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There seems to be a general misconception that a loan is going to hurt your credit. This can never be farther from the truth. While it is going to have an effect on your score to some extent, it is not all bad.  

Things to Consider When Applying for Loans

When you take out a loan, a lender will want to do a hard credit check on your financial records. This can have a negative impact on your score. However, if you get approved for that loan and you make sure that your repayments are done on time, you can trust that it is going to have a positive impact on your credit score. Repayments, after all, are bound to stay on your credit file forever. So, you’d want to avoid paying late or defaulting on the loan.

A loan is helpful in building your credit history and can be a good way of diversifying your records. It would help if you have different types of credit on your records. It would be even more advantageous for you to get all these loans paid off on time. Loans can have about a 90% impact on your overall credit score.

Applying for A New Loan

Still, you have to remember that every new loan application can hit your credit score negatively, even just by only 10%. However, you ill aggravate this if you are going to apply for more loans for a short period of time. Spacing out your applications strategically, especially if you had rejections, by a six-month period or so will help ensure that your credit score is not going to take a serious hit. 

Gaining access to credit depends largely on one thing and that is your credit score. Maintaining an excellent credit score is key to getting credit. However, this credit score is affected by numerous factors that may make or break your credit score--or both. One of these is getting a personal loan.

The good news is the effect of personal loan on credit score isn’t all bad; it also has its own advantages. Just remember, when getting a loan, always do it responsibly. I’ll be explaining further the different ways in which a personal loan can affect your credit score.

What is a credit score?

The credit score is generated through a record or report that tracks your usage of credit over time as well all other transactions that involve your credit. These include information about the total amount so far of the credit that you have spent, any deadlines that you missed regarding payment, or if you have ever filed bankruptcy. The aforementioned information goes through a type of filter that generates your final credit score.

What is a personal loan?

Having said that, a personal loan is basically just another form of credit. Much like credit cards, they are issued by financial institutions such as banks. However, they typically have lower interest rates as opposed to your credit card. They’re easier to manage compared to debts with high-interest still is a seriou responsibility so before deciding, make sure to assess your current financial status. Here are the benefits and the disadvantages.

Pros

It does not affect your credit utilization ratio

This ratio is calculated by assessing your existing revolving credit debits with respect to your available credit. Personal loans aren’t really included in this and so if you are using your personal loan to pay off these debts then you’d actually lower them down. Consequently, this will improve  your credit score.

You will have a good payment history, provided that you pay on time.

Generally, as long as they can see that you don’t miss your deadlines, your credit score will naturally get boosted.

You can pay off your credit card loans easier.

One of the common use of personal loan is debt consolidation or the act of taking a loan so you can pay off multiple ones. When you this, you can lump all your loans in one easier system of paying. As a result, your credit score will get better.

Cons

It adds to your hard credit card inquiry in reports.

Everytime you apply for a loan, institutions will check your creditworthiness. This will be tallied as a hard credit inquiry in your credit report which is the basis of your total credit score. This can negatively impact your score, albeit only by a few points.

It will increase your total amount of debt.

This will still increase the overall amount of money you have borrowed and will still affect your credit score.

Final Thoughts

Given all these considerations, it is always best to evaluate your own financial and credit status. If you have carefully managed all your loans properly over time and you don’t miss deadlines, chances are it won’t hurt much to take out a personal loan. On the other hand, if you’re already a bit overload with your debts then you might need to take step back and assess your situation once more. Bottomline is, just be responsible.

Payment Method?

Once funds are available, we send it directly to your checking account that is registered during your application. You should be able to receive the funds in a just a few minutes to an hour. No need for complicated documents or extra requirements. We’ll send it right away.

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