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When applying for any kind of credit, lenders determine your creditworthiness for securing themselves against any potential losses. There are several factors which can determine your eligibility, however, the key indicator of ability and creditworthiness to honor a debt is your CIBIL score.

Every lender follows different parameters for issuing you any particular loan amount. RBI (Reserve Bank of India) has mandated that banks must check CIBIL score of every individual applying for a loan/credit card at the time of evaluation.

A CIBIL report keeps the track of past repayment on credit cards and loans. All the lenders consider this past behavior along with the present actions of the borrower for determining the intent to repay the loan repayment in the future. Most of the new borrowers and people who have not been able to keep up with their debt payments, etc. have a low credit score which is too low for any kind of loan by any financial institutions. However, improving Credit Score with Personal Loans is an easy step which can get your CIBIL score up to a respectable score.

Improving Credit Score with Personal Loans

Personal loan could be of great use for your financial emergencies as it doesn’t need any security and also comes with less stringent formalities. Though not being so famous for being a costly borrowing option, when managed smartly personal loans could go a long way in enhancing your CIBIL score.

Personal Loans for Debt Consolidation

Improving Credit Score with Personal Loans by debt consolidation is one of the prudent ways an individual can follow. An outstanding credit card bill would do much more harm to your CIBIL score as they carry high interest rates if you miss any of your payments. Over limit charges are applicable as well adding to your worry. And if you have more than one card with such high debts, it’s a nightmare. The interest part would keep accumulating on to the outstanding balance that would cause havoc on your CIBIL score.

Improving Credit Score with Personal Loans is the most prudent options in this scenario by consolidating the debts on various credit cards. You should do this as and when you realize that the credit card bills going out of proportion because it’s possible to find a personal loan with a fair CIBIL score, however, a ‘poor ‘ or a ‘bad’ score won’t help.

Improving Credit Score with Personal Loans could work best for you because-

  • Personal loans are cheaper than most of the credit cards
  • You would save on interest charged on various credit cards and can replace it with a personal loan
  • Single EMI on a personal loan is more manageable than several EMIs

Your CIBIL score won’t shoot up once you pay off your debts. As you regularly make payments towards the personal loan, the CIBIL score would gradually recover and increase.

The Bottom Line

Even though improving Credit Score with Personal Loans looks a lucrative way to improve CIBIL score, a lender shouldn’t perceive you as a credit hungry person. It is advisable to go for small and limited number of personal loans. A personal loan isn’t just for financial emergencies but also helps in building a healthy CIBIL rating.

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June 2024