Does a Personal Loan Hurt Your Credit Score?
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Many of you will surely agree on the fact that there are times when life gives surprises (not the pleasant one) to us, and at times having a cash in hand is the only best solution to tackle that. Be it travelling to some foreign location, an unexpected car repair, child's education or some medical emergency, there is no denying the fact that a personal loan can boost all your financial needs instantly. But before availing the loan there is one question that usually bothers many and i.e. does a personal loan hurt your credit score? Well, someway or the other while availing the loan or maybe after availing the same, this question came into your mind. So, did you ever try to know the answer of the same? Well, if not, this article is for you.
Read this article further to unlock all your queries…..
Well, a personal loan is a boon for those who are looking for a loan instantly with minimum documentation and speedy approval. But it is also a fact that taking this type of loan has many ramifications, but you also need to understand the repercussions before availing the same. So, let's not waste any time and get started with the topic.
Table of Contents
Don't Forget You are Taking an Unsecured Loan
When it comes to calculating your credit score, a credit mix is one of the most important factors that you need to consider. It would be great if you have a perfect combination of secured loans (home & car loans) and unsecured loans ( personal & credit card loans). If you have a higher percentage of unsecured loans in your portfolio, it not only makes your credit score lower but also affects the financial stability. And, because a personal loan is also an unsecured type of loan, thus it might negatively impact your credit score, lowering your chances of availing the loan.
Loan Application Rejection is Also an Evil
Yes, you read that absolutely right! Every time you apply for a new loan your credit score gets lowered. And, many people without even knowing the real thing came into a state of situation and usually ask a question i.e. does a personal loan hurt your credit? So, for them, the answer is that the moment you apply with multiple lenders, your credit details will reach out to them. Then the lender will further check your score, and if they found multiple loan enquiry by your name, it surely impacts your credit. One should avoid applying or raising multiple loan queries with multiple lenders as it lowers your score, thus lessen your chances of availing the loan in the future as well.
Irregular with Repayment Has a Negative Impact
If you are irregular with your loan repayments, it is also going to impact your credit score very badly. In fact, even a single missed installment can change the game for you and make you a defaulter, which obviously you don't want, don't you? Thus, to enjoy a hassle-free and smooth journey, it is important for you to be regular with your loan repayment. Well, if you follow the same, it shows that you have the ability to effectively handle your finances, and you can easily repay the loan without any default.
High Loan Balance May Harm Your Credit
The outstanding balance of your loan is also an influential factor that can harm your credit. If you want to apply for a new loan, before availing you the same, the lender cross- check your previous credit history. And, in that scenario if the gap between your original loan amount and current balance amount is higher, it may impact your credit. Your outstanding balance should be less when you apply for a new loan because the lender may think that you won't repay the new loan as you have other financial liabilities/burden. The maximum remaining tenures of your existing are, the more difficult it may be for you to avail the loan, hence ultimately impacts your credit as there are chances of loan rejection.
Well, now that you know the nitty and gritty of the topic, so let's just hope you won't ask again does a personal loan hurt your credit score?
Have a safe loan journey! 🙂