7 Ways How Gold Loan Affects Your Credit Score

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Fincrif India

Aug 7

06:07 AM

Your whole history of payments and current credit behavior are represented numerically by your CIBIL score. This three-digit number serves as the applicant's first impression for the majority of lenders. Most financial organisations consider a credit score of 750 to be excellent, even if it can vary from 300 to 900. A better CIBIL score increases eligibility and makes it easier for people to take advantage of benefits like lower loan rates.

If you have taken out loans in the past or plan to do so in the future, you must be aware of how important your credit score is—particularly for unsecured loans. The CIBIL score, which indicates a person's credit behaviour based on a number of indicators, is seen as crucial by the majority of lenders. One's habits towards gold loans are among these variables.


Consider how a gold loan might affect this number if you want to raise your credit score. If you're asking why it's important to keep a high CIBIL score, you should first understand why it is.

How important is your CIBIL Score ? 

Your whole history of payments and current credit behavior are represented numerically by your CIBIL score. This three-digit number serves as the applicant's first impression for the majority of lenders. Most financial organisations consider a credit score of 750 to be excellent, even if it can vary from 300 to 900. A better CIBIL score increases eligibility and makes it easier for people to take advantage of benefits like lower loan rates.


In contrast, a credit score below 500 indicates poor credibility, which can make it challenging for people to get unsecured loans and even some secured loans.

Does Gold Loan Impact Credit Score ?

The following seven factors can either boost or lower your credit score:

Number of applications for gold loans

The lender will typically do a rigorous inquiry when you apply for a gold loan or any other type of credit. In order to determine an applicant's creditworthiness, financial institutions obtain his or her credit report from credit agencies. There will be many credit queries made at once if you apply for several loans in a short period of time. Because of how the credit report interprets this, you can come off as being in need of credit. Your CIBIL score may eventually suffer as a result.

Historical loan applications

Your financial history, including your prior borrowing patterns, credit behavior, and payback history, among other factors, form the basis of your credit score.In this situation, individuals making their first loan application might not have sufficient financial data to assess the level of risk they represent to lenders. Therefore, having no credit history inevitably results in a poor CIBIL score.


Mix of credit

As was previously noted, a history of no borrowings may reduce a score. On the other hand, if your borrowing history includes both unsecured and secured loans, it may improve your credit score. In times of need, people can choose secured financing such as a gold loan. Given its flexible terms and collateral security, this might be an advantageous choice for both the borrower and the lender.To maintain a healthy credit mix, people can choose unsecured financial products in other situations.


Here is an illustration of the best circumstance for combining various loan options. For instance, let's say you already have a business loan that is still active and you have a temporary cash flow problem. Instead of applying for another unsecured loan in this situation, it would be prudent to choose a gold loan with reasonable terms.

Debts from previous gold loans

Borrowers who already have an unpaid gold loan are more likely to have poorer credit ratings. This is due to the fact that during the score review, your outstanding debt accounts for about 30% of your CIBIL score.Your CIBIL score may be badly impacted by a sizable quantity of unpaid debt, which may also affect your ability to get a new loan.

Defective gold loan

Your credit report may be adversely affected if you default on a gold loan. Your CIBIL rating will consequently decline. To raise your credit score, it is therefore advisable to pay off any debts, if any.

Settling a loan

Consider receiving a formal closure certificate from the lending institution when paying off your existing loans, whether they are secured by gold or not, in keeping with the preceding point. Make sure your loan is "closed" and not "settled" in the status column. The first one denotes full payment of the debt as well as any other fees that may have been incurred.However, a "settled" status means that you made a settlement payment that was less than the initial sum. This is a sign that you won't be able to pay back the debt, and the lender will consequently lose money. Your credit score will suffer as a result of this.

Putting gold goods up for auction

Secured loan providers have the authority to sell assets at auction in the event of a default, even if late payments can lower your CIBIL score. The same holds true for objects made of gold. Your credit score will suffer in this situation, and you run the possibility of losing your possessions as well.


So it is best for debtors to stay away from defaults and settlements as much as feasible.

Conclusion 


Your CIBIL score for a gold loan may rise with consistent payments, but it may fall with numerous loan inquiries. Failure to repay a gold loan on time could result in a legal notice, additional costs in the form of late payment penalties, and other sanctions.


Establish a reminder on your phone or computer if your hectic schedule frequently causes you to forget when your loan payments are due. You could also ask your lender to take the money out of your bank account right away as a preventative move to avoid late payments.








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