It’s hardly likely that you would ever come across a situation that does not demand you to borrow some money. It could be for a wedding, an illness, or getting your dream car. Getting loans is quite an integral part of your financial life.
This loan attaining capacity can either improve or deteriorate depending on the kind of credit score you maintain.
A good credit score reflects your trustworthiness, while a bad one could make all the lenders turn their backs on you. So, it’s essential to maintain a steady credit score.
Now, if you are getting some Personal Loans, it’s essential to know that it can impact your credit score – in both good and bad ways. It all depends on how you apply for the loan and the efficiency with which you pay it back.
Let’s know more about it!
The Good Impact
If you are a responsible person who makes the best of your finances, a loan can positively impact your credit score. Here’s how it can happen:
- By responsibly repaying the loan
Most credit agencies and lenders look at your repayment history on your past credits to understand what kind of borrower you are. If you are consistent with your repayments, it helps build a strong credit score.
- By consolidating loans
If you have several debts, including Personal Loans, then consolidating them into a unified large personal debt would benefit you.
Having multiple open credit accounts could negatively influence your credit score. But if you consolidate it, your repayments get more manageable and quicker to pay off. Again, be consistent with your repayments, and you will be good to go!
The Bad Impact
Your carelessness in handling your loanscould lead to a terrible credit score. Here’s how it can happen:
- By creating multiple credit applications
All credit applications get recorded on the credit report, influencing your credit score. If these applications are made within a short window of time or if there are several open credit accounts, it could create an adverse impact.
For example, if your loanapplication is denied, it would be wise to wait it out. Figure out the reason for the rejection and work it out before filing for the loan again.
- By choosing a risky lender
When applying for a loan, choosing a low-risk lender is essential. For example, if you pick a payday lender, that could seem like a riskier option than getting the amount borrowed from a credit union or bank.
This could severely impact the calculation of your credit score.
- By skipping repayments
Missing the repayment instalments or defaulting on the loan entirely by not paying it back could negatively influence your credit score. It could even make getting new credit in the future very difficult!
According to Equifax, the median credit score for Aussies is 778 points out of 1200. Keep this in mind when you take out Personal Loans because it will have a definite ripple effect on your credit score.
Regardless, the impact is good or bad depending on how you handle your loans.
If you treat it responsibly by making timely repayments or getting help when in trouble, it will create a positive impression. If not, you can bid goodbye to a decent credit score, and it would only cause you to struggle in future.
The choice is in your hands!