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How a loan can affect your Credit Score?

What is Loan?

A loan is a certain amount of money borrowed from the lender with a contract of returning it with paying principle as well as the interest amount. The interest amount or interest percentage is calculated prior and is fixed throughout the tenure. The payment of the loan is done in a periodic format meaning on monthly bases and this amount consists of principle and the interest. As the duration of loan payment increases the principle from the amount you pay on monthly bases increases and the interest rate decreases. however, it does not mean that the interest rate from the loan amount decreases, the interest rate of the amount will be constant throughout the loan tenure.


What is a Credit Score?

Credit Score is a three digit number that decides whether you will get a loan or not. It describes your credit history and how trustworthy are you to repay your loan debt. The Credit score ranges from 300 to 900 and higher the number the more amount of loan can be passed by any lenders. It is generally assumed that a score of 750 can result in the approval of the loan.

How to check your credit score?

Checking free credit score at CIBIL Website

How a loan can affect your Credit Score?

  • A loan can help to build your credit score if you pay your loan amount on time even your credit card usage affects your CIBIL score. While looking at your repayment history, the lenders will believe that you are capable to pay back the money on time.
  • Your Loan Amount reduces due to outstanding loan. The lenders regulate the EMI such that it shouldn’t cross more than 40% of borrower income. The second loan can be any loan- personal loan, home loan or even a car loan.
  • Loan affect your credit Score badly if you pay late or default on the loan.

What Factor CIBIL depends on?

CIBIL score depends on 5 major factors. 
  1. Repayment History (35%)
  2. Credit Utilization (30%) 
  3. Duration of Credit Servicing (15%) 
  4. Credit Mix (10%) 
  5. A number of Credit Inquiries (10%)
For a more detailed article on Credit Score- Credit Score

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