People with bad credit scores face difficulties obtaining a loan from a reputable licensed moneylender. On the other hand, with a good credit score, you can get sizeable loans from any moneylender or financial institution. Ever wondered what determines your credit score? How can you build a better credit history and secure your financial future?
Well, the easiest way to build a good credit history is to pay your utility bills, loans, and other debts on time. Even a short delay in your bill payments can damage your credit history. Another way to improve your credit score is by taking up a personal loan. Here’s how a personal loan can affect your credit records.
Personal Loan Shopping
Before you apply for a quick cash loan in Singapore, the moneylender will run a soft credit check on your financial records. This is not the final eligibility test, but rather a pre-qualification check that allows moneylenders to gain an insight into your credit score and financial history. The pre-qualification test does not guarantee that you will receive the loan. However, it allows the borrower to check and compare different loan options.
If you qualify for this preliminary test, the moneylender will inform you of the available loan options. Not all banks and credit unions run a soft credit check. If you are only planning to compare the loan options, pick moneylending companies that allow pre-qualification testing. It provides you with a better loan shopping experience.
Applying for a Personal Loan
The main disadvantage of applying for personal loans formally is that it deducts a few points from your FICO credit score. The banks and credit unions have to run a thorough analysis of your financial history. Not only do they check your current credit score, but your overall financial records as well. This strict inquiry can bring down your credit score.
However, the deduction in your scores, reflected on your credit reports, only lasts for a temporary period. It only influences your credit scores for a year.
Repayment of the Personal Loan
Up to 35% of your credit score represents your loan repayment history. The crucial factor that credit bureaus consider to determine your credit score is your payment record. To develop a good credit score, you must repay all your debt (especially the personal loan) by the due date. Your credit score will substantially increase if you were to pay back your personal loan on time.
It is important to note that your credit score will not be deducted instantly if you fail to pay up by the due date. However, delay in paying up to 30 days can affect your credit score terribly. Your credit score could drop by approximately 100 points if this delinquency is reported to the credit bureau.
With a personal loan, you can improve your credit score substantially with the ways described above. By successfully paying back your personal loan on time, you can build a better credit history and secure yourself a better financial future.