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How Can A Personal Loan Improve Your Credit Score?
by Guru Sone Financial ServicesOne should use a personal loan very responsibly. If you miss repaying
your loan on time, then your credit score will see an adverse effect. Your
credit score indicates how well you are managing your finances.
If you have a good credit score, you can get an unsecured personal loan easily. Unsecured loans
are the ones which do not require any collateral. You can get a loan without
pledging your assets as security.
Credit score
A credit score is a number that indicates your current financial
position. If you are good with your financial matters, then you will have a
high credit score without a doubt. Just make sure that you are making timely
payments.
If you have a low credit score, you will not be approved
for a loan. But some lenders have relaxed criteria and you can still avail a
loan with a low credit score. The usual credit score ranges from 300 to 850.
So, coming to personal loans improving your credit score, like any type
of loan, a personal loan can improve your credit score if paid timely. It is a
quick way to increase your credit score.
Few ways how a credit
score is affected by a personal loan
● Avoiding paying penalties: Timely payments help you to raise
your credit score quickly. Avoid paying penalties, and if you do so, your
credit score will be decreased. Prompt payments will increase your credit score
and you can apply for a new loan based on your credit score. You can also avail
a good amount of top-up loan on your existing loan if your credit score is over
750.
● Variety is built into your credit: There are so many factors which are responsible for increasing or
decreasing your credit score. They comprise the length of credit history,
payment history, credit utilization ratio, credit mix, and credit enquiries.
Credit mix accounts for 35% of the overall score. But when it is about personal
loan you can have a mix of credit types. A mix of all credit types is seen at a
high level of approval by the lender.
● Origination fee: Many lenders charge an origination
fee. It cannot be avoided at any cost. It is instantly taken from your loan
payment. Origination fee depends on how much money you borrow. Paying late will
lead to overdraft of fees and so ensure that you pay total payments every month
before the deadline so that your credit score is unaffected.
● The ratio of debt-to-income and loan: Some lenders have their
own debt-to-income ratio. So, their proprietary credit scores can make use of
it for credit consideration. Never have a mindset that getting a huge amount of
loan would diminish your credit score. The damage it does is raise your
debt-to-income ratio and so you won't be able to apply for loans anymore as you
may get rejected.
So, these are the ways how your credit score is affected by personal
loans. So, make sure you follow some tips so that your credit score is not
affected, and you have a personal loan to balance your finances in times of
need.
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About Guru Sone 
Financial Services
8 connections, 0 recommendations, 27 honor points.Joined APSense since, October 4th, 2019, From Hyderabad, India.
Created on Dec 14th 2020 21:05. Viewed 341 times.
