How Taking Out a Personal Loan Can Improve Your Credit Score

Written by

Hailey Ang

Updated on: December 21, 2022

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How Taking Out a Personal Loan Can Improve Your Credit Score

Did you know that taking out a personal loan is one of the best ways to improve your credit score? By taking on debt responsibly and making regular payments, you can demonstrate to lenders that you are capable of handling credit responsibly.

Here’s how taking out a personal loan can help boost your credit score in Singapore:

1. Shows Your Creditworthiness: One of the most significant benefits of taking out a loan is that doing so will demonstrate to potential lenders that you know how to make timely payments. Don’t be afraid to take out a loan, as long as you can make your payments on time each month, it will go towards improving your credit score in the long run.

2. Builds Your Credit History: Many people don’t have an established credit history – or have limited experience with borrowing – which can make it difficult for them to get approved for loans or other forms of financing. Taking out a loan and making regular payments is a great way to build up your credit history and show lenders that you are serious about being responsible with credit.

3. Improves Your Debt Utilisation Ratio: The amount of debt you owe makes up 30% of your credit score, so keeping this number low is beneficial when trying to increase your overall rating. A personal loan can help reduce the amount of debt you owe due to high-interest sources like credit cards, instantly improving your utilisation ratio and boosting your score in the process.

By carefully managing a personal loan and paying it off in full each month, you can easily improve your overall credit score – even if you don’t have years of good credit.

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