How can a Personal loan help you improve your credit score?

A personal loan is the most popular form of borrowing for financial emergencies. This is because a personal loan is unsecured and does not require any asset to keep as security against the loan. While availing of a personal loan, a good credit score plays a vital role as it demonstrates your creditworthiness and your capability of handling credits well. 
 
Besides, your high credit score opens the door for new loans or lines of credit quickly. A good credit score not only increases your chances of quick approval but also boosts up your chances of negotiating for a lower interest rate.  
 
So, if you plan to get a personal loan, you should enhance your credit score, allowing you to get credit more beneficially in the future.
 

What are the benefits of a personal loan?

A personal loan is an unsecured loan that does not require collateral. It is a fixed loan type and does not fluctuate like home loans. Personal loans can be availed for various purposes like marriage, home renovation, debt consolidation, education, medical, emergencies and to fulfil goals and aspirations. Easily, you can get the loan amount instantly on the same day without hassles.
 
Nowadays, with online loan apps and websites, instant personal loans have a complete digitized process and get approved within seconds. Unlike the old traditional methods of availing loans that took weeks for sanction and disbursal.
 
An instant personal loan is an entirely paperless process with minimum documentation like your Aadhaar and PAN card, which is mandatory for E-KYC verification. Besides, the eligibility criteria for a personal loan are minimum for both salaried and self-employed individuals, earning a minimum salary of Rs.15,000 per month for a loan amount starting from 50,000 – 1,50,000 at a reasonable interest rate. 
 
The repayment tenure is flexible for prepayment or part payment starting from 6 months to 24 months and can be customized as per your convenience without hurting your monthly budget.

Here’s how you can improve your credit score by availing of a personal loan?

Responsibly managing personal loans can improve your credit score. So, let’s find out how:
 

Make timely payments

Paying your debts on time not only indicates how responsible an individual you are. It also builds a good credit score. Consistent payment history will reflect your credit report and improve your credit score over time. Enabling automated payments is the best option if you are forgetful, which can help you to prevent delayed payments or missed payments.
 

Reduce your credit utilization

The basic thumb rule is to stay below 30 percent of your income on your total credit utilization ratio. If credit utilization exceeds 30 percent, it can lower your credit score. Hence, limit your purchases on credit cards if not necessary, to avert paying higher interest rates on debts. On the other hand, defining your credit utilization usage would help boost your credit score.
 

Debt consolidation

Taking a personal loan for consolidating debts is a brilliant idea as this will combine multiple loans into a single personal loan. This will reduce the overall interest rate and enhance your credit score. 
 

Improve your credit mix

When you have a combination of credit types with disciplined repayment records, it shows that you are good at managing various financial obligations with steady payment history. Moreover, it helps the lender in offering loans as per your requirement.
 

Opt for longer tenure

When you take a personal loan for a more extended period, it can help improve your credit score as EMIs are less and easily repaid. So, when you make regular payments for monthly instalments for an extended period, your credit score will get better and improve gradually. 
 

Bottom-line

When taking a personal loan, you can improve your credit score with the above methods. Just with your alertness in maintaining a financial track record, you can increase your credit score easily.