How To Use A Short-Term Personal Loan To Improve Your Credit Score ?

A credit score is a 3-digit number generated by credit information agencies such as CIBIL, CRIF ,Experian,Equifax etc ,based on which banks and NBFCs (Non Banking Financial Corporations, such as loan and insurance companies, co-operative banks, stock broking firms, etc.) evaluate a person’s creditworthiness ie their capacity and willingness to repay loans extended to them on time. Based on this assessment companies accept or reject loan applications.

The different credit score ranges and their grades are as follows –

In general, the higher a person’s credit score is, the better their chances of securing loan approvals. Many banks and NBFCs reject loan applications if an applicant has zero or poor credit score. Anybody with a credit score of 750 or more has a high rate of loan approval.Moreover,these days many lenders offer lower interest rates to loan applicants with better credit scores.And this represents massive savings over a life-time when applied to big ticket loans such as home loans ,car loans ,business loans etc.

Moreover,elsewhere in the world, credit scores play a role in deciding the terms of property rental,car rental,telephone rental,deposits with utility companies,insurance premia etc.And as fintech becomes a focus area in India,we can expect that a credit score will be a source of great financial advantage in the years ahead.So it makes sense to invest a bit of effort in building a great credit history and maintaining a good credit score as a matter of course.

That said,the million dollar question is :How does a body get started on building an excellent credit score? The most commonly given advice is to get a credit card and use it responsibly to demonstrate creditworthiness.This advice works best for salaried individuals having salaries above the threshold that banks each mandate as necessary to offer a credit card.For the rest,there is the option of secured credit cards,issued after lien marking on fixed deposits.

Unfortunately,credit-card interest rates are pretty stiff and credit cards often come attached with a lot of fees and charges that a body has to actively monitor and keep in mind constantly ,to avoid making the credit score building effort a rather needlessly expensive one.Then there is the cost of keeping money tied up in low yielding fixed deposits,simply to be able to access and use a secured card…………..Now there is an alternative available :PaySense.

With PaySense, users with zero credit score ie no credit-history can get a short-term personal loan to build and improve their credit score gradually.For instance, if a person has a salary of 20,000 INR per month and has never taken a loan or used a credit card previously, their credit score will be 0 or -1. However, online loan providers like PaySense offer this class of people an instant personal loan of Rs. 5,000 to 2 lakh; which they can repay in  durations ranging from 3 months to 24 months. So if a person takes a loan of 5,000 for 3 months and pays their EMIs regularly on time, their credit score will start increasing. After 3 or 4 such short-term instant personal loans which are easy and affordable to pay, a person can expect that their credit score will improve to 650 and above within an year.

Also in case a person needs to repair their damaged credit rating ,they can use the same technique of taking out a small personal loan from PaySense and repaying all EMIs on time and then repeating the process a couple more times ,always taking care to ensure that they are never using more than 30% of their available credit-line ,to improve their credit score.That way they can use small personal loans to improve their credit scores within 4-12 months.