How does Personal Loan affect Credit Score? - How to Repay

Taking a personal loan won’t mar your credit score or credit rating by itself, but it can adversely affect the overall score. This can make it tough to get a new line of credit such as loans and credit cards. This means you need to pay back this personal loan before getting anything else for a while.

If you can pay back this loan on time, more power to you! Your credit score will get a boost.

5 factors that affects Your Credit Score

You already know how the credit score works, right?

No?

Still a bit confused about it?

Don’t worry! We’re going to go through all that again now.

• Payment history: 35%

• Outstanding debt: 30%

• Credit history: 15%

• Credit mix: 10%

• New loans: 10%

As you can see, new loans constitute 10% of your credit score. Taking a new loan on top of taking a personal loan can affect the score quite a bit since your outstanding debt increases.

How much this affects your score depends on your credit history.

Have you been paying off your loans on time over the years? If yes, then taking a new loan won’t affect your credit score by a significant margin.

Have a low credit score? Not sure if your score is high enough?

Don’t worry!

Here’s how to boost your credit score.

Boosting your credit score to get a new loan

Want a simple way to boost your credit score?

All right, here it is:

Pay back your loans on time!

Ask any expert, and they will tell you the truth. The safest and easiest way to increase your credit score over time is to pay back loans on time. Since paying back on ime shows financial responsibility, your credit score is affected positively.

So, now you know pretty much all about a personal loan, except possibly its modes of payments. That’s what we’ll cover next.

Modes of Payment

Different lenders adopt different paying modes. Sometimes, you see this difference between banks too. Thus, it pays to know about the payment forms. 

1. Electronic Clearance System (ECS): This is one of the most popular repayment systems. With ECS, you can transfer funds from your account to someone else’s. And since it does not commence without your express permission, it's very safe.

2. Post Dated Cheque (PDC): The concept of a Post Dated Cheque is that a PDC can only be used on or after a certain date, not before. That makes it ideal for paying bills and for encashing/depositing funds at the bank.

3. National Automated Clearing House: There is a program called NACH (National Automated Clearing House) offered by the NCPI (National Payment Corporation of India). This program is offered to all banks and financial institutions and allows processing of real-time transactions. You can repay loans with the NACH.

4. Debit mandate: This is similar to the ECS since it too requires your permission for the transferring of funds at regular intervals. On getting this permission from you, the bank starts transferring funds from your account for a loan repayment.

From all of us at mymoneykarma, we hope that helps you!