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How does taking a Gold Loan affect your CIBIL Score.

April 21, 2023

Table of Contents

    Table of Contents

      A CIBIL score is a crucial component for anyone considering to take a loan. A low credit score represents that you are not a reliable borrower. But there’s hope! Read on to know the easiest way to improve your CIBIL score.

      If you have ever considered taking a gold loan or have taken one, you must have wondered or even researched on what kind of effect a Gold Loan will have on your CIBIL Score.

      You have to sometimes rely on taking a loan to fulfil your wishes, like buying your own home. The problem pertains when the complexity of credit scores takes down your hopes. But no worries! Everything has a solution, and so does your unattractive credit history. 

      Let's see how our yellow metal can help your financial boat sail freely amidst the storms of financial instability.

      What is a CIBIL Score?

      The Reserve Bank of India (RBI) has licensed 4 companies with the power to keep track of individuals’ and businesses’ credit histories and calculate their credit scores. CIBIL (Credit Information Bureau of India Limited) is the most popular and reliable of these four credit information companies.

      The other three are Experian, Equifax, and Highmark. CIBIL maintains credit information for around 600 million individuals and 32 million businesses. In India, the CIBIL score is commonly known as the CIBIL TransUnion score after the name of the  American multinational company TransUnion, of which CIBIL is a part. 

      Generally, the CIBIL score ranges from 300 to 900, like any other normal credit score. Needless to mention, the closer your score is to 900, the better your credit history or credit report is. 

      Why is your CIBIL Score low?

      There are multiple factors affecting your credit score. A negative impact from any of them can make your credit score decline substantially. Here are a few of the factors that take down your credit score: 

      1. Limited credit history

      If you are not quite financially active or have a limited credit history, it is obvious that your credit score will be lower than it should have been. The foremost need for a good credit score is to have enough credit history to support your reliability in payment of dues.

      If you are unable to fulfil this, your credit score falls. Try to be more active financially—apply for credit cards, pay dues on time, etc.. 

      2. Multiple credit card applications

      Another reason for a bad credit score might be that you have applied for several credit cards. This is because credit cards are sometimes seen as risky investments.

      If you apply for multiple cards, it shows that you are already taking a lot of risk and may have been paying several dues- direct negative impact on your credit score. 

      3. High payment dues

      When you are unable to make timely payments of your dues, you are marked as unreliable  in your credit history- your credit score falls. Try to make timely and regular payments if you wish to improve in this area. 

      4. High debt balances

      One of the most common reasons for a low credit score is high accumulation of debt. This accumulated debt makes the lender uneasy about your ability to repay the loan amount as you already have a large financial burden on your back.

      Try to not accumulate your debt and make speculative investment plans along with regular and timely payments for debt. 

      There are many ways in which you can improve your credit score. Timely and regular payments of dues, multiple credit accounts, etc. are some of them.

      But have you ever thought about how a loan can help you get a loan? Let's put it simply. You may have heard that gold is one of the best asset classes to invest in. Even gold loans are safe to opt for and give your nice returns. 

      Let's now see how this gold loan can help you improve your CIBIL Score and make you a reliable borrower!

      Gold loan application- first step to a good CIBIL Score

      It is great to know that a gold loan can help you improve your credit score, but it is even better to know that a simple application for it can do wonders too.

      Gold loan is an easy-to-get secured loan. It is usually based on the gold that you already have. You take a loan against your physical gold jewellery and ornaments.

      The loan amount is also decided depending on the value of your gold. Your gold acts as collateral here- this is why it is a secured loan.

      The lender would not usually check your credit score, a hard inquiry being the least possible case. This makes a gold loan a type of lenient eligibility loan. A person with even a low credit score can easily avail a gold loan. Through timely payments of dues, you definitely have the power to improve your credit score. 

      Even though your low credit score won’t have much impact on your gold loan application, a good credit score can have a positive influence. A good credit score (above 700) can help you get lower interest rates as compared to people with lower credit scores. 

      1. Gold loan payments- make them timely and regular.

      When calculating your credit score, the credit information company considers your repayment history to be a major factor. In the case of gold loans, there are several repayment options provided by the lenders.

      EMIs (Equated Monthly Instalments), Bullet Repayment Methods, Upfront Interest Payments, Interest Payments at the end of tenure, etc. are some of them. The most popular method is EMI. This is because it helps you in stretching your credit score and is a very good option if you have limited credit history.

      Every time you will pay your monthly EMI on or before the due date, this record will get recorded with the credit information company. This adds into your credit score and improves it. 

      The only thing you need to take care of is paying your instalments on time. Even if you can’t pay on the due date, you get some time (around 30 days from the due date) to pay your dues before they get negatively included in your credit score.

      Try not to utilise this excess time and pay your instalment on or before the due date- this incentivizes you to pay them timely in future too. 

      2. Paying your gold loan before the tenure- an effective way

      Gold loans are known to be of limited tenure. Lenders won’t usually ask for a prepayment charge on a gold loan.

      You must utilise this benefit if you find yourself capable of paying back your gold before the stated time. As soon as you repay your loan beforehand, this will reflect on your credit history and have a positive impact on your credit score- a win-win situation for you!

      Generating a good credit score can be a tedious task. If you are not financially savvy, you might make mistakes and decline your credit score- leading to problems in the future.

      A bad credit score eliminates your chances of getting a loan, as it makes the lenders skeptical of your ability to repay. But, if you have a good credit score, an active financial portfolio and enough collateral, you will never have to give a second thought whenever the need to take a loan pertains. 

      If you wish to invest in digital gold starting with just Rs. 10, you must consider the Jar app. With its easy to use interface, Jar helps you start investing with just your spare change! Invest in digital gold, get daily spins and double your investment amount with just a click. Download the app today!