Published on Apr 3, 2024Updated on Sept 21, 2026
Does taking out a personal loan hurt your credit score? Or will a personal loan quickly fix your credit score?
With credit score being one of the most crucial factors in the personal loan application process, there are naturally many myths and doubts surrounding them. Let’s help you uncover the most common credit score myths and the truth behind them. We will also take a look at some ways to maximize the benefits of your personal loan for credit score enhancement.
A credit score, also commonly known as a CIBIL (Credit Information Bureau India Ltd.) score is a 3-digit value that is a summary of your complete credit history. It is derived from factors like your payment history on credit cards or loans, outstanding debt if any, length of credit history, and so on. In India, credit scores typically range from 300 to 900. A score of 700 to 749 is usually considered a “good credit score” while scores of 750 and above are considered “excellent”.
When you apply for a personal loan or credit card, lenders will turn to credit scores to assess how likely you are to repay the loan on time. Borrowers with higher scores are often viewed as low-risk and can be offered lower interest rates and larger loan amounts. They may also get a longer repayment tenure, reducing the burden on monthly installments.
There are several on how both of these factors affect each other. Here are some of the most common personal loan myths -
When you apply for a personal loan, lenders will initiate a hard inquiry on your credit report. This may cause a small decrease in your credit score, but it is usually only for a short term. If you make sure of timely payment of the loan instalments, you can improve your credit score over time. Moreover, a diverse mix of credit including a personal loan can benefit your score as it shows that you can responsibly manage different types of credit.
It is true that personal loans can benefit your credit score over time, but it is by no means a “quick fix”. Improving your credit score requires consistency in responsible credit behaviour. Some ways to do this include making on-time credit card or loan payments, keeping the credit utilisation ratio below 30%, and not applying for too much credit at once.
While a high credit score will make your loan application stronger, it does not guarantee that your loan will be approved. You also have to meet other personal loan eligibility criteria such as age, work experience, and minimum income.
A significantly high income may be considered a good indicator of your repayment ability. However, a low CIBIL score can point toward credit irresponsibility in the past, making lenders hesitant to approve the loan amount.
Provided you manage them wisely, here are some ways personal loans can improve CIBIL score -
While personal loans can be useful for credit score enhancement, they need to be managed responsibly to avoid complications down the road. Here are some factors to keep in mind -
Here are some ways to get the most out of personal loans for credit score enhancement -
Credit score enhancement takes time and consistent financially responsible behaviour. Whether a personal loan will positively or negatively affect your credit score depends entirely on how you manage it. Making on-time payments across all credit accounts and keeping a low credit utilisation ratio will help improve your credit score over time. There may be a temporary, short dip in the credit score as a personal loan application generates a hard inquiry from the lenders.
SMFG India Credit requires a credit score of 700 and above for a personal loan application. Provided you meet other eligibility criteria, you can get attractive interest rates that start at 12.5% per annum*. Apply now for a loan amount of up to INR 10 lakhs* with a 100% online application process.
Important Note: This article is for general informational purposes only and may be subject to change from time to time. As product features, eligibility criteria, interest rates, charges, fees, tenures and other terms may be revised as per SMFG India Credit's policies, readers are advised to refer to the latest details from the respective product pages (please select from the top menu). For the latest loan charges, please visit Charges & Fees Link and for the latest Interest rates, please visit Interest Rate Rationale. Please note that final loan terms, disbursement process and eligibility criteria will depend on SMFG India Credit's policies at the time of loan application.
The content of this article is for information purposes only and does not constitute as, an offer or advise to avail any products or services from, or, a commitment to grant any loan by the company. It is not intended to create any rights or obligations against us. All content is provided "as is" without any warranty of any kind, either express or implied & we disclaim any warranty or representation, whatsoever, in regards to the content. Please refer to the Privacy Policy of the company to understand the use, processing and storage of your personal data.
A personal loan has the potential to improve your credit score, depending on how you manage the loan as well as your credit habits. Here’s how a personal loan can have a positive impact -
If you maintain a timely repayment schedule and practice responsible credit behaviour during the loan tenure, paying off a loan can increase your credit score. Please note that it generally takes 30 to 45 days for credit bureaus like CIBIL to update the paid-off loan on your credit report.
Personal loans can affect credit scores for both long-term and short-term. Managing the loan wisely and maintaining timely payments can reflect positively on your credit report for as long as 7 years. On the other hand, applying for a personal loan will lead to a hard inquiry that can lower your credit score, but only temporarily.
Different lenders may have different requirements for a minimum CIBIL score. SMFG India Credit requires a CIBIL score of 700 and above for you to be eligible for a personal loan, provided you meet other eligibility criteria.
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