Do you need a personal loan but do not want a bad credit score? Here is how you can do that.
There may come a time when you need some extra cash to assist with your personal finances or when making an expansive purchase. Securing a personal loan allows you to borrow money without collateral. However, when applying for any personal loan, it is important to take into consideration the impact it may have on your overall credit score.
How does applying for a loan affect my credit score?
If you have a bad credit score, then it's highly unlikely that you will get a loan. Get your credit score first and see where you can improve.
Before applying for a loan certain factors need to be considered. Any debt does have an impact on your credit score.
When applying for a loan an inquiry is logged on your credit report. This does impact the credit score. It will not make a large dent on your score as the inquiry will only drop the credit score by a few points.
However, if you make multiple credit inquiries over a relatively short period, the results will be different. The more personal loans applied for within this short space of time, the bigger an impact it will have on your credit score.
On successful application of a personal loan, it is imperative that you manage it effectively. This the most critical aspect of managing your credit score going forward.
Do not allow a personal loan to affect your credit score
With a personal loan, one of the factors affecting your credit score is your payment history. As long as you keep making the payments on time, your credit rating will be positively impacted.
The opposite will occur whenever you fail to make payments on your personal loan as your credit score will be penalized. It is of the highest importance that you continue to make the payments required to prevent any negative impact on your credit score.
When applying for a loan, lenders and any other institution that you approach will look at your credit score for any risk. If you have an existing personal loan, depending on the amount, it can affect your future chances of getting more credit even if your credit score is positive. The lenders do a risk assessment and having an existing loan may lead them to consider you a financial risk.
So yes, a personal loan can potentially hurt your credit score. Keeping your loan applications to the minimum and making all the payments on time will help avoid this. Any personal loan that you successfully pay off can have a positive effect on your credit score as it demonstrates to the potential lenders that you can manage debt responsibly.