A credit score is a parameter to check the creditworthiness of a loan applicant. This is a numeric expression provided by credit bureaus which range from 300 to 900. The credit score of a person is calculated on the basis of his past credit behavior as well the repayment history. If a person is disciplined in his credit repayments and maintains the FOIR, his credit score is likely to be high. Just like that, if you have missed your EMIs or credit card bill payments, your credit score is certain to get spoilt.
A person with a low credit score finds it difficult to get a successful loan of any kind. Sometimes even big ticket loans like a home loan or business loans are rejected because of low credit score. In such scenarios, before applying for any big-ticket loan, it is advisable to check the credit score.
If you find that your credit score is not up to the mark to avail a loan, you can work to improve it. Yes! One can take steps to improve one's credit score. There are many ways to improve the credit score of an individual. Among all of those, a Personal Loan works best to improve the same.
Here is How you can Use your Personal Loan to Improve your Credit Score.
A Personal Loan for Debt Consolidation
If you have a number of debts which are costlier than a personal loan, then you can use a personal loan to consolidate other loans. Generally, credit card debts are one of the most common loans availed by the people which is much costlier than a personal loan. Not only a credit card loan is costly, but missing credit card payment makes a lot of damage to the credit score. If you have more than one credit card outstanding payment, then taking a single personal loan to consolidate all will be a better way stop making further damage to credit score.
Make Regular Payments
When you have availed a personal loan, you are to be assured of the regular loan repayments. When you pay off your loan EMI regularly, it gradually improves your credit score.
Don't Make Prepayment
If your purpose of the availing of loan is to improve your credit score then you are not to make the prepayment on your loan. A longer and disciplined credit history are required to improve the credit score. So it is advised to continue the loan repayment till the loan matures.
Do Not Apply for Multiple Loans
Applying for multiple loans at the same time can be harmful to credit score. Applying for a number of online loans without much time gap shows credit hungry behavior of yours in front of the lender. Such behavior impacts negatively on credit score.
Decide the Loan Amount Carefully
When you apply for a loan, make sure that you are eligible for that amount. Additionally, loans should be taken according to the need. Applying for a loan which is beyond your eligibility not only will be reverted with a rejection, it will spoil the credit score further.