Does a Personal Loan impact my Credit score?

How can a personal loan harm your credit score?

 
A personal loan can spoil your credit score in the following ways:
 

Applying for multiple loans

Most applicants see a dip in their credit score after applying for a new loan to close the old loan. When you apply for numerous loans, the lender performs a hard credit check to know your creditworthiness, including your payment history and other debts. This loan application may drop your credit score.
 

Multiple credit inquiries

A personal loan inquiry often done can result in hard inquiries on your credit report. Having too many inquiries on your credit report within a short period can impact your credit score.
 

Missed payments

When taking a personal loan, it will lower your credit score if you miss out on repayments. This is because the credit bureau agencies will analyze your payment history and this will impact your credit score negatively. In such situations, where you have missed out on the payment due to some personal reason, depending on your existing relationship with the lender, you can explain the reason for delayed payments.
 

How can a personal loan have a positive impact on your credit score?

 

While taking a personal loan, always keep in mind the below-mentioned factors for a better credit score:

 

Make loan payments on time

Missed or late payments are bad for your credit score. So timely loan payments will boost your credit score.
 

Automated repayments

The automatic loan repayment method works best for the late EMI payers because when you make an automated payment, you are telling the lender to deduct the set EMI on the set date that will automatically get deducted on the fixed date and boost your credit score.
 

Reduces your Credit Utilization ratio

Personal loan helps limit your credit utilization ratio. If your only source of credit has been credit cards, then adding personal loans will diversify your credit mix, and a diverse credit mix will positively impact your credit score.
 

Monitor your credit report

To know what impacts your loan and credit score, you should regularly check your credit report. You can request credit reports from credit bureau agencies without hurting your credit score.
 

Keep your old loans

Never close your old loan accounts for new loans. If your old loan reflects a good credit score, it will show your creditworthiness. The longer the presence of an old loan on your credit report with a good credit score record, the higher are the chances of getting a personal loan in the near future.
 

Bottomline

The more organized and responsible you get with your finances and personal loan account; your credit score will get impacted positively.