The pretty negotiable part of modern life is maintaining the credit score. If you want to access the credit, then you need to maintain a good credit score. Your credit score is formed using information from your credit reports, which track your history of buying credit over the past seven years. Your credit reports are calculated by three important credit bureaus. The below depicts clearly how the loan can affect the credit score of an individual. The factors that affect the credit score of an individual is described briefly.
How the payment history gets affected:
Personal loans are offered to you by the private or the public money lender. The loan is divided into a series of small regular payments. The credit score gets increased, only when you pay your loan on time. If you miss your regular payment or you pay your regular payment lately this will result in lowering the credit score.
Payment history is the most important and crucial factor of your credit score and even a single delay payment can reduce your score. You will take months and years to maintain a consistent payment history. This steady payment history will help you to keep your credit score.
How the already started debts get affected:
When you take out new personal loans you are adding the amount to the total amounts you already owed. This will cause a huge impact on your credit score. Keep on adding more number of debts will increase your overall debt which will result in downfall in your overall credit score. But in the case of thin credit history taking out an additional loan will help you to cope for a long period.
Sometimes the credit score obtained during multiple loans helps you to project yourself that you can manage your debt load. This way enhances your credit score. You will be getting recognized by potential leaders and landlords that you are a person, capable of managing and repaying the debts.
With the help of the credit card you buy, you can maintain your credit score. If you never use more than thirty per cent of your total credit limit, then you can improve and maintain the credit score. The process of repaying the instalments before the grace period will help you to improve your score and you need not want to pay any interests.
How does credit mix play an important role in this problem?
The credit mix is the one that depends upon what other kinds of loans and cards you have taken out. The loan that you take to mix up with other loans and cards. Whether this will create any positive or negative impact.
If you have two credit cards and you have a car loan. Now you are getting another loan will help you to increase the credit score because you are using a new method of credit. If you are planning to get another loan online then that will reduce the credit score because it will denote your insufficiency in handling the debts. If and only if you have a diverse credit mix, then only you have chances of improving and maintaining your credit score.
How will the length of the credit history create an impact over this situation?
The length of the credit history also plays an important role in your credit score. Most of the instalment loans come with multiyear repayment method. The loans have been paid by you from a longer period.
The older the average of the credit accounts helps you with the score because they show that you have been able to maintain a long term relationship with your loan lenders. But the strange thing here is the closing up of the accounts will lower your credit score. Thus when you finally pay off the loan, it will lower your credit score. Thus you should not close older credit accounts because they will increase your credit scores.
When you fetch a new loan means new credit enquires will arise:
When you apply for a general loan in any of the financial institutions, your lender will run a hard check on your ability to repay the loan. This means getting the complete details of your credit history this is the standard procedure followed by many of the vendors for any type of loans such as home loan etc.
The credit inquires will decline your score. The multiple enquires will be performed when you demand more loans. The multiply inquires leads to a rapid decrease in your credit score.
Whether you buy a loan responsibly?
The most important part about taking a loan by you is to use the loan responsibly. You are advised not to make more money than needed. You must make your payments on time. You must make sure that the payment fits within your budget. You can use possibly use your loan to consolidate high-interest credit card debt.
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