Credit Score Check: Here’s how personal loan may affect your credit score

Applying for a personal loan has become convenient these days with the emergence of digital lending platforms. You can get a loan almost instantly through any of the loan apps or websites. All you need is a healthy credit profile. The lenders, including banks and non-banking financial companies (NBFCs) take into account the credit score of the borrower before loan approval. Other factors like borrowers income and credit history could also be decisive for securing a loan.
It is important for borrowers to keep their credit score as high as possible. Your credit score affects the chances of you getting the loan at a higher or lower interest rate. Additionally, credit score affects the amount of loan you may get from a lender – the higher the credit score, the more chances of securing a bigger loan amount.

The credit score, provided by credit rating agencies, is a three-digit number ranging from 300-900. The score is an indicator of how efficiently you have managed and repaid the loans and other borrowings over the years. You can check your credit score for free on digital platforms like Moneycontrol.

How personal loan affects your credit score

Personal loans are one of the most common types of loans. They can be availed for a multitude of reasons. For example, you can take a personal loan for home renovation, medical expenses, big-ticket purchases or a vacation.

Personal loans are typically unsecured, meaning they do not need collateral, and that’s where credit score becomes the primary factor to decide the loan eligibility. However, payment defaults on personal loans and applying for multiple loans in a shorter duration may affect your credit score negatively.

Through the Moneycontrol app and website you can access multiple loan offers of up to Rs 15 lakhs with interest rates starting as low as 12% per annum. You can instantly apply for a loan through a 100% paperless process.

It’s a common notion that personal loans negatively affect your credit score. However, this may not always be the case. Personal loans may help to improve your credit score if you repay the borrowed amount without any default.

Positive effects of personal loan on credit score

The credit score could be affected by how you handle your credit instruments rather than availing a personal loan alone. By utilising your personal loans carefully and making payments on time, your credit score gets positively impacted.

Here is how personal loans positively impact your credit score.

• Enhanced credit score: As mentioned above, personal loans can increase your credit score. You just have to make sure that you make the repayment on time. You can do this by timely paying your EMIs (equated monthly instalments). One way to ensure you always pay your personal loan EMI on time is to enable the auto-pay feature and set reminders. Keep enough balance in your bank account before the due date of the EMI payment. Once you start paying your personal loan EMIs in a disciplined manner, your credit score will improve.


• Better access to future loans: When you pay your personal loan on time, your credit score increases significantly. A credit score above 700 is generally preferred by the lenders. This means you can avail loans more easily at better interest rates in the future. Banks and NBFCs are also more likely to give you better loan offers and amounts if you have a good credit score.


• Credit mix: Adding a personal loan to your financial portfolio can make your credit mix better, which is a factor that credit agencies use in order to calculate your credit score. Having various types of credit in your financial portfolio can improve the score, thus making your financial health better.

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Negative effects of personal loan on credit score

While personal loans can affect your credit score positively, they can have some negative impacts as well. Let’s discuss them.

• Frequent loan inquiries: If you apply for too many personal loans, it can have a negative impact on your credit score. When you apply for a personal loan, creditors conduct a credit score check to assess your history as a borrower. Therefore, make sure you do not apply for too many loans within a short period of time.


• Payment failures: Just like repaying your debt on time increases your credit score, not repaying it can significantly damage it. Not following a disciplined debt repayment has a significant impact on your credit score. A lower credit score will not attract lenders to you, and you may find yourself in a difficult situation when in need of money.

How to improve your credit score?

• You can improve your credit score by clearing all your existing debts. Existing debts have an effect on your credit report and can bring down your credit score.


• You also need to ensure you make your EMI payments on time. Your credit score is affected by the long-term history of your repayment behaviour.


• Avoid taking too many debts at a time. Consolidate all your existing debts and make it a single loan. This also helps you keep track of your borrowings.


• Maintaining a healthy credit mix can also help in improving your credit score. Also review your credit history throughout the year to keep track of your score and adjust your repayments and borrowings as required.

To conclude, personal loans may not always decrease your credit score. They can help make it better, but you have to make sure you repay your debts on time. If you are looking for the best personal loan offers, explore Moneycontrol app and website to get 100% online personal loan up to Rs 15 Lakhs. Interest rates start at as low as 12% per annum.