Does Getting Personal Loans And Credit Cards Really Help Credit Score?

Credit score is considered an important factor while availing a loan. Read to know does personal loan or credit card helps to improve your cibil score.

7 Oct,2022 17:11 IST 4 views
Does Getting Personal Loans And Credit Cards Really Help Credit Score?

A personal loan is one of the easiest ways to get some quick cash easily. This money can be used for almost anything, from paying school or college fees to getting some urgent home repairs done and even to pay for any unexpected increases in expenses for a wedding or a family function. Moreover, people can also fund huge medical bills using personal loans and then pay back the money slowly in installments.

The application process for a personal loan can be completed online and the approval process is really simple. Moreover, no collateral needs to be provided while availing a personal loan.

Apart from funding an emergency, a personal loan can also be used to build one’s credit history and improve one’s credit score over time. This is especially true in the case of a credit card, which too is a kind of personal loan. If a borrower pays one’s credit card bills or repays personal loan and interest, their CIBIL score will improve over time.

The credit score, or the CIBIL score, is a three-digit number that independent agencies like TransUnion CIBIL, Experian and Equifax generate after analysing a borrower’s previous loans and repayments.

A CIBIL score, which typically varies from 300 to 900, is used to gauge a person’s credit history. The higher the CIBIL score the better the rate of interest a borrower can get.

If a borrower makes timely repayments, he or she can improve a score that may be less than ideal. In this way the borrower can hope to get a better deal on a personal or even a business loan in future, when their credit history has improved and their CIBIL score has become much better.

While a CIBIL score of 750 or above is considered excellent, a score between 600 and 750 is also often sufficient to get a loan. A score of less than 550 is considered poor and shows that a person has defaulted on repayments and indicates to the lender that lending them money may be risky, thus reducing their chances of getting a loan.

Improving The Credit Score

A borrower can improve their credit score by one or more of the following ways:

Consolidating Debt:

Consolidating multiple loans into a single personal loan can help if that one loan is at a lower interest rate then the other debts. This will bring down the monthly payment that a borrower has to make to pay back the loans.

Building Credit History:

The longer a borrower’s credit history, the better their chances of getting a personal loan at a good rate of interest as it shows that they have been responsible with debt over time. This makes a borrower’s credit profile better with time. A personal loan helps build one’s credit history, which can be useful later when they apply for a bigger loan.

Make Timely Repayments:

Timely repayments help a borrower improve their credit history and CIBIL score over time. Timely repayments indicate good financial discipline and credit behaviour.

Conclusion

The credit score becomes vital while applying for a personal loan since it indicates the borrower’s creditworthiness. A personal loan can help improve your credit history and CIBIL score provided you repay on time and in full.

Having a good credit history free of defaults or missed payments is a must if you want a bigger loan and the best interest rates in future.

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