Impacts of Loan Payment on your Credit Score

You put a burden on both your current financial circumstances and your ability to acquire a loan in the future if you can’t pay back your debts.

Borrowing responsibly allows you to not only acquire the necessary funds but also boost your credit rating, making future credit more easily accessible. However, if you are unable to keep up with your loan payments, it might put a burden on your current financial status and your ability to acquire a loan in the future. Read on to learn more about the potential effects of a loan application on your credit rating. And also you should know about how to check a CIBIL score

Position Effects:

Unsecured loans are simple to obtain and can be useful in establishing or repairing credit. One of the most important elements in determining your credit score is how you handle debt repayment. Repaying on time shows that you can be trusted with your money and lowers the risk associated with your credit report. This is why improving your creditworthiness and credit score by paying your bills on time and in full is so important.

In addition to helping you establish a positive credit history, unsecured loans can also help you boost your credit score by reducing the proportion of your monthly expenses that come out of your take-home pay. This is because there are no constraints on the final use of funds when applying for an unsecured loan. The consolidation of existing debt is one application. This might help you maintain a healthy debt-to-income ratio if you have taken out an unsecured loan for this purpose. You’ll see even more improvement in your credit score as a result of this.

Negative Effects: 

If your debt-to-income ratio rises as a result of a loan payment, your credit score may drop. Your debt-to-income ratio should not exceed 30%. If your monthly salary is Rs. 1,00,000 and your existing EMIs are Rs. 25,000, taking out a loan with an EMI value of more than Rs. 5,000 will push your total EMI amount past Rs. 30,000, which is bad for your credit.

Additional Read: How to Increase Your Chances of Personal Loan Approval

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