Financial emergencies can arrive at any time due to different situations and reasons and often your savings may not be enough to deal with the unexpected calamity. The banking sector is set to evolve drastically and making it extremely easy for people to get financial assistance readily. Gone are those days when an availing loan was a daunting task for people as you had to visit several banks and prepare plenty of documents before getting the amount sanctioned.
However, when it comes to the unsecured personal loan, you can get approval almost within a few minutes of visiting the website of the bank. When you seek the personal loan, you can access the money within the same day of an application making it a hugely popular option.
Manage it properly
Personal loan can be a great option when it comes to meeting your financial difficulties as it does not require collateral and the formalities for availing it is rather easy. Even though it is often termed as an expensive borrowing option, you have to manage it smartly to enhance the credit score. You may have often heard that a good credit score is needed for obtaining personal loan although it is not the only thing that the lenders check before offering it to the customers. There are several other parameters that allow the lender to determine whether you are the right candidate to avail the loan. If you meet the other criteria successfully, personal loans for poor credit is easily granted by the banks.
Reasons to take personal loan for improving the credit score
There are two basic reasons why you should take a personal loan to improve the credit score.
Paying the old debts: Obtaining personal loan is the easiest way to clear your old loan amount and the best method to get through your old debts. It can also help you to start repayment with new terms and conditions and allows you to improve the history of payment, which subsequently improves the score.
Repay on time: While applying for a loan, you have to keep in mind about the monthly repayment option. In most of the cases, the lender decides the tenure of repayment based on your financial abilities. As a result, you have no burden of debt and pay the installments on time easily, which is eventually considered a positive addition to your credit history and will help you to improve the credit score.
Personal loan for improving credit score
It is not just accessing the funds that matter. You must also consider a few aspects before making the personal loan a weapon to improve the score.
- Do not apply for several loans
Do not become hungry for credit when representing your needs in front of the lender. Moreover, every time you seek a loan, the lender initiates a hard enquiry on your credit report, which again impacts the credit score. With too many hard enquiries, you are going to lose your prospects as a borrower.
- Choosing the amount wisely
You may take personal loan to meet your needs any time but make sure the need is genuine. When you take a loan to improve the credit score, the amount itself can play an important role. Try to assess your needs carefully before choosing the amount wisely.
- Paying the amount regularly
Availing a personal loan for improving the credit score does not make any sense if you fail to pay the EMI regularly. Whether it is personal loan or credit card, both are unsecured loan options, so you have to make it a habit to make the monthly payments within the schedule.
- Pre-paying the loan
When you avail the amount to improve your credit history, you must stay away from the option of pre-closing the loan as longer credit history is viewed positively by the lenders. Therefore, if you continue to make the payments within time, a longer tenure reflects on the credit score positively it provides you with an opportunity to improve the score.
- Closing the loan before tenure
Often people try to close the loan before the tenure to avoid the high rates of interest, but do not forget that the lender considers the long and short-term credit worthiness. Even when you have the money to end the debt before the tenure, you must pay bulk amount instead of closing it prematurely especially when you have availed the amount to boost the credit score.
Rushing into other debts
When you start paying the monthly installments, your credit score is also going to improve dramatically and make you eligible for various other loans. However, you must not fall into the trap of debts as it can affect the credit score negatively again.
Sonia Sharma has been working as a professional charter account at loanClix – Best home loan finance company in India. She loves to share excellent stuff about home equity loan, low-interest personal loans etc. You can also follow her on various social media platforms such as Twitter, Facebook.