Do Personal Loans Hurt Your Credit Score
Managing your credit score is a non-negotiable part of your modern life. It is possible to live a rich life without thinking about the hassles of credit score. However, it will involve extra hassle that is not for everyone. As such, if you wish to have access to credit, you need to maintain your credit score.
The most common credit that people used is credit cards. Their revolving balances will allow people to use them for their everyday transactions. This will also allow them to accrue points or miles that one can use for future travel or purchases. Just like other forms of consumer credit, credit cards can either help or hurt your credit score. It will all depend on how you will use them.
This is also true for unsecured personal loans. In this article, we will discuss how a personal loan can hurt or help your credit score. In sum, you must remember that when you are responsible for using your credit, it will be good for your score. If you are using it badly, then it will be bad for your score.
How Credit Works
Your credit score is created with the information from your credit reports. This tracks your history of using credit for the past years. Information like bankruptcies will stay in your report for many years.
Your credit report will include various information. It will indicate how much credit you have used, what type of credit you have, your open credit lines, the age of your credit accounts, and on whether you pay your bills in full and on time. This will also include information on whether you have filed for bankruptcy or there are liens placed against you. Indeed, any debt collections will be taken against you whether you have hard credit inquiries recently.
All this information is kept to create your credit score. The most common type of score is known as the FICO score. This is scored on a scale of 300 to 850. The higher your score, the better your personal loan rate will be. If you have a score, which is above 720, then it will be great. Meanwhile, any score that is below 630 then is considered as flat-out bad.
The two important factors in your credit score are your total amounts owed and payment history. Together, they will compose half of your score. Other major factors include your credit mix, the length of your credit history, and other credit inquiries. Check out this site to find a personal loan.
Do you pay your bills on time? You wish to have an excellent payment history, then you must avoid paying a bill of more than 30 days late. Similar to your regular job evaluation, recent payment history is important versus a late payment made five years ago.
Applying for the Loan
Before the personal loan can affect your credit score, your credit score will first affect your personal loan. When you have a higher credit score, then lenders will consider will you be responsible for your credit. As such, you might qualify for better terms. When you have a lower credit score, the less likely you will be seen as creditworthy and you might not be approved for a low-interest personal loan.
When you apply for a personal loan, a hard credit check will be done. It will be done when you permit a lending company to check your credit. Meanwhile, soft credit checks such as when you check your credit score, will not impact your credit.
Whenever lending companies trigger a hard inquiry, it will affect your credit score. Along with that, hard checks will still stay on your credit report for about two years. However, their importance might lessen with time. Check out this site to find a personal loan.
How Personal Loan Boost your Credit Score
When you pay your personal loan on time, it will have a positive effect on your credit score. It will demonstrate that you can handle your debt responsibly. Meanwhile, people who are bad on taking their debts can have poor credit scores. A person who will never acquire debt and pays it in installments will have no payment history.
Credit Scores is Needed for a Personal Loan
Credit scores range from 300 to 850. The higher your credit score, the more likely that the lending company will approve your loan application. Then, they might offer you a more favorable term like a lower interest rate. Indeed, each has its criteria. However, in general, the lenders view scores above 670 as one indication that the borrower is creditworthy.
Meanwhile, FICO scores have five categories which are poor, fair, good, very good, and exceptional. Remember that while credit score plays an important role in qualifying for a personal loan, lenders will also consider other factors. This includes your income, your money in the bank, and your years in your employment. Make it easier to apply for a personal loan with guide from EasyFind – how to get a personal loan.