• English
  • Hindi
  • Bengali
  • Marathi
  • Telugu
  • Tamil
  • Gujarati
  • Kannada
  • Odia
  • Malayalam
  • Punjabi

How Does Taking A Personal Loan Affect Your Credit Score?


by Mahindra Finance


June 17, 2024


4 mins read



Taking a personal loan can be a convenient way to finance various expenses, whether it's for higher education, wedding expenses, or unexpected emergencies. However, many people believe that taking a personal loan will negatively impact their credit score. In reality, the impact on your credit score depends on various factors and how you manage the loan.In this article, we will explore how taking a personal loan influences your credit score and how you can maintain a good credit score for personal loans.

What is a credit score?

A credit score is a numerical representation of an individual's creditworthiness based on their credit history and financial behavior. It helps lenders assess the risk of lending money by predicting the likelihood that the borrower will repay their debts on time.

So, who is qualified to get a personal loan? Let us understand personal loan eligibility.

Personal loan eligibility

Personal loan eligibility in India typically depends on several factors, including age (generally between 21 to 60 years), stable income, employment, credit score, residency, and valid KYC documents.

Factors that determine your credit score

Here are a few factors that are compiled into a formula by credit bureaus which affect your personal loan credit score:

Credit utilization: This factor compares the amount of credit you've been lent with the amount you've already used. Maintaining a lower utilization ratio indicates responsible borrowing practices and positively impacts your credit score.

Amount of debt: While having some debt can demonstrate responsible borrowing, excessive debt can negatively impact your score.

Types of loans: Having a diverse mix of loans, such as personal loans, home loans, and car loans, can positively influence your credit score. Properly managing these debts can improve your credit score for personal loans.Length of credit history: Generally, a longer credit history indicates stability and responsible financial behavior.

Impact of Personal Loans on Credit Scores

Contrary to common belief, taking a personal loan does not automatically have a detrimental effect on your credit score. In fact, if managed responsibly, it can even improve your credit score over time. 

Making consistent payments on time demonstrates financial responsibility and positively impacts your credit score. On the other hand, missing or delaying payments can harm your credit score significantly.

Additionally, applying for multiple personal loans within a short period can negatively impact your credit score. Each time you apply for a loan, a hard inquiry is conducted on your credit report.

4 tips to maintain a Healthy Credit Score

To maintain a healthy credit score while taking a personal loan, it is crucial to follow these tips:

  1. Timely repayment: Make sure to repay your personal loan EMIs on time to avoid any negative impact on your credit score. You can find out your remaining EMIs using a personal loan EMI calculator.
  2. Avoid multiple loan applications: Limit the number of loan applications you make within a short period to minimize the negative impact on your credit score. This is an important aspect of personal loan eligibility.
  3. Monitor your credit report: Regularly check your credit report for discrepancies. If you find any inaccuracies, report them immediately to the credit bureau for rectification.
  4. Diversify your credit portfolio: Consider having a diverse mix of loans, such as personal loans, auto loans, and home loans, to showcase responsible borrowing behavior.


Taking a personal loan does affect your credit score, but if managed responsibly, it can have positive long-term effects. Utilizing a personal loan EMI calculator allows borrowers to accurately estimate their monthly instalment payments.

If you're considering taking a personal loan, Mahindra Finance offers flexible options with instant approval and personalized repayment schemes tailored to your needs. 


Q: What is the minimum credit score for personal loans?

A: The minimum credit score for personal loans varies from lender to lender. However, a credit score equal to or above 750 is typically considered favorable for loan approval.

Q: Can I get a personal loan with a CIBIL score of 650?

A: Yes, it is possible to get a personal loan with a CIBIL score of 650. However, the approval of your loan application depends on various factors such as your income, employment status, and credit report.

Q: Does EMI affect credit score?

A: Yes, EMI affects your credit score. Consistent EMI payments play a pivotal role in maintaining a good credit score. 

Q: How to use a personal loan EMI calculator?

A: To use a personal loan EMI calculator, enter the loan amount, interest rate, and repayment tenure. The calculator will then provide you with the estimated monthly instalment amount you'll need to pay.

Related articles

What Is Annualised Yield In Fixed Deposit?

When it comes to financial planning, fixed deposits (FDs) have long been a popular choice for Indian investors. Known for their simplicity and low risk, FDs offer a safe avenue for investment. However...


March 4, 2024

Why Is An NBFC Personal Loan Better Than Bank Loan

In today’s fast-paced world, financial needs can arise at any moment. Whether it’s for a medical emergency, home renovation, or a dream vacation, personal loans have become a popular choic...


February 5, 2024

Personal-Loans-for-Higher-Education-in India-From-Dreams-to-Reality

Personal Loans For Higher Education In India: From Dreams To Reality

Dreaming of a brighter future? Pursuing higher education is the first step towards realising your aspirations. Whether you want to study in India or abroad, the cost of education can often be a barrie...


July 5, 2024