I’m planning to take a personal loan for some urgent expenses, but I’m a bit worried about how it’ll impact my credit score. Some people say it improves your score if you repay on time, others say it can hurt it just by applying. Can someone explain exactly how a personal loan affects your CIBIL or Experian score?
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A personal loan can either help or hurt your credit score, depending on how you handle it. Here’s how it works:
- Initial impact when you apply:
When you apply for a personal loan, the lender does a hard inquiry on your credit report. This can slightly lower your score (usually by 5–10 points). Not a big deal unless you apply to multiple lenders in a short time. - Effect of taking the loan:
A new personal loan increases your overall credit exposure, which can slightly dip your score at first. But that’s normal and usually temporary. - Repayment behavior:
This is the most important part. If you pay EMIs on time, your score will improve steadily. Timely payments build a positive credit history. On the flip side, missing EMIs or defaulting will tank your score fast and stay on your report for years. - Credit mix and utilization:
Having a mix of secured (like home loans) and unsecured credit (like personal loans or credit cards) is good for your profile. But too many unsecured loans can be seen as risky by lenders. - Closing the loan early:
If you prepay and close the loan, it won’t hurt your score as long as it’s reported correctly. Just make sure you get a no-dues certificate and check your credit report afterward to ensure it’s updated.