Budget Books

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Your credit score is an undeniably important marker of their financial history, helping maintain your financial credibility. Not only does it determine things like how big of a loan you can get from a lender, but it also has a huge role to play in the final interest rate you have to pay. The better your credit score, the more credit available to you, and at a lower interest rate.

Using a Personal Loan to Improve Credit Score

So how can you improve this clearly important score associate with you? One of the many ways to build credit is by taking a personal loan.Unlike mortgages and other purpose-specific loans like business loans, personal loans can be utilised for any kind of purchase or financing. You can use it to pay off your debt, remodel your house, pay medical expenses, or just to throw your dream wedding.

Need to Improve your Credit Score  Take a Personal Loan

IIf you have a low credit score, use a personal loan to improve it.If you run a quick search, you will find many banks and NBFCs offering easy personal loans. You can apply for these online;as long as you have a regular income, you can get a personal loan from a bank or NBFC.

Need to Improve your Credit Score  Take a Personal Loan

How a Personal Loan ImprovesCredit Score?

Personal loans, when managed smartly, can help improve your credit score by establishing a reliable payment history and paying off your existing debts.

Better credit mix

A personal loan is an instalment loan, which is why you can use it to consolidate the debt you presently owe. For example, if you have several credit cards and need to make separate payments, it can hurt your credit score. But,if you use a personal loan to pay off your credit card debt at once, and then paythe loan in monthly instalments, not only will you save money but also get access to more credit.

PPersonal loans can help boost your credit mix, by adding an instalment credit to your record, different than the revolving credit associated with your credit cards.In merging the debt, you can improve your credit score by making pending payments and resetting the balance on your records.

Builds payment history

A personal loan allows you to make regular loan payments to builda reliable payment history. This can significantly improve your credit score, provided you make the full payments on time each month.


Don't prepay your loan if the sole purpose of taking the loan is building your credit score. A longer credit history with timely payments is considered favourable for building a good credit score. 


Reduces credit utilisation ratio

The credit utilisation ratio is the amount of revolving credit you are using, divided by the total available revolving credit. Since a personal loan is paid off in instalments, it is not included in calculating your credit utilisation ratio. So, if you use a personal loan to pay off your revolving credit stemming from your credit card debt, it can help your credit score by replacing the revolving debt (factoring into your credit utilisation ratio) with an instalment loan.Since most personal loans have lower interest rates than credit cards, they help you settle credit card debt at a lower cost.


As much as taking a personal loan can boost your credit score, make sure to exercise a consistent payment practice. If you have a reliable and steady source of income, i.e. a way to pay your monthly EMIs on time, don't hesitate from taking out a personal loan to boost your credit score. o:p>


Published by

Category Others   Report

1 Likes   1 Shares   2115 Views


Related Articles


Popular Articles

IIM Indor
caclubindia books

CCI Articles

submit article