4 Ways a Personal Loan Could Help Boost your CIBIL Score
You may wonder, a loan is typically known to increase your debt. So, how would that possibly reflect in a positive way on your CIBIL score? Firstly, you need to understand that a Personal Loan is very different from other loans.
Unlike most loans, you can take a Personal Loan for a number of reasons and spend the money at your own discretion.
This means you can use a Personal Loan to decrease pending credit liability too, like paying off old dues and consolidating debt.
While taking a new Personal Loan may cause a little slip in your score, closing off multiple debts has a bigger impact when it comes to boosting your CIBIL score.
Having a good CIBIL score in turn helps you get those big loans sanctioned much easily.
It also impacts the interest rate at which you get a loan. Overall, having a good CIBIL score reflects positively on your creditworthiness.
And, taking a Personal Loan is one way you can boost your CIBIL score.
To understand how unsecured Personal Loans can help improve your CIBIL score, you need to know of the factors that affect your CIBIL score.
Factors that affect CIBIL score
A CIBIL score is basically a credit score that reflects your credibility based on your financial decisions. When you take credit via a loan or credit cards, it is recorded by the credit bureau. Your CIBIL score is then calculated out of a score of 900 based on these factors:
- Paying your loans and credit card bills on time shows a strong credibility and increases your credit score.
- Having too much and multiple pending debts lower your credit score.
- Having a long-term credit history of positive payments done on time shows that you are consistent with your payments. This increases your score too.
- Having a good credit mix of secured and unsecured loans on your portfolio also boosts your credit score.
A Personal Loan could impact each of these criteria in a positive way. Thus, improving your CIBIL score.
How can a Personal Loan boost your CIBIL score?
- Pay off pending debt
Every time you miss out on a credit card bill or a loan payment, it reflects badly on your credit history.
Apart from that, having accumulated unpaid debt attracts penalties, which further increases your burden. Instead of dealing with unmanageable debts, you can use a Personal Loan to clear old dues.
- Consolidate debt
Having multiple lines of credit indicates a certain credit- hungry behavior, which isn’t good for your credit score.
It also means you are paying multiple interests at different interest rates for each of the credits.
This makes it difficult to keep track of all your debt and mismanaging it could also affect your credit score.
Instead, you can consolidate all your debt under one Personal Loan.
You can use a lower Personal Loan interest rate to close your high-interest credit card debts.
You can get rid of these debts in one go by taking a new Personal Loan on your modified terms.
Set your EMIs and tenure by using a Personal Loan EMI calculator, based on how much you can afford each month at your convenience.
- Choose a long-term payment option
Personal Loans can be paid through installments over a long period of time.
Having such a long-term payment module, where you repay your EMIs on time reflects well on your credit score.
You can use a EMI calculator to pace your monthly EMIs in such a way that it boosts your CIBIL score and doesn’t burden you either.
- Boost your credit mix
Most other loans like home loans and education loans are usually secured loans.
Having a single type of loan does not boost your CIBIL score as much as when you have a credit mix of secured and unsecured loans. A Personal Loan is an unsecured loan that you get based on your eligibility for a Personal Loan.
You don’t need to pledge any collateral to get it, all you need is to follow the checklist of the eligibility for Personal Loan.
Hence, if you are concerned about a low credit score, you can use a Personal Loan to give it a boost.
Many banks and Non-Banking Financial Companies (NBFCs) like Bajaj Finserv offer such loans and have a simple procedure to apply for a Personal Loan.
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Category: Loans
