How to use Personal Loans to Boost Your Credit Score

There would have certainly been moments in your life when you were hit with a large, unexpected expense or emergency that you just didn’t see coming. This could have been anything like losing your phone (and having to buy another one), an unexpected hospitalization, paying insurance premiums, or even taking an emergency trip back home for whatever reason. Managing such expenses would have surely been very difficult, because you weren’t expecting them to hit you and therefore they did, it must have surely led to a lot of frustration in terms of arranging the funds to meet the expense. But have you ever thought of what you would do if faced with a similar situation again? How would you arrange for the funds in the time required?

There’s good news – you needn’t worry about being blindsided by expenses again. All you need to do is just apply for a Personal Loan, and you’re set! But first, you need to know what it is.

So, what is a Personal Loan?

A Personal Loan is an unsecured loan that is provided to working salaried professionals for their personal use, without asking for any security or collateral. This is its best feature, and what makes it an extremely convenient option for availing short-term funds for urgent expenses. Your chances of getting a Personal Loan approved depend on your financial standing, payment history, and creditworthiness as a customer. How do the banks find out if you’re eligible for a Personal Loan? By checking your credit score, of course!

What’s a Credit Score, now?

In India, there are 4 credit bureaus that generate credit scores — CIBIL, Experian, Equifax, and CRIF High Mark. The credit scores issued by all 4 bureaus are equally important as various banks use different bureau scores to make assessments. CIBIL generates a credit score between 300 to 900 for any customer who has sufficient credit information to calculate a score. A credit score of 750+ is considered ideal. Customers with this score should be eligible for most loans.

So, how do I boost my Credit Score?

Repayment of debts on time is a good way to boost your credit score. And availing Personal Loans or Credit Cards are a good way to start. But since credit cards come with very high rates of interest (sometimes, as high as 35-40%), Personal Loans are better in terms of boosting your credit score. However, do keep the following things in mind while you go about it:

1. Do Your Homework: If you’re going to avail a Personal Loan, you’d better do your homework. Check and compare loans from various banks, and select one with an interest rate and processing charges and fees that you can easily manage and pay for. It makes no sense taking up a Personal Loan with a high rate of interest, because you won’t be able to repay it on time, which will in turn impact your credit score.

2. Submit Only One Loan Application: If you’re planning on submitting more than one loan application on the chance that at least one of them will be approved, it’s a bad idea. Every time you apply for a loan, you appear desperate for more credit, and this is not a good impression to set when you have credit agencies looking into every loan application you submit.

3. Choose the loan amount carefully: The whole point of applying for a loan is to help you tide over financial emergencies and boost your credit score in the process. If you apply for a higher amount than necessary, you might find it harder to repay the loan, which will then just become another burden on your finances.

4. Pay your EMIs on time: Nothing hampers your credit score like a delayed or missed EMI payment. This is because credit bureaus determine your score based on your payment history and how regular you’ve been with your payments. The more regular payments, the better credit score.

5. Don’t take more debt: As your credit score improves, banks and other credit agencies will automatically start pestering you to avail more loans. But it’s your job not to give in, because it will be foolish for you to increase your debt for no reason other than just ‘being able’ to do so.

In the end, it’s all about borrowing sensibly, and repaying on time. Keep this in mind along with the above tips, and you’ll find it easier to boost your credit score.

If you’re looking to get an Instant Personal Loan in a hassle-free manner, you can also head over to KreditBee. It offers Personal Loans in the form of a Salary Advance for young professionals, starting from ₹1,000 up to ₹ 3 Lakh and it’s an option worth considering if you’re in urgent need of short-term funds to meet your expenses.