5 Factors Affecting Your CIBIL Score For A Gold Loan And Other Credit
Find out the 5 key factors that impact your CIBIL score for gold loans and other credit. Get tips on improving your score for better rates.
If you have been contemplating a gold loan, you may have already researched the offerings of various lenders. One of the things you would have noticed is that the interest rate is not fixed. For e.g., in July 2023, IIFL offered gold loans with an interest rate ranging from 11.88% to 27% per annum.
When you approach a bank or a non-banking financial company (NBFC) to apply for a gold loan or personal loan, the interest rate you will be charged can fall within a specified range. While the final interest rate is at the discretion of the lender, they consider various factors before determining the rate they will charge you. One of these factors is your credit score, also known as CIBIL score. This score reflects your creditworthiness and ranges from 300 to 900.
The credit score is a component of a Credit Score Report, which is generated by authorized Credit Information Bureaus. These bureaus collect information from banks and lenders regarding your outstanding debts and repayment history. Each of these factors is given a certain level of importance or weightage, based on which your credit score is calculated. A higher score indicates better creditworthiness in the eyes of lenders, resulting in a lower interest rate being offered to you.
Suggested Reading: Credit Score Report used by Lenders in India
It is a fact that one does not need a CIBIL score to get a gold loan. In fact, most secured loans are given irrespective of your CIBIL score. However, the lower your CIBIL score, the higher is the rate of interest that lenders will ask you to pay. This is because lenders look at persons with low credit scores as being of greater risk.
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.
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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.
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