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How Personal Loans Can Affect Your Credit Taking Capacity

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There's a myth around it that personal loans are expensive. Still, personal loans, when appropriately managed to improve your credit score, would allow you to take credits in the future easily. You must have heard that a credit score of around 750 and above is also needed to take a personal loan. This is also partially correct! Loan products such as ICICI Personal loan have a high bar of eligibility since they are the top banks of India.There are a lot of non-Banking Financial Corporations, online Vendors and Local Banks that offer personal loans to borrowers having CIBIL scores of below 750. So, before we further discuss the significance of credit scores in availing of personal loans, let’s first understand the different ranges of credit scores.

Did you know that the credit score is rated out of 900? It is made up of components such as the repayment history which accounts for about 35 per cent, credit mix accounts for up to 10peperent credit utilization score up to 30 per cent and duration adds 15 per cent to the credit score. It is often said that too many credit inquiries can considerably affect the credit score. It is because it can reduce your credit score considerably so one needs to be very careful with it.

We will now discuss a few points which can help you in increasing the chances of availing credit in future

Proper management

When you take a loan and maintain a credit score, on proper repayment your credit score increases. As discussed earlier, this accounts for about 35% of your credit score. That is the major portion of it. Therefore timely payments can considerably increase your credit score, even if it is a small payment.

Credit mix

If earlier you had taken some other loan such as a secured loan or Credit card loan, taking a personal loan can help you add a thing called 'credit mix' to your credit report which would help you greatly in availing loans. This is because a credit mix signifies that the person has taken different kinds of loans and knows how to handle all of them effectively. This makes the lender believe that you are a good borrower and helps in faster approval of your credit report.

Credit Duration

The longer the duration, the better it is, therefore if possible, do not often opt for prepayment of loans. Regular payments during a longer period show that you are disciplined and committed to paying your obligations.

Don't apply too much

Whenever you apply for a personal loan to a borrower, it affects your credit score adversely. Therefore, before applying to any lender for a personal loan, check their eligibility using a personal loan eligibility calculator that most of the banks and NBFCs websites provide. If you still can't find one, there are a lot of dedicated websites for it.

Decide the amount carefully

This is hands down the most important point to consider, because if you go for a wrong amount, probably higher than you need, then you might end up missing a payment or two, which would then show up on your CIBIL score. Use a personal loan calculator to make your calculations error-free and quick.

Foreclosure

Your long term and short creditworthiness by the lender when you apply for a loan. Therefore, avoid foreclosure when you have extra cash to repay and you are looking to further increase your credit score.

Conclusion
These are a few points that may help you in increasing your credit score using a personal loan. Personal loans can prove to be a boon for you if used and managed in a proper and disciplined way. Personal loans provide you with adequate funds which suffice your needs and a long tenure makes it easy for the borrower to repay the debt.

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