How does my credit utilization rate change with a new personal loan?

Taking a new personal loan can improve your credit utilisation rate, which is the ratio of your outstanding credit card balances to your total credit limit. Credit utilisation is an important factor in your credit score calculation. If you use a personal loan to pay off or reduce your credit card balances, your utilisation rate drops. This shows lenders you’re not overly reliant on revolving credit, which can boost your credit score. Even if you don’t use the loan for consolidation, adding a new instalment loan diversifies your credit mix.

Credit bureaus in India look favourably on borrowers who manage different types of credit responsibly. Keep in mind, though, that taking on new debt increases your total outstanding obligations. Make sure you can comfortably handle the new EMI along with your existing payments. Responsible use of credit and timely repayments are key to maintaining a healthy credit profile.

Regularly monitor your credit report to keep a track how your credit utilisation and overall credit health change after taking a personal loan. If you notice your credit card balances creeping up again, adjust your spending habits promptly. Staying disciplined with repayments and keeping your credit utilisation low will help you maintain a strong credit score and financial stability.