Did you know that any personal loan can impact your I-Score in different ways, both positive and negative? Taking out a personal loan doesn’t necessarily harm your I-Score. However, it may lower your credit score temporarily, making it harder to take out additional loans until you've repaid the existing one.

On the flip side, if you repay your loan on time, it can positively impact your I-Score overall. If you’re considering getting a loan soon, it's crucial to thoroughly research, compare all your options, and understand how loans affect your I-Score. This will help you find the best loan for your needs, even if your credit score isn’t very high.

What is a Loan?

A loan is an amount you borrow from a bank to use for specific purposes, such as paying off debts, buying a new home, renovating it, or planning for a business project. The amount you borrow comes with a repayment term and typically includes interest.

When planning to take out a personal loan, it's important to familiarize yourself with the following terms:

- Repayment Period: This is the timeframe during which you repay your loan in installments.

- Loan Fees: These are upfront costs you pay to get the loan.

- Interest Rates: This is the percentage added to your loan amount, which is the bank's profit. Interest rates vary depending on the type of loan and regulations from the Central Bank of Egypt.

Types of Loans

Loans are generally divided into two types: secured loans and unsecured loans.

- Secured Loan: This type requires collateral for approval. Collateral can be a cash asset like a savings account or certificates, or a physical asset such as a car or property. If you fail to repay your loan, the bank has the right to claim the collateral to cover the debt.

- Unsecured Loan: This doesn’t require any collateral. Since banks view this type as a higher risk, interest rates are typically higher.

How to Apply for a Personal Loan

Many banks now offer the convenience of online loan applications, which are fast and easy. During the application process, you’ll need to provide personal and financial details, such as your name, address, job, and employer information. You’ll also need documents such as:

- Personal ID

- Proof of residence

- Bank statements or proof of income

Once your application is accepted, the next step is reviewing the loan terms, including the loan amount, interest rate, repayment period, and monthly installment. Typically, the loan is approved within a few days.

What I-Score Do You Need for a Loan?

Before discussing the I-Score required for loan approval, it’s important to understand how your I-Score is evaluated.

Credit reporting agencies collect information about every person applying for a loan, such as the number of previous loans and whether they made their repayments on time. The agency then shares this information with the bank or lending institution you’re applying to. This helps the bank assess your creditworthiness, which is essentially your I-Score. Your I-Score is a key indicator of how likely you are to repay loans in the future.

Your creditworthiness, or I-Score, is calculated based on five main factors:

1- Payment History

This factor represents 35% of your I-Score and reflects how well you've kept up with repaying your debts on time. It considers any late payments and how many days you were late. Failing to pay back large amounts negatively affects your score more than small ones.

2- Outstanding Debt

This makes up 30% of your I-Score and includes your credit card balances and any other outstanding loans or credit facilities you have.

3- New Credit Requests or Loans

This represents 10% of your total I-Score. It looks at the number of credit inquiries and new loans or credit accounts you've opened during the year when you're applying for a new loan. Submitting too many credit applications can signal that you may be experiencing financial difficulties.

4- Credit History Length

This accounts for 15% of your I-Score. Having a long credit history, especially with consistent on-time payments, can help stabilize your credit score and improve your I-Score with banks.

5- Types of Credit Accounts

This factor represents 10% of your I-Score. It considers the different credit products you've used in the past, such as credit cards and installment loans like mortgages or car loans. Managing various accounts responsibly can boost your I-Score.

How to Improve Your I-Score?

There are several steps you can take to improve your I-Score or credit score. Some of these actions take weeks or months, while others can be done in just one day to give your score a quick boost. Here are some key steps:

Review Your Credit Report

You should review your credit report at least once a year to update any outdated information. In Egypt, you can request a credit report online from the Egyptian Credit Bureau (I-Score). Key factors that help improve your I-Score include timely payments, minimal penalties or interest on credit cards, and a diverse range of credit accounts and loans. On the other hand, late payments or failure to meet deadlines can negatively impact your I-Score.

Pay Installments on Time

To maintain a good I-Score, avoid mistakes in the five key factors affecting your score by organizing a system for tracking installment payments. You can do this using a paper-based method or through your mobile, ensuring you pay on time each month. You can also try to pay off larger portions of your credit card balance each month.

Avoid Exceeding Credit Limits

Don’t exceed the credit limit set by your bank. Doing so can indicate that you don’t have enough funds to cover interest, fees, and other charges that the bank regularly deducts from your account.

Seek Professional Help

If at any point you feel overwhelmed managing your debts or finances, it may be time to seek advice from a credit counselor. A professional can provide you with helpful tips and strategies for better financial management.

Your I-Score, or credit score, significantly affects your financial health. It involves everything from loan approvals to the interest rates you pay. Accumulating too much debt can quickly harm your I-Score, but by following the above tips, managing your finances, and reducing debt, you can improve your credit score in the long term. Remember, rebuilding credit takes time and discipline.