Personal loans can have a negative impact on your credit score if you fail to repay them on time. Just like it is the case with types of loans, if you’re failing to make monthly repayments, then your credit score deteriorates. But does getting a personal loan affect your credit score?
Problems can start to appear when you’re trying to get a home loan and financial institutions dismiss your application. On the other hand, taking personal loans can actually help your credit score if you’ve never applied for a loan, or dealt with banks up until now. An absent credit score doesn’t mean you have a good credit score. It means that financial institution will be sceptical about you, due to not having any type of information regarding your income or taxes.
Let’s take a look at the impact that personal loans can have on your credit score. Also, let’s see why and how we can address this situation.
How Can Personal Loans Improve Your Credit Score?
- Just by taking a loan, you start to build up your credit score
- Paying back the loan proves that you are a worthy and valuable borrower
- Repaying the loan even faster than the due time shows that your finances are doing great
- Never skipping payments is a sign that you haven’t taken more than you can afford
- An active credit history will get you extra points on your credit score
- Maintaining your account open, even after you’ve settled your debt shows you are a loyal client
- Personal loans registered on your name reveal that you are mature and Thus, you’ll receive another couple of points on your credit score.
- The fact that you’ve taken and repaid a personal debt makes you eligible for a home loan, or car loan if the need arises.
How Can Personal Loans Lower Your Credit Score?
- Failing to make regular payments for your loan will bring you a bad credit score
- Co-signing on someone else’s loan can affect your credit score as well, for the better or for the worse, depending on whether that loan was paid on time or not
- Payment defaults and overdue bills do not reflect well on your credit score
- Refused personal application loans will make it harder for you to get a loan in the future
- Taking personal loans without first calculating how much you afford to pay each month will not benefit you in the long run
- Having no sort of credit history also means having a zero credit score, which again, is not good
- Paying a personal loan 60 days after the due time will lower your credit score greatly
- Increasing the usage of your personal loan by more than 30% is not recommended.
Personal loans can affect your credit score for the better or lower it up to the point where we’re no longer eligible to apply for a home loan with fixed interest rates or different features that we may like. Keeping your credit score balanced can be done so always try to make regular payments.