A credit score is a representation of your creditworthiness and credit history. The score ranges from 300 to 900, and an excellent score is above 750. Having a score of more than 750 means you are eligible to borrow for any need and emergencies. A credit score check is important to get any kind of loan. However, when you take a personal loan it impacts your credit score in different ways. A personal loan is indeed one of the best ways to make your ends meet flexibly. There is no such category of expense that you cannot meet with a personal loan. Affordable and flexible, it does not even ask you to pledge a security or collateral. However, when you take a personal loan you should understand the impact it has on your credit score.
What happens when you apply for a personal loan?
When you apply for a personal loan, your credit score is impacted negatively. This is because when you apply for a personal loan, the loan provider runs a hard enquiry on your credit report to get your credit-related information. This hard inquiry drops your credit score. Whether you get your loan or not, the hard enquiry is done and your score is hurt. So, even after getting a loan application rejected if you keep applying, you will get a low credit score.
What happens when you repay your personal loan?
Repayment is an important part of a credit score. On-track repayment means you can maintain your credit score properly. When you are paying your personal loan EMI every month within the due date every month, it increases your credit score. There is no possibility that you will damage your score. It will only improve your credit score. So when you are repaying, you will increase your credit score without any doubt.
What happens when you use a personal loan to consolidate debt?
Debt consolidation is usually done with a personal loan as it is an affordable and flexible one. When you consolidate all your multiple loans with one single loan, your credit score increases because you have just one EMI to pay which you can pay within the due date. There is no delay. Similarly, when you have multiple loans, you end up missing one EMI or other and hurt your credit score.
Wrapping up
A personal loan impacts credit score in various ways. It is recommended to keep your payments timely. One should also not apply multiple times. A credit score check is important to keep yourself updated and loan-ready.
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