Credit score which is a numerical expression which determines the creditworthiness of a borrower plays a vital role in deciding whether an individual should be offered credit and at what rate is of great significance for borrowers as well as banks and financial institutions. It evaluates the creditworthiness of a person and gauges his ability to pay back the credit. It becomes crucial because it helps one in getting loans, negotiating the rate of interest and amount, and assists one in getting the higher credits limits.
Thus, it becomes crucial for an individual to increase his credit score. Several ways can improve credit score, and one of those is using your personal loan. A personal loan is a loan which is required to meet any financial requirement. The financial obligation may constitute funds for marriage, travel, education and several other needs. Personal loans are unsecured loans, and nothing is required to be pledged against this form of credit. However, the personal loan interest rate, which is more often than not on a higher side makes it a little less attractive. Despite this, it is still an excellent credit option to fulfil one’s financial requirements and also increase the credit score.
Now that we have understood what credit score and personal loans are, let’s, deep-dive into, how we can use our loan to better our credit score.
Important things to Keep in Mind While Taking a Personal Loan to Improve Your Credit Score
- an individual must not reveal himself as a person who has a massive appetite for loans and is hungry for credit. He must be meticulous to not ask for too many hard enquiries for the credit. As it negatively impacts the credit score.
- 2.Individual decision to take credit must not be driven by mere impulse; instead; proper research should be done. The research becomes way more critical when a personal loan is not only taken to meet the cash crunch but also to improve the credit score.
- Importance of regular payments to improve the credit score can not be emphasised much. Monthly payments go a long way in improving one’s credit score and thus helps in securing loans. Individuals should make sure that they are paying all the EMIs in time.
- Prepayment of loans might look a great idea, but it does not help when one wants to build a credit score. More extended credit history is considered better. So if an individual keep making regular payments till a longer tenure, it will improve his credit score.
- When one will regularly pay the EMIs for a particular period. It will help him to build the credit score. The individual will become eligible for new loans. However, one must not rush to take loans as too many loans at a shorter period will impact the credit score negatively.
A personal loan is not only meant for bridging the gap for financial requirements but is also assists in building a good credit rating. Consolidate your debts or take a personal loan for an amount that you can easily pay off.