Making a part-payment on your loan? Here's how it affects your credit score

Representative image

Most people like making part-payments on loans—especially home or personal loans—to settle less interest or prepay the loan. But before, you may be curious whether part-payment is good for your credit score or not. The answer isn't totally general. The answer relies on how your loan account is reported and what it adds to your repayment habit.

Part-payment reduces your outstanding loan balance

Part-payment reduces your principal amount, therefore your follow-up EMIs or tenure. This sends a signal to lenders that you are serious and financially prudent. Since the overall credit exposure is lower, this can actually be good for your credit score in the long term—especially if your loan utilisation was high earlier before the part-payment.

No negative impact if EMIs are on time

Part-payment does not hurt your credit score provided you continue to pay your usual monthly EMI on time. Credit institutions like CIBIL look more closely at your payment history and credit usage trend. As long as the lender keeps reporting the account in the "standard" category and you do not default or miss a payment, your score will stay firm or go up over a period of time.

May enhance creditworthiness by lowering credit exposure

One of the principal contributors to your credit score is how much you owe. By lessening the amount you owe on your loan by making part-payment, your exposure falls. This increases your creditworthiness in the eyes of potential lenders. It indicates that you are lowering liabilities, which will be to your advantage while seeking a fresh loan or credit card.

Make sure it is reported correctly to the lender

Sometimes, if the lender does not report the part-payment to the bureau or close the account in an improper manner, it may mislead the credit bureaus and affect your score. Make sure your bank or NBFC has actually accepted the part-payment as well as incorporated it in your loan statement. Ask for a revised repayment schedule and monitor your credit report for the following months.

Part-payments are good—if done right

A sensibly designed part-payment can reduce your loan burden and improve your credit record. It reflects financial prudence and reduces future interest costs. However, it must be ensured that the lender accurately informs repayment details to credit bureaus. Part-payments will not be harmful to your credit score if they are handled well—rather, they might just end up providing it with a healthy boost in the long term.