advantages disadvantages personal loan credit score

There are many things that we must take into consideration before we can apply for personal loan,such as how this will impact your credit score. In some cases, a personal loan may be able to help you with your credit rating or credit scores especially when you are using your loan to pay down existing or higher – interest rate debt. Nevertheless, a personal loan can also make it easier to follow the credit rule, paying your bills on time because it can reduce the monthly outflows.

What is A Personal Loan?

A personal loan is a form of credit usually issued banks, credit unions or digital lenders that can help you make your big purchases in your life (e.g houses and cars), starting a small business, bundle high – interest debt and so on. As personal loans have particularly low interest rates than credit cards, this can also be used to consolidate multiple credit card debts into one – single payment.

Advantages of Getting A Personal Loan

  1. Reduces Your Credit Utilization Ratio. Treat personal loan like an installment plan. Because of that, debt is not considered in your credit utilization ratio. If you pay off revolving debt with a personal loan, it will lower your utilization ratio, which will have a positive effect on your credit scores.
  2. Adds variety to your credit type. There are five factors which contribute to the credit utilization ratio, length of credit history, new credit inquiries. A personal loan may help create more varied mix of credit types, which lenders and creditors view favouribly.
  3. You Will Establish A Payment History. In the long run, the personal loan is able to help you to make your payments on time and in – full. The more on time payments you have, the better your credit score.
  4. Debt Consolidation. This is when we can use personal loan to pay down our balances on our credit card because the interest rates on our personal loan are lower than the ones on credit cards.

The Disadvantages of Using A  Personal Loan

  1. Additional Inquiries Into Your Credit Report.  If you are somebody who is constantly using personal loan to pay off your credit, no doubt that you will be probed to be asked about your credit report, as banks will need to check your credit worthiness to enable you qualify for the loan.
  2. Additional Debt.  Remember that when you apply for personal loan, you will still have to pay back its interest no matter the amount, only borrow what you need so you don’t have to incur any additional debts. By doing this, it will not bring much harm to your financial goals and retirement plans.

The only way to avoid having to take out personal loan and incurring negative credit is to manage your own debts in a more manageable ratio. If you are financially troubled, try contacting your creditors to work out a manageable payment plan or agencies like AKPK.

Taking out a personal loan will certainly help you to pay you’re using your cash to pay or consolidate debt at a lower interest rate or make a certain type of large purchases. Analyse your loans and ensure that you pay your loan on time to maintain a good credit score and having positive loan experience.

To get started, you may sign up HERE for Kuwait Finance House Personal Loan today!

 

KFH Personal Financing

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