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How Can You Improve Your Credit Score By Availing Personal Loans?

IndianMoney.com Research Team | Updated On Friday, June 15,2018, 12:57 PM

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How Can You Improve Your Credit Score By Availing Personal Loans?

 

 

 

Personal loans look a great loan in a financial emergency, as they don't require any collateral and can be easily availed. They are your No Reason Loan. Personal loans charge high interest, but if you play smartly, this can go a long way in improving your credit score.

Credit score is not the only factor lenders consider, while sanctioning a personal loan. Some lenders are ready to sanction unsecured loans to people with ‘fair’ scores, provided they successfully meet other criteria.

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How Can You Improve Your Credit Score By Availing Personal Loans?

 

Availing a personal loan for the purpose of improving your credit score may be helpful.

 

1. Using Personal Loans for Debt Consolidation:

 

Not repaying credit card dues can affect your credit score. Credit cards charge high interest and if you miss payments, the credit score is affected. Then there are penalties which you should definitely be aware of. If there are two or three credit cards with such debts, this could be your worst nightmare. The interest will keep adding on to your outstanding balance, which will affect your credit score.

 

The best thing to do is avail a personal loan to pay-off debts on different credit cards. You must go for this as soon as you realize that your credit card bills are going out of hand.

 

2. Why personal loan to retire credit card debt?

 

  • Personal loan is not expensive when compared to interest charged on credit cards.
  • You will save on the interest charged on different credit cards by replacing the same with a single personal loan, which charges lower interest.
  • Single EMI is more manageable than three different EMIs.
  • Over a period of time, your credit score will gradually improve, but it will not shoot up as soon as you pay off the debts. It’s advisable to pay off piled up credit card debt with a personal loan, as soon as possible.

 

SEE ALSO: 5 Things to Know Before Investing in Corporate Fixed Deposits

 

2. How to use a personal loan to retire credit card debt?

 

  • Don't apply for multiple loans - You should know that a hard enquiry is initiated on your credit report, every time you apply for a loan. This impacts your credit score and presents you as really desperate for that loan before the lender.
  • Decide the amount carefully - Always remember that you should avail a personal loan for an amount that you actually need. As you are availing the loan to improve your credit score, assess the need and then take the loan.
  • Credit cards and personal loans, both being unsecured, deeply impact your credit score. Make a habit of paying your EMIs on time.
  • Do not pre-pay the loan – A long credit history is considered good. If you have taken a loan for the purpose of improving credit score, you should not pay back the loan before it matures (pre-pay the loan). Instead, if you keep making regular payments for a longer tenure, your credit score improves.

 

A personal loan is not just meant for the financial emergencies, but also for improving your credit score.

 

Be Wise, Get Rich.

 

 

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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