- June 11, 2020
- Posted by: Ganeshcbani
- Category: Blog
Credit scores are one of the most important pieces of information that lenders look at when considering whether or not to lend money to someone. In fact, your credit score can determine whether or not you qualify for a personal loan, a car loan, or even an apartment lease!
Personal Loan affects credit score
You were hit with an unexpected medical cost. Your balance of your credit card has gone seriously out of hand. The plumber has only given you an estimate which is larger than the school bill for your child. Can the acceptance of more debt solve these problems?
If that debt is a personal loan, possibly. A personal loan can provide you with a way of paying for major costs if you do not have the cash. However, it may have a positive or negative impact on your credit, so it is important to know the risks and advantages before applying. Continue reading to find out how a personal loan can affect your loan value and whether it is the right choice for you.
Why intelligent people get personal loans?
There are numerous reasons for securing a personal loan. Having a personal loan to pay for a holiday you could not afford otherwise is probably your goal for a well-deserved relaxing period. Nonetheless, one of the better ways to secure a personal loan is to combine many high rates debts into a lower interest loan.
Payment of APR 20.00 percent of your credit card debt with a 10.75% personal loan will reduce your monthly payment and put more money in your pocket each month after you have paid all of your bills. But the advantages go far beyond saving interest or spending money.
How personal loans can damage your loan?
Ready to complete the application for a personal loan? Not so easily. Personal loans do have certain downsides that you need to know.
Creating an inquiry into your credit
If you apply for any type of credit, including a personal credit, the credit check is carried out by the creditors. This leads to a rigorous audit of your credit report, which impacts your credit score negatively. It takes just a couple of months to dip from one hard inquiry, but too many hard questions can cause more damage to your credit score. If you apply for multiple lenders’ personal loans in order to get the best rates, combine your applications in the next week or two to mitigate their negative effect on your credit score, as credit score models view this as rate shopping and do not take your credit for it.
Deepening your debt
A new personal loan means more debt. Debt. It is important to make sure you change your debt habits if you use the personal loan to pay off higher interest debts. For example , you can easily end up with a maxed-out credit card by using a personal credit card, and then start charging more than you can afford on this card again. Plus a personal pay-off loan.
Do not ignore loan charges, such as the origination fees or the late fees, in addition to the interest you pay on a personal loan. Before applying, make sure you understand all the fees involved. Consider borrowing enough to cover the fees if necessary.
How does the high CIBIL score affect your eligibility for personal loans?
As previously mentioned, personal loans are collateral-free , which means that the creditor can not seize assets to recover costs in the event of a default. This is why lenders lay down strict guidelines for the eligibility of individual loans for CIBIL score, age , income, repayment capacity, for applicants. The key reasons why a high score affects your eligibility for personal loans are how lenders receive a high CIBIL score. In certain ways, the lenders receive the high CIBIL score of prospective applicants for personal loans:
Fiscal accountability, Good track of repayment, Clear history of credit.
Low / manageable current debt levels
From a lender ‘s viewpoint, all above suggests a lower chance of default if you are lent. This improves the odds of being approved for a personal loan with a high CIBIL score. Moreover, for certain borrowers, you may also be eligible for additional benefits. In addition to eligibility itself, you may have some significant advantages by maintaining a high credit score.
- Lower rate of interest
- Higher amount of loan
- Shorter loan processing times / faster approval
- More tenure
Do not hold a decent CIBIL score
Now that you have an insight into the importance of a high CIBIL value for eligibility for a personal loan, of course the obvious question is – what do I do to ensure I maintain a high credit rating? The following are some best practices for improving and maintaining a high CIBIL score and improving your chances in the future to secure new credit and/or credit cards:
What can I do?
- Pay all your credit card bills and EMIs on time.
- Just borrow what you need
- Keep a small credit usage ratio (< 30 percent)
- Maintain a balance of secure and unsecured debts
- When offered, increase your credit card limit.
What should I not do?
- Never set / settle your debt or loan with a credit card (unless absolutely necessary)
- Request multiple loans / credit cards with different borrowers simultaneously
- Check your credit report on a regular basis and immediately correct errors (if any)
- Do not open / close credit card or bank accounts
- Even if you have a high card limit or access to low interest loans, do not exceed your expenses.