September 9, 2024 · 11 mins read
Can Gold Loan Affect Your CIBIL Score?
Santosh Kumar
Gold loans are a quick and simple way to get funds in India. Hence, many people prefer it. You may easily get the funds you need by pledging your gold as collateral in a matter of a few days. But Can gold loan affect your CIBIL score? If it does, then how? The CIBIL score is the most important parameter to check one person's creditworthiness. It's a big part of whether you can get loans in the future.
It is very important to know how a gold loan will affect your CIBIL score. A good CIBIL score can help you get a loan with better terms. But a bad CIBIL score can make it harder for you to get funds. This blog post will talk about the advantages and disadvantages of a gold loan that can affect your CIBIL score. Additionally, we will provide guidance on how to manage your gold loan effectively. In this way, you may be certain that it will be beneficial to your credit profile rather than harmful to it.
You have to understand how credit can impact your credit score. It doesn't matter if you are taking a gold loan or taking other loans. After reading this article, you will understand how gold loans affect your CIBIL score. Additionally, you will discover how to safeguard and enhance your financial future.
Lenders and financial institutions use your CIBIL score to figure out how risky it is to give you money. A better CIBIL score makes it much more likely that you will be able to get loans with good terms, like lower interest rates.
There are many factors affecting the CIBIL score. Payment history plays the most vital role here. If you pay your bills on time it will higher your credit score, whereas if you skip a payment or be late to pay a bill,, it will lower your score. Credit utilization is also a contributing factor. If you can manage to keep it within the 30% limit, it will improve your score.
A part of your CIBIL score is also the type of credit you have. Having multiple protected loans and credit history length can increase your CIBIL score. Those who have a longer credit history and multiple protected loans in past times have better chances to improve their credit scores.
To be good at managing your money, you need to know how important your CIBIL score is. If you manage to maintain a good CIBIL score, it will help you to have better interest rates, and higher credit limits. But, if you can’t maintain this balance, neither you will have as many loans as you want nor lower interest rates.
You will have a hard query on your credit report when you ask for a gold loan. When a lender checks your credit score before giving you any loan, it is considered as hard inquiry. It drops down your CIBIL score a bit but it will still leave an impact for a short period.
On the plus side, paying back your gold loan on time can help your CIBIL score. Lenders only check whether you have repaid the debts in time or not before trusting you. If you pay the amount more than the specified EMI, it will leave a good impact.
Not paying back a gold loan, on the other hand, can lead to adverse outcomes. If you don't make payments on time or pay back the loan in full, your CIBIL score can drop significantly.
Gold loans usually give you a number of different ways to pay them back, which makes it easier to keep up with your payments and avoid defaulting.
To sum up, a gold loan can decrease your CIBIL score at first because of the hard question, but if you handle it well and pay it back on time, it can go back up. On the other hand, being unable to manage your gold loan may hurt your credit score, so it's important to be smart about how you handle the loan.
Read More: How Students with No Income Can Get a Credit Card
If you do not manage your loans properly, it will leave a long-term negative impact on your CIBIL score. Check the following points to understand it:
1. Amount of Loan vs. Value of Gold: The first thing you must do is compare the borrowed amount and the amount of gold given for the loan. The lender will check the Loan-to-value ratio by dividing the loan amount by the market value of the amount of gold. If they give you a good amount of money compared to the value of that gold, it will be marked as a high LTV ratio. If the lender is giving you a lot of money for your gold asset, it is not that good for your credit history at the same time.
2. Credit Mix and Diversification: Taking secured and unsecured loans in the past will be a boosting factor for your CIBIL score. Gold loans are one of the secured loans. But balancing out everything is also important. The diversification will definitely help you to improve your CIBIL score.
3. Tenure of Loan: The term of your gold loan is also important. Loans taken for shorter periods impose bigger payments per month, but they can be paid off quickly, which could lower the interest rate and raise your credit score.
4. How You Repay: Debt repaying method is also an important factor to have an impact on your credit score. How you repay your debt is also an important factor to have an impact on your credit score. You must not miss even a single EMI due date or pay late EMIs. It affects your score.
Read More: Is 650 a Good CIBIL Score?
A good credit profile includes on-time payments, spending money as your pocket can afford, regular credit card performance checks, taking out shorter loans, and having a balanced credit mix. You can be smart about your gold loan and keep your CIBIL score high by using these tips.
1. Regular Payments: If your credit report shows that you have paid all your past EMIs on time and paid back all the debts on time, it will eventually boost your CIBIL score.
2. Pay Back What You Borrow: You must pay back what you have borrowed. We advise you not to take a loan that doesn't fit your pocket.
3. Check Your Credit Report Regularly: Check your credit report often for mistakes or things that don't add up. Get a copy from CIBIL and check it to make sure it's correct. Immediately report any errors to keep your credit record correct and up to date.
4. Choose a Shorter Tenure: If you can, pick a loan term that is shorter. EMIs are higher for shorter terms, but the total interest paid is less, and the shorter the term of your debt, the worse it is for your credit score.
5. Make sure your credit mix is balanced: Try to keep a variety of credit types. Take care of your other credit accounts, like personal loans and credit cards, along with your gold loan. If you have multiple credit cards of different types, it can improve your CIBIL score.
Read More: Is 720 a Good CIBIL Score?
Knowing about the following myths can help you handle gold loans better and make smart choices about your credit. Stay away from false beliefs and focusing on actions can raise your CIBIL score.
1. Myth: There is no effect of gold loan on your CIBIL score The truth is that gold loans can hurt your CIBIL score. Even though it might not have a big effect right away—especially since you had to go through a hard search when you applied—how you handle the loan—whether you pay it back on time or not—can have a big effect on your score.
2. Myth: Gold loan always improves your credit score The truth is that getting a gold loan doesn't immediately raise your CIBIL score. Good things can only happen when you handle things responsibly, like paying your dues on time. Your credit points will sink if you do not make your monthly payments on schedule or at all.
3. Myth: Taking a gold loan is a guaranteed way to boost your Credit score Gold loan is not a guaranteed way to improve your credit score always. In case you have paid a gold loan on time it may improve your score. But it will not improve your credit score at that moment. It takes time and a good credit history, You have to ensure a responsible credit behavior across all past credit to build and maintain a good CIBIL score.
4. Myth: Multiple gold loans will boost your credit score In reality, getting multiple gold loans can hurt your credit score if you fail to handle them properly. Having more than one loan can increase your debt load and make it more tough to repay. Keeping your debt level low and focusing on timely payments is very important.
5. Myth: A Gold Loan Will Not Affect Your Credit Utilization Ratio Gold loans are protected loans, so they don't have the same effect on your credit utilization ratio as credit cards. However, they do still affect your credit score. Taking care of the loan responsibly is important to keep your credit score high.
Read More: What is the Use of CIBIL Score?
Getting a gold loan can have different effects on your CIBIL score. To keep your CIBIL score high, you need to know about these effects. Although gold loans provide you instant access to money, you must manage them carefully to prevent bad effects on your credit report.
Spending money that fits your pocket size can improve your CIBIL score. Keeping an eye on your credit record on a regular basis and having a good mix of credit types are also important ways to protect your score. Opting for a shorter loan tenure, when possible, will lower the negative impact on your CREDIT score.
To sum up, a gold loan can be a valuable way to get money if it is used properly. You can make sure that your gold loan helps your financial health instead of hurting it by following best practices for managing loans and looking into all of your choices. Keeping your CIBIL score high is possible if you plan carefully and make informed decisions.
How does taking a gold loan affect my CIBIL score?
Ans. Taking a gold loan does not directly affect your CIBIL score. A gold loan is a secured loan.
If I default on a gold loan, will it affect my CIBIL score?
Ans. Yes, defaulting on any loan can affect your CIBIL score. It is advised to repay timely for any loan that you have taken.
Can multiple gold loans affect my CIBIL score?
Ans. Multiple gold loans do not affect your CIBIL score. But, if you do not repay the debt on time, it will definitely affect your CIBIL score.
Does paying off a gold loan improve my CIBIL score?
Ans. Yes, if you take a gold loan and then repay it within time without defaulting, then you can improve your CIBIL score. But, if you default at any time, it can affect it.
Will applying for a gold loan affect my CIBIL score?
Ans. Yes, applying for a goal loan can have a minor effect on your CIBIL score. Because it will be considered as a hard inquiry.
What should I do if I can not repay my gold loan?
Ans. In case you are unable to repay the gold loan debt, you must communicate with your lender first. You can discuss alternate solutions.
How can I stop my gold loan from affecting my CIBIL score?
Ans. For this, you must ensure that you are paying for your loan on time. If you face any issues repaying your debt, communicate with your lender.
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