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How does taking a Personal Loan affect your credit score?

how-does-taking-a-personal-loan-affect-your-credit-score

Whether it is funding higher education, sharing the expenses of a wedding, or helping you sail through an unanticipated emergency, a personal loan can be a helpful way to finance many expenses that you can't afford in one go. However, contrary to popular belief, taking a personal loan does not automatically have a detrimental effect on your credit score.

Your bank assigns you a credit score based on your credit history, which has a bearing on your financial journey. 

So, what is meant by Credit Score?


Simply put, a credit score is a way that a financial institution understands an individual’s financial activities to gauge how much credit and at what rate can be lent to them. It’s the ‘street cred’ that you carry with banks. Your individual credit score will be viewed by all institutions alike and reads like an index of all your major financial activities. 

Based on several factors, your credit score can increase or decrease. As long as you have a steady stream of income and diligently repay all loans, you will be rewarded with a healthy credit score.

Check out the factors that affect how a credit score is calculated - 

1. Credit utilisation - It is a comparison between the amount of credit you've been lent and the value you've already used. The higher this figure, the better is their credit score. 

2. Amount of debt - Another factor is the amount of debt an individual is in and the rate at which they repay it. Here, the credit score will increase with the increase in debt but only up to a point after which the credit score will be negatively affected. 

3. Types of loans - Different loans generate different credit scores, and included in this calculation is also the duration of the loans.

4. Length of credit history - Generally, the longer the time, the better it is for a credit score.

Personal loan & its relation to credit scores


A personal loan is different from loans such as home or car loans as no collateral is offered to cover a personal loan. This means that you don't have to provide any security or have a co-signee to avail of a personal loan. Banks offer personal loans at their own discretion, based on the creditworthiness of the borrower. Thus, it is important to prioritise a payment strategy to repay your personal loan in time. 

Whether it is to fund a vacation or take care of unplanned exigencies, IDFC FIRST Bank offers personal loans of up to Rs. 40 lakhs with competitive interest rates. Taking a personal loan may initially affect your credit score negatively. But, if prompt payment of the loan is made in a timely fashion, then the credit score becomes healthy again. 

Institutions like IDFC FIRST Bank understand that and take each individual personal loan as a unique entity. Charting out a repayment scheme that helps their customer repay the loan promptly takes precedence. IDFC FIRST Bank offers you the convenience of pocket-friendly EMIs starting at Rs. 2,162/lakh, with flexible repayment tenures of up to 5 years. You also have the choice to make 40% part payments, and further transfer your personal loan or credit card balance, and indulge in amazing benefits. 

They also have a flexible and accommodating personal loan eligibility criteria. Both salaried and self-employed individuals can fund their expenses with a personal loan through a hassle-free digital process. All you need to do is submit any valid digital ID proof for KYC, along with three months' bank statements. And voila, you can be on your way to live your life to the fullest. It is equally easy to set up an e-mandate with your Net Banking or Debit Card details. With an eSign and eStamp feature, you can expect time-efficient disbursal of loans. 

Personal loans do affect credit your score, but with timely and prompt repayment, it will be in a positive manner. Always keep in mind the personal loan interest rate at which you have availed the loan. The personal loan eligibility criteria is another factor to be kept in mind. IDFC FIRST Bank provides a range of options for a personal loan along with a customised repayment scheme, which will have the best effect on your credit scores in the long run.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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