Here is How to Maintain a Good Credit Score with Personal Loans and Credit Cards


A Credit Score is a three-digit numerical figure which reflects the creditworthiness of an individual. This score is considered to represent a summary of an individual’s credit rating and credit history. The score generally varies between 300 and 900. Higher is the score; higher is the credibility of the individual. A high Credit Score is considered conducive for your financial health, and it enhances the chances of loan approval for the individual. If an individual’s score is low, lenders will consider it risky to extend any financial obligation to you.

Building Credit score using Credit Cards and Personal Loans

It must be noted that a Personal Loan is an unsecured loan and it is repaid by payment of instalments at fixed frequencies. Whereas Credit Cards extend you instant credit for 45 days, with an additional option to convert it into revolving credit. In both accounts, the repayment requires certain financial discipline. As you repay your Credit Card bill and loan EMI you boost your Credit Score in the process.

Understand factors impacting the credit score

There are 5 prime factors that impact your credit score: Payment history (35%), credit utilization ratio (30%), credit tenure (15%), credit mix (10%) and credit enquiries (10%). It is very important to monitor one’s performance on these parameters in order to maintain a high credit score.

Pending dues should be cleared before due dates

Credit score is impacted by all dues, whether these are outstanding amounts payable against credit card usage or interests on various Types of Personal Loans. Outstanding balance on every account should be cleared before the due date. Not only do these outstanding amounts attract heavy interest penalties and late fines, these also mar chances of procuring loans and Credit Cards in future.

All dues to be accorded equal priority

All types of credit, ranging from credit card dues to trade debts to instalments payments hold equal weightage at the time of computation of Credit Score. Hence, these outstanding debts should be accorded equal priority, and should not be filtered on the basis of choice or rate of interest payable.

Ensure minimum dues are paid in case sufficient funds are not available

Debts and loans should always be cleared in full. If however funds are not available to clear the outstanding amounts in full, the minimum amounts should be paid within due dates so that the default does not get recorded with credit bureaus. Though this invites interest payments on the outstanding sums, it would protect the Credit Score from getting a hit.

Timely payment of bills

Not all payments made at the right time get reported to the Credit Bureau. It may impact the Credit Score if payments are not cleared off timely. Any payments which are sent to the collection department may have a negative effect on the score.

Old Credit Cards should be kept active

Length of credit history constitutes 10% of credit score. Hence, an attempt should be made to keep old Credit Cards active so that credit history is available for a longer period of time. If old credit cards are surrendered, banks would stop passing on data to credit bureaus due to the lapse of time and significant credit history would be lost.

Maintain low credit card utilization ratio

Credit score is impacted by the credit Card Utilization Ratio. This ratio comprises of the credit limit extended by the bank for credit cards and the balance available against those cards. One should aim for a ratio of less than 30% to maintain an attractive Credit Score.

Keep a constant watch on changes in Credit Score

One has to be vigilant about his Credit Score and blow the whistle as soon as any error is observed. Any factors impacting the score which call for action must be actioned immediately for rectification.

New loans and credits should not be applied for unless necessary

Every time an individual applies for a new debt, there is a hard enquiry on the credibility and this may impact the score. New loans and Credit Cards should be applied for only when it is absolutely required. The score gets a drastic hit especially when an application for loan or debt gets rejected by a lender. Repeated rejections may subject an individual to poor Credit Score.

Withdrawal of cash using Credit Cards should be avoided

Usage of Credit Card for withdrawing cash should be refrained from. Not only is this expensive because of the high rate of interest associated with such withdrawals but is also not looked upon positively by Credit Card bureaus and banks.

Debt settlement option should not be exercised

Debt settlement option is an alternative available with loan seekers whereby they approach the lenders for waivers or reduction in amounts payable. Though the amount of debts may be reduced by lenders, but these would tar the records of the individual as his repayment capabilities will always be looked upon as risky. Hence this option should be avoided as far as possible.

How Personal Loans can help individuals maintain a high credit score?

A Personal Loan is a debt option available with someone who is in need of funds. Personal Loans can aid the process of building credibility provided the instalments linked with such a loan are repaid timely and regularly without any default.

SBI Personals Loans, PNB Personal Loans, and loans offered by almost all banks are effective tools being used for credit diversification.

  • Debt Consolidation– A Personal Loan can impact the credit score positively especially if the said loan is being procured for paying off an existing debt on which a high rate of return is payable or for the purpose of debt consolidation.
  • Lowers credit utilization ratio– If a Personal Loan is sought for some personal exigency which otherwise would have to be paid off using a Credit Card, the same acts as an important tool in lowering the Credit Utilization Ratio.
  • Diversifies credit mix-Credit mix is an important constituent in calculating Credit Score. Diversifying debt by opting for a Personal Loan facilitates a better credit mix and hence is a step to positive credit score build up.
  • Permanent credit history– It creates permanent credit history, and it is positive as long as the individual makes repayments regularly and timely.

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