| Overview: Personal loans directly influence your CIBIL score through repayment history, credit utilisation, and inquiry patterns. Understanding the credit score impact helps you make informed borrowing decisions while maintaining a healthy financial profile. This guide covers essential strategies to optimise your credit rating. |
Understanding the Credit Score Impact of Personal Loans
Your CIBIL score between 300-900 determines your financial credibility in India’s lending ecosystem. When you take a personal loan, it immediately affects this three-digit number through multiple pathways. The credit score impact begins the moment you apply, continues throughout your repayment journey, and extends well beyond loan closure.
Recent RBI data shows that over 60% of urban Indians now have active personal loans, making it crucial to understand how these unsecured borrowings influence credit profiles. The relationship between personal loans and credit scores isn’t straightforward—it depends on your repayment behaviour, existing credit portfolio, and overall financial management approach.
Immediate Effects on Your Credit Score
Every personal loan application triggers a hard inquiry on your credit report. This process typically reduces your score by 5-10 points temporarily. If you apply for multiple loans within 30 days, each inquiry compounds this negative credit score impact.
New Account Impact
Opening a new personal loan account affects your average credit age. If your existing credit history spans five years and you add a new three-year loan, the average drops, potentially lowering your score by 10-20 points initially.
Positive Long-Term Benefits
Consistent EMI payments represent 35% of your CIBIL score calculation. Each on-time payment reports as ‘0 DPD’ (Days Past Due), strengthening your repayment profile. Over 12-18 months, this positive payment history significantly improves your credit score impact.
EMI Calculation Formula:
EMI = [P × R × (1+R)^N] / [(1+R)^N-1]
Where P = Principal, R = Monthly interest rate, N = Tenure in months
For a ₹3 lakh loan at 12% annual interest for 36 months:
- Monthly rate (R) = 12%/12 = 1% or 0.01
- EMI = [300000 × 0.01 × (1.01)^36] / [(1.01)^36-1]
- EMI = ₹9,978 approximately
Credit Mix Optimisation
Personal loans contribute to your credit mix, accounting for 10% of your CIBIL score. Having both secured (home, car) and unsecured (personal, credit) loans demonstrates your ability to manage diverse credit products, positively influencing your credit score impact.
Essential Dos for Maintaining Healthy Credit Scores
Here’s a list of dos for maintaining your credit score:
1. Automate Your EMI Payments
Set up automatic EMI debits from your salary account to ensure timely payments. Even one missed payment can drop your score by 50-100 points and remain visible for up to seven years.
2. Monitor Credit Utilisation Ratios
Keep your total debt-to-income ratio below 40%. If your monthly income is ₹80,000, your total EMIs (including the new personal loan) shouldn’t exceed ₹32,000. This demonstrates responsible borrowing and minimises negative credit score impact.
3. Maintain Old Credit Accounts
Don’t close old credit cards or accounts after taking a personal loan. A longer credit history positively affects your average account age, supporting a better credit score impact over time.
4. Check Credit Reports Regularly
Under RBI’s 2025 guidelines, you can access your credit score bi-monthly. Regular monitoring helps identify errors early and track improvement in your credit score impact.
| Pro Tip: Use Airtel Finance’s credit monitoring tools to track your CIBIL score changes after taking a personal loan. |
Critical Don’ts That Damage Credit Scores
Here are a few factors to keep in mind to ensure that your credit score is not damaged:
1. Never Miss EMI Payments
Late payments create the most severe negative credit score impact. A 30-day delay marks your account as ‘sub-standard’, while 90+ days can classify it as ‘doubtful’, severely damaging future loan prospects.
2. Avoid Multiple Loan Applications
Applying for several loans simultaneously signals desperation to lenders. Space applications at least 3-6 months apart to minimise hard inquiry-related credit score impact.
3. Don’t Settle Loans Partially
Loan settlements appear as negative entries on credit reports. Always aim for full repayment to maintain a positive credit score impact. Settled accounts can reduce your score by 75-100 points.
4. Never Ignore Credit Report Errors
Incorrect entries can unfairly damage your credit profile. Under current regulations, dispute resolution must occur within 30 days, making prompt action essential for maintaining accurate credit score impact.
Strategic Scenarios for Different Credit Profiles
| Credit Score Range | Loan Terms | Interest Rate | Strategy |
| 750+ | ₹10L limit, 60 months | 10.85%-13.5% | Focus on maintaining perfect payment history |
| 700-749 | ₹7L limit, 48 months | 13.5%-16% | Pay extra EMIs to close early |
| 650-699 | ₹5L limit, 36 months | 16%-19% | Rebuild with smaller amounts |
| Below 650 | ₹2L limit, 24 months | 19%-24% | Consider secured alternatives |
Let us consider a scenario: Priya from Bangalore had a CIBIL score of 620 after missing several credit card payments. She took a small personal loan of ₹2 lakh from Airtel Finance and maintained perfect repayment discipline. Within 18 months, her score improved to 740, qualifying her for premium credit products.
Managing Multiple Credit Products
When you have both personal loans and credit cards, your credit score impact depends on overall utilisation patterns. Keep credit card usage below 30% of limits while maintaining timely personal loan EMIs. This balanced approach optimises your credit mix benefits.
Credit Utilisation Formula
Total Outstanding Debt / Total Available Credit × 100
If you have ₹50,000 outstanding on a ₹2 lakh credit limit plus a ₹1.5 lakh personal loan balance with a ₹3 lakh original limit:
(50,000 + 150,000) / (200,000 + 300,000) × 100 = 40%
Maintaining this ratio below 30% ensures a positive credit score impact.
Interest Rate Benefits of Good Credit Scores
Higher credit scores directly translate to lower interest costs. The credit score impact on loan pricing can save significant money over loan tenure.
Cost Comparison Example:
₹5 lakh personal loan for 36 months:
- Score 780: 12% interest = Total payment ₹5.97 lakh
- Score 650: 18% interest = Total payment ₹6.83 lakh
- Savings with good credit: ₹86,000
Understanding personal loan eligibility requirements helps you prepare for better terms and rates. Taking a personal loan creates both immediate and long-term credit score impacts that shape your financial future. The key lies in viewing your personal loan as a credit-building tool rather than just borrowed money.
Consistent EMI payments, responsible credit utilisation, and strategic financial planning can transform your CIBIL score over 12-24 months. Remember, every payment you make contributes to your credit history, either positively or negatively. By following these dos and avoiding the critical don’ts, you can leverage personal loans to strengthen your credit profile while meeting your financial needs.
Ready to take control of your credit journey? Check your current CIBIL score and explore personal loan options with Airtel Finance to build stronger financial futures.
FAQs
1. How quickly does a personal loan affect my credit score impact?
Hard inquiries appear within 24-48 hours, temporarily reducing scores by 5-10 points. However, consistent EMI payments begin improving your credit score impact within 2-3 months of loan disbursal.
2. Can paying personal loan EMIs early improve my credit score impact?
Yes, early payments demonstrate strong repayment capacity and can accelerate positive credit score impact. However, ensure prepayment doesn’t strain your emergency fund or other financial commitments before proceeding.
3. Does closing a personal loan immediately boost my credit score impact?
Loan closure creates a positive credit score impact within 30-45 days of final payment. The ‘closed’ status on your credit report signals successful debt management to future lenders.
4. How does the personal loan credit score impact differ from credit cards?
Personal loans show fixed EMI discipline over specific periods, while credit cards demonstrate ongoing credit management. Both contribute differently to credit score impact through payment history and utilisation patterns.
5. What happens to the credit score impact if I miss one personal loan EMI?
A single missed EMI can reduce your score by 40-100 points, depending on your existing profile. The negative credit score impact remains visible for 3-7 years, making timely payments crucial.
