5 Factors Affecting Your CIBIL Score For A Gold Loan

If you're considering a gold loan, you may have noticed that interest rates aren't fixed and can vary widely from one lender to another. This variation depends on several factors, one of the most important being your credit score, also known as the CIBIL score. Ranging from 300 to 900, this score reflects your creditworthiness based on your repayment history and existing debts. While most gold loans don’t require a high credit score for approval, having a low score can lead to higher interest rates. Lenders view borrowers with poor credit as higher risk, and price their loans accordingly.

How Does Gold Loan Affect Your CIBIL Score?

Wondering does gold loan affect CIBIL score? The answer is yes. Like any other credit product, a gold loan can impact your credit profile. Timely repayment of your EMIs or the full loan amount can positively boost your creditworthiness. However, if you default or delay payments, it can harm your score. Even though gold loans are secured, lenders still report repayment behaviour to credit bureaus. So yes, a gold loan affects CIBIL score, both positively and negatively, depending on how responsibly you manage it. Maintaining discipline in repayments is key to preserving or improving your credit score.

5 Factors Affecting Your CIBIL Score For A Gold Loan

In this article we look at the factors affecting your CIBIL score for gold loans and other forms of credit and loans.

Credit Repayment History:

One of the foremost factors affecting your credit score is your loan or credit repayment history. This includes payment of credit card bills, home loan EMIs or EMIs on any loan taken from a bank or a non-banking finance company. Credit rating bureaus like CIBIL and Equifax, collect information from lenders regarding credit card payments and EMIs in order to generate your credit score. Delayed repayments of credit bills affect your credit score negatively.

Impact Of Credit Mix On Credit Scores:

Your credit score is affected by the nature of credit you avail. Having a mix of unsecured and secured loans is considered a good credit mix. Timely repayment of these loans indicate that you can manage credit of different forms with ease and are a reliable and responsible borrower. A good credit mix impacts your credit score positively.

Credit Utilisation Ratio:

A Credit Utilisation Ratio is the ratio of credit used to the ratio of credit available. In the case of individuals, this has reference to your credit cards. For e.g., suppose your credit card has a limit of INR one lakh a month. Suppose in a particular month your total credit card usage volume was INR 50,000/-. In this case your Credit Utilisation Ration would be 50%. A healthy credit utilisation ratio is considered to be one which is under 35%. A ratio bigger than this has a negative impact on your credit score and your ability to get a loan.

Number Of Hard Inquiries Against Your Credit Profile:

A hard Inquiry against your credit profile is when a lender you have approached for a loan registers an inquiry with a credit rating bureau regarding your credit profile and credit score. The greater the number of hard inquiries is reflective of the fact that you keep resorting to loans and credit to manage your expenses. Being in need of frequent credit impacts your credit score negatively.

Credit Report Errors:

Sometimes your credit report could contain errors. Since credit bureaus deal with large volumes of data, there is always a chance of data-entry errors or mix-ups which could drive your score downwards. It is a good practice to check your credit score from time to time. Many agencies allow you to check your credit score periodically without any charge. Inquiries of this nature are soft inquiries and do not affect your credit rating. Should you notice a credit report error, you should immediately write to the credit rating agency asking for a rectification.

To summarise, while it is not necessary to have a good CIBIL score to avail a gold loan, a good credit score helps you negotiate better interest rates. A good CIBIL score is however necessary to avail any form of unsecured loans such as personal loans. Further, a good CIBIL score helps you secure a loan with greater ease. Simultaneously, a good CIBIL score is indicative that you are a low-risk borrower. Thus, you will be offered lower interest rates on your gold or personal loan.

Suggested Reading: Use an online EMI Calculator to plan your Gold Loan better

If you are wondering how a gold loan affects CIBIL scores, remember, any hard inquiry negatively affects your CIBIL score. Timely repayment of loans and EMIs on Gold Loans increases CIBIL scores. In general, a score of 750 and above is considered a good credit score. If at any point of time, you find your credit score falling below this level, you should immediately take steps to improve it. Begin paying your bills on time. Set yourself reminders if necessary. Make yourself a realistic budget and monitor your credit card spends to ensure you spend as per your means. Even if you do not see yourself taking a loan in the immediate future, it is good to keep your credit score above 750 so that availing loans from banks and NBFCs in times of need will be relatively easy.