How Does Your Credit Score Get Affected By A Personal Loan?

Posted On: 17-February-2022


A personal loan has a direct effect on your credit score both in good and bad ways. Opting out for personal loan is not bad for your credit score. But it may affect your overall score in a short term. When you avail for a personal loan it becomes difficult for you to obtain additional or another new loan until the previous loan is paid back. What's good about personal loans is that paying off a personal loan on a timely basis boosts your overall credit score. Before you go for these loans you must find out all these aspects and compare them in order to have the best.

The credit score of an individual is calculated based on the 5 factors mentioned below

1. Payment History - 35% of the entire credit score is based on your payment history.

2. Amounts Owed - 30% of the credit score is based on the total amount of your outstanding borrowings.

3. Length of Credit History - length of credit history comprises of the 15% of the total credit score.

4. New Credit - 10% of it is based on any new borrowings, or newly opened lines of debt.

5. Credit Mix - the number of credit lines that you have availed comprises of 10% of the credit score.

Therefore you can see that obtaining for a new personal loan could affect your credit score. In case you go for another additional borrowing or debt, the capital agencies providing personal loan in Vizag keep record of your new financial activity. For instance, if you're applying for a new loan right after taking out a personal there's a major chance that your loan request would get rejected. The reason for the rejection most probably would be that you already have as much debt as you can handle. Not just one single loan is responsible for your credit score. Your entire credit history or credit report of past and present debts impact your credit score. What works surprising here is that if you have a long debt history with timely management of payment that would eventually improve your credit score. So to always be eligible for personal loans what you got to do is maintain a good credit score, and you can do that only by making payments on time and within the terms of loan agreement.

A lot of people look at loan negatively. What they do not understand is the fact that a personal loan that you repay in a timely manner can have a positive effect on your credit score. It shows that you can handle debts responsibly.

Credit score generally ranges from 300 to 850. The higher your credit score the more likely are you of getting your loan request approved. With a good credit score, even the lenders will charge you a lower interest rate. Every financial companies that lend capital have its own criteria, yet, in general, lenders view scores above 670 as an indication that a borrower is worthy of a particular credit. All the companies that you go for loans will keep a record of your credit utilization ratio in order to provide you loans.

If you're credit score is below 580 them you're probably a risky borrower, and therefore, you may not be worthy of credits. If your credit score ranges from 580 to 669, you're still below average, but in this case, if not all, but some lenders may approve loans. If the credit score is somewhat between 670 to 739, you're over average and most lenders will pass your loan applications since it is a good score. If suppose you have a credit score ranging between 740 to 799 then then you're good to go for all kinds of loans. With a credit score of 800+ lenders will view you as an exceptional borrower and there won't be any hurdles in your way when applying for a personal loan.

While your CIBIL score affects your eligibility for a personal loan, lenders also see the amount of your income, and other factors such as how much money you have in your bank account, and if your employment is secured in order to provide you loans. Anybody can run into a financial emergency, during these times, finding out the right loan can be hectic. On top of that if you have a bar credit score it only add to your problems making it more difficult for you to avail cash. Therefore maintaining a good CIBIL score is always a suggestion.