first, the credit score ranges between 300-900. When the score is higher, we know your financial health is good.
In an ideal scenario, the credit score for a personal loan should be 750 and above, and the higher it goes, the better the chances for your loan to be approved. It not only means that you pay your EMIs and credit card bills on time but also that you do not default on your loans and can be trusted as a borrower.
Points to keep in mind:
- Your credit rating or impression on the lender for acquiring new loans is affected by personal loans, as they add to your debt.
- Repaying your loans and bills on time is a positive credit score formula.
- Every time you take any loan, your credit score gets affected, so you should focus on managing your overall loans for a healthy credit score.
- Avoid taking multiple personal loans or back-to-back loans as it can negatively affect if you plan on availing of another loan within a short period.
- Maintain a healthy credit report by not disturbing your credit score or allowing it to fall below 700.
You can use a credit score calculator on the websites of leading financial institutions to know where you stand and how you can monitor and maintain a healthy credit score.
Personal Loans from Renowned Financial institutions
New-age financial institutions like Clix Capital offer a hassle-free instant personal loan experience with paperless processes and minimal documentation. There is no processing and prepayment fee, and you can get the loan at a low-interest rate within 24 hours!
All you need is a fixed income above INR 20,000 per month, proper ID proofs of your age, which must be a minimum of 21 years of age and a maximum of 58 years of age, your income, and your address. Once you have all your documents in place and have a steady working tenure of more than six months with the current organisation, you will be eligible to apply for a personal loan.
If you strive to keep a healthy relationship between your credit score and personal loan, you will find it easy to get loans and maintain a good relationship with your lender.
Personal Loan and Credit Score Dynamics
Personal loans are a much more efficient, convenient, and cost-effective way of borrowing and utilising huge expenses. It has the advantage of a competitive interest rate and can be availed without much hassle. It also doesn’t require any collateral against the loan.
Interestingly, if you repay your personal loans on time and manage them efficiently, it will enable you to improve your credit mix and credit history, resulting in a healthier credit score. It will also ensure a diversified credit mix for your credit history, which further help you gain a positive rating with different credit bureaus.
Remember, the secret is not to delay repaying personal loans or turn them into outstanding debt for long, as it can affect you when you apply for another loan like a car loan, home loan, or any other new credit.
To sum up – a low credit score can create numerous obstacles for you, so it is advisable to have a healthy financial portfolio and a healthy credit score.