How do loans affect your credit score?

How is Technology Improving the Loan Approval Process2

Credit score consists of new and existing loans of a customer, these loans affect your credit score in several ways as whenever a payment has been made or a payment is late the credit score changes.

As credit score play an important role for when a customer is applying for a cash loan in the same way the loan plays an important role in keeping a good credit score. Here are ways that loans affect your credit score:

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Even just applying for a loan decreases your credit score, if a customer has several loans and are paying back on time every month even then the credit score will lessen by few points as it shows that you are in need of a loan and taking on more debt that you can handle is never a good idea.


When a loan has been taken by a lender there is a monthly charge in the customers bank account to pay back the loan, if the funds are available in the account then the payment has been done but if the funds are not available then the payment goes in late payment ultimately leading the customer to bad credit score.

If the payment has been late every month for whatever reason the customer may have once it is shown in the system several times that the payment has been late then it is very unlikely to be eligible for another loan by a lender unless it’s a payday loan.

High Loan Balances Can Hurt Credit Score

When a really high loan is due to be paid for and if the customer is not able to reduce the balance of the loan it will affect the credit score. If the balance of the loan reduces in time all payments are made in time then the credit score will gain points and won’t be in the negative side. Even one late payment of a high loan can cause really hurt a person’s credit score.

Future Loans

Life is unpredictable and it is never known when an emergency may come up or when a new decision is being made. Things just happen to make the process easier to go through wards these decisions is by keeping the credit score good.

Paying off whatever loans that have already been taken, making the payments on time and mainly to be consistent with reducing the loan. When loan lenders see good credit score there is no hesitation of accepting the loan for the customer.

It is important to be in good credit score so that in the future whenever you decide on taking on another loan you will not have the tension of being eligible or not due to the credit score.