Tips for Improving Your Personal Loan Credit Score

Personal loans are an excellent way to access quick funds whenever required. They can be availed for various purposes, such as home renovation, marriage, education and more. According to RBI data, the growth rate of personal loans has increased from 12.8% in January 2022 to 20.4% in January 2023.

Personal loans can positively impact your credit score by providing an opportunity for improvement. In this blog, we have compiled the best tips to improve personal loan credit score. We will discuss the benefits of using a personal loan to improve credit score and how you can use the Shriram Personal Loan to your advantage.

How to Improve Credit Score with Personal Loans?

When we approach a lending institution with the objective of taking a loan, we research about the institution’s reputation and the terms and conditions for a personal loan. However, the lending institution does not know whether the borrower will repay the credit line.

This is where the credit score comes in. A credit score is a three-digit number that reflects the borrower’s creditworthiness. It ranges between 300 and 900, with 900 being the highest possible score. Ideally, a credit score above 750 is considered good.

Lending institutions use credit scores to determine eligibility for personal loans. It is, therefore, very important to boost the credit score as much as possible. We have compiled below some tips to improve personal loan credit score.

1. Timely Repayment: One of the most critical factors that affect the credit score is the timely repayment of loans. Ensure that all EMIs are paid on time to avoid any late payment penalties, which can negatively impact the credit score.
2. Longer Credit History: Maintaining an active personal loan account for a longer duration is advisable since the length of credit history significantly influences the credit score. If the borrower has a choice between a shorter loan tenure and a longer loan tenure, it is better to opt for the latter option. It adds more chapters to the borrower’s credit history and helps draw a complete picture of their financial past.
3. Loan Consolidation: In case of multiple debts, the borrower can consider consolidating them into a personal loan. It can help to manage debts efficiently and also improve the credit score. However, it is essential to ensure that all EMIs are paid on time to avoid any late payment penalties.

Benefits of Taking a Personal Loan to Improve Credit Score

Taking a personal loan can offer several benefits in terms of improving your credit score. Here are some benefits of choosing to improve credit score with personal loan.

1. Fixed Interest Rate: Personal loans come with a fixed interest rate, which means that the borrower has to pay a fixed EMI throughout the loan tenure. It helps to plan the finances better and avoid any surprises regarding repayment.
2. No Collateral: Personal loans are unsecured loans, which means that we do not have to provide any collateral to avail a loan. It is an excellent option for those who do not have any assets to pledge as collateral.
3. Quick Approval: They are easy to avail and come with quick approval. The borrower can get their loan disbursed within 24 to 48 hours, which makes it an ideal option for those who need funds urgently.

Things to Know Before You Improve Credit Score with Personal Loan

While opting to improve credit score with personal loan can be a good option, it is essential to keep some things in mind.

1. Interest Rate: The interest rate is an important factor to consider when availing a personal loan. It can vary with the policies of the lending institution and the borrower’s creditworthiness.
2. Loan Tenure: Ensure that the loan tenure chosen is comfortable to repay the loan. A longer tenure may result in lower EMIs, but it also increases the interest payout.
3. Processing Fees: Personal loans come with processing fees, which the lending institution charges for processing the loan application. Check the processing fees and any other charges applicable before availing of the loan.

How to Use Shriram Personal Loan to Your Advantage?

Shriram Personal Loans can be an effective tool for credit score improvement. Timely repayment of your personal loan can demonstrate financial responsibility and boost your credit score.

Here are some of the advantages of Shriram Personal Loan to improve your personal loan credit score.

1. Access to Credit: Shriram Personal Loans provide individuals with access to credit, even if they have a less-than-perfect credit history. This opportunity allows borrowers to demonstrate responsible credit behaviour and improve their creditworthiness over time.
2. Building a Positive Payment History: Timely repayment of Shriram Personal Loan is crucial for improving your credit score. Consistently making on-time payments shows lenders that you are reliable and can be trusted with credit, leading to a positive impact on your credit score.
3. Debt Consolidation: Shriram Personal Loans can be utilised to consolidate existing high-interest debts, such as credit card balances or other loans. By consolidating these debts into one manageable payment, borrowers can streamline their finances, reduce the risk of missed payments and ultimately improve their credit scores.
4. Lowering Credit Utilisation Ratio: By using Shriram Personal Loan to pay off high-interest debts, borrowers can effectively reduce their overall credit utilisation ratio. Lower credit utilisation demonstrates responsible credit management and can positively impact credit scores.
5. Establishing a Credit Mix: If you have a limited credit history, utilising Shriram Personal Loan can help diversify your credit mix. Lenders like to see a combination of different types of credit, such as credit cards and other instalment loans, as it indicates your ability to handle different financial obligations.
6. To conclude, a personal loan can be an excellent method of improving credit scores, but only if used wisely.

It is a good opportunity to establish creditworthiness and set a premise for the future. Make sure the EMIs are paid on time. This simple financial habit will go a long way to boosting your credit score. As a result, one may increase their credit score by availing of a personal loan and paying all EMIs on time.

Shriram Personal Loan is as ubiquitous as one can imagine. Remember the tips to improve personal loan credit score and check it out for any financing requirements.

FAQs

1. What is the highest and lowest credit score?

The credit score ranges between 300 and 900, with 300 being the lowest. It is ideal for keeping the credit score as high as possible. This ensures that the borrower will get the best interest rates while availing a personal loan.

2. What is the difference between a hard credit check and a soft credit check?

A hard credit check is performed by a lending institution when we apply for a loan. On the other hand, a soft credit check is when we check our own credit score. In the former case, there may be an impact on the borrower’s credit score, but in the latter case, there is no impact on the borrower’s credit score.

3. Should you check your credit score before applying for a loan?

Yes, you should definitely check your credit score before applying for a loan. A high credit score shows the lending institution that the borrower has good repayment capacity and is worthy of a credit line. It indicates a lower risk level and ensures the borrower gets a lower interest rate.

On the other hand, a lower credit score is a clear sign that the borrower may or may not repay the loan on time. It acts as a red flag and could result in a higher interest rate.

4. How long does it take to improve a credit score?

It can take a couple of years to improve a credit score. Please note, however, that this duration will depend on the borrower’s specific case. If the credit score is very low, for instance, it can take longer to restore it. If the credit score is already in a decent range, it can be boosted in a matter of months.