Your credit score or CIBIL score is an essential parameter that financial institutions take into account before sanctioning a loan. When you maintain a high CIBIL score, availing a loan becomes significantly comfortable. That is why it is crucial to take a note of the factors that affect your credit score to ensure that there are no adverse effects on it.
Personal loan, for instance, is a credit that can have both positive and negative impacts on your CIBIL score.
Ways in which personal loan can affect your CIBIL score
A personal loan is unsecured credit which an individual can use for a variety of purposes like covering wedding expenses, travel cost, consolidating debts, medical emergencies, etc. When you avail a personal loan from any financial institution, there are ways in which it can affect your CIBIL score. They are-
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- Timely repayments
Your payment history is the most crucial factor that determines your credit score. Now, most financial institutions prefer an individual having 750 CIBIL score for a personal loan. However, this score can be adversely affected if you default on your EMI payments, damaging your chances to avail credits going forward.
A late or missed payment can dramatically reduce your CIBIL score, which can take some time to rebuild. Therefore, before availing a personal loan, it is vital to ensure that you have proper financial planning to ensure timely repayments.
- Add to your prior debts
When you avail a personal loan, you add to your pre-existing amount of debts. When your debt size increases, your CIBIL score gets inversely affected, especially if you fail to pay them back within the tenor.
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However, sometimes taking a personal loan can benefit your CIBIL score, especially if you have a thin credit history. When you avail more loans and pay them back on time, it shows that you can manage the debt load effectively. Thus, it helps to increase your CIBIL score.
- Rejection of your loan application
When you apply for a personal loan, the lender makes a credit enquiry to get a record of your previous credits owed and paid. If your loan application gets rejected for any reason after the credit enquiry, it can adversely affect your credit score. However, if your loan gets approved, it reflects positively on your score because it shows that you repay your debts on time. Thus, it is crucial to ensure that you do not have any dues on your credit report when you apply for the loan.
Also, credit enquiries automatically lower the CIBIL score. However, such credit points can be recovered easily with timely repayments.
Thus, there are many effects of personal loan for low CIBIL score. However, with a few simple things in mind, you can ensure that taking the loan does not have any adverse effect on your CIBIL score.
Ensure that availing a personal loan does not adversely affect your CIBIL score
Timely payment of EMIs is the most significant factor which can make sure that your credit score remains high. Therefore, before applying for a loan from any financial institution, make sure that you do not have too many outstanding debts. Also, ensure that you plan your personal loan EMI repayment better to pay the amount back within the selected tenor.
You can use a personal loan EMI calculator from institutions like Bajaj Finserv, before availing the loan, to calculate the amount you will need to pay each month.
Bajaj Finserv also brings you pre-approved offers which makes procuring advances easier. These offers are available with several financial services and products like home loans and unsecured credits like personal loans. You can check your pre-approved offers by providing your name and phone number.
Thus, if you have an idea about your monthly repayments, you can plan your finances better.