October 4, 2024 · 11 mins read
Does EMI on Credit Card Impact Your CIBIL Score? Find Out
Santosh Kumar
People don't want to postpone their desires and passions in this fast-paced world. No one is ready to wait to purchase products for lifestyle improvement, learn a professional improvement course, do a cosmetic makeover to get their best look or travel to explore their favourite place. And so credit cards have become a lifestyle companion of the modern population, satisfying their desires and passions even when they fall short of money.
If it is a larger life decision like building a house, buying a vehicle or starting a business, then loans are the choice rather than waiting for years to save the required money. Credit cards are the best choice if the financial need is low. Credit cards have added perks like cashback offers and discount offers.
What if you had a costly purchase that would exceed your one-month budget? If you purchase it with a credit card, you may not be able to pay the bill by that month and will face a financial crunch, right? However, credit card companies usually provide the flexibility to pay your credit bill in parts, i.e. monthly instalments. Sounds interesting, right? Yes. But will that affect your CIBIL score? To know, keep reading.
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Whether you have overspent a particular month or just can't wait to purchase your dream product for short of money, you can opt for credit card EMI. Apart from providing credits to meet costly or emergency financial needs, banks allow users to pay bulk credit amounts in monthly instalments. These days, banks offer EMI options for transactions via phone calls and internet banking to make it as convenient as possible for customers.
Things to know about the Credit Card EMI option:
Though the credit card EMI option sounds very useful, there are a few pitfalls, too.
1. You can avail yourself of EMI options if the bulk credit transaction is no more than 30 days old.
2. You cannot purchase more than your credit limit.
3. Your credit limit gets reduced by the amount of the EMI.
4. Banks may charge you a processing fee when converting the transaction to EMI. Check for any hidden charges before making a choice.
5. You may have to pay the interest amount for the amount you owe. Different online shopping sites offer different EMI options for different credit cards. Also, banks may offer lower interest rates if you are their regular customer with a good financial record.
6. So check for different platforms before you make a purchase. If you are lucky enough, you will find a no-cost EMI option.
7. The monthly credit amount that you can use will decrease. I.e., the credit you can spend monthly will become equal to your credit limit minus the monthly EMI amount.
A credit score is a score that banks and lenders refer to before sanctioning loans or credits to any customer. The CIBIL credit score is a 3-digit score, ranging from 300 to 900, given to individuals based on their credit history. Here are details of what each range of CIBIL score signifies.
1. Excellent CIBIL Score: 750-900.
2. Good CIBIL Score: 650-750
3. Average CIBIL Score: 550-650
4. Poor CIBIL Score: 300-500
The better your CIBIL score is, the more banks and lenders will easily and quickly approve your loan and credit applications and be ready to provide loans at lower interest rates. Sometimes, even landlords consider checking your credit score to decide whether or not to rent their premises. When you apply for jobs where you are responsible for financial transactions and money handling, the employer may check your credit score to check your creditworthiness. So, it is a good practice to build and maintain a good CIBIL score.
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The score is calculated based on various factors like payment history, which contributes to 30% of the score; credit utilisation ratio, which contributes to 25%; credit type and duration, which contributes to another 25%; and various other factors like hard inquiry and loan rejections contribute to the remaining 20%. While payment history mirrors your creditability in repaying bills, the credit utilisation ratio gives an idea of how much you depend on your credit in your daily life. The longer your credit duration is, the more details the credit bureaus will have to evaluate your creditworthiness. Also, if you use a variety of credit cards, then it is a hint that you are good at handling different financial situations.
Since this score is calculated using a formula that considers many factors, it clearly shows how well you handle your financial responsibility and how creditworthy you are.
Read More:: Minimum CIBIL Score Required for Credit Cards
Does emi on credit card affect cibil score? As such, credit card EMI doesn't directly impact your CIBIL score. However, the way you handle the EMI can improve or decrease your CIBIL score.
Opting for EMI will be advantageous for improving your CIBIL score under certain scenarios.
Think of a situation where you have overspent using your credit card, and then you realise that your financial status is such that you may not be able to pay the credit card bill. What will you do? Will you delay or miss the payment? Then, your CIBIL score will be affected, and it will take months to repair your credit score. In such a situation, you can immediately opt for the EMI option and make timely payments for your EMI amount. Your credit report doesn't have any missed or delayed payments; therefore, your CIBIL score will also stay unaffected.
You plan to buy a costly electronic device, but you have the required cash in hand. But the shopping site offers you no-cost EMI for your credit card. Then, you can opt for the EMI option, as there will be only a small processing fee and no interest for that credit amount. You can reserve the cash to pay back your bill and pay the EMI bills on time throughout the tenure period to build up your credit score. By opting for EMI, you can show an additional credit variety, and with timely payments, your credit score is sure to increase.
As said earlier, the EMI option will not directly lower your CIBIL score. But you need to know a few things before you opt for an EMI option for your credit card transaction.
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We know that the credit utilisation ratio is one of the factors that holds a good percentage in the CIBIL score calculation. When you make a bulk purchase and opt for EMI, the EMI amount will be blocked from your credit limit. You said that you will have lower credit limits to meet your financial needs. When you make other purchases using the same credit card, your credit utilisation ratio will be higher, eventually affecting your credit score.
To avoid this, you may take several steps:
1. While purchasing, you can choose to pay the bill using the credit card with the maximum credit limit so that your credit utilization ratio will not suffer much.
2. If possible, use other cards until you have a better credit limit.
3. Before making the costly purchase, consider other possibilities, such as taking a personal loan or secured loan, to meet your financial needs.
If you choose a higher tenure, then your monthly instalment amount may be less, which sounds like the best option. But make a note that you are paying an interest for that amount, and higher tenure will result in repaying more than less tenure. On the other hand, if you opt for less tenure, the EMI may be a larger sum, and if your financial situation is such that you may not be able to pay the monthly due, then again, you will lose the purpose of opting for EMI and your CIBIL score will reduce.
Do a thorough analysis of your possible upcoming expenditure and your monthly budget. Find out the right tenure so that you can stay assured that you can pay bills promptly. Also, before making the purchase, make sure to contact the bank to ensure your eligibility for your preferred tenure period.
Repayment history is the biggest factor in the CIBIL score. When we say repayment history, it also includes your credit card EMI repayment. Even single missed payments will drastically pull down your CIBIL score.
Automate your payment if possible and set a reminder to check whether it is done on time. Also, make sure you reserve an amount in your monthly budget to avoid any mishaps due to a lack of money. On top of it, never even think about a high-value purchase if you are already struggling with your monthly credit bills.
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Life is too short to wait for anything, and credit cards are a great option to avoid waiting to save money for a lifestyle change. To top it off, the EMI option in credit cards has given us the flexibility to make purchases more than our monthly budget limit. So, does emi on credit card affect cibil score? Even though the EMI option for credit cards doesn't affect your CIBIL score, if not handled properly, it may bring down your score. So exercise precaution before opting for EMI and while repaying the EMI to make sure your CIBIL score stays unaffected.
Is it okay to opt for credit card EMI to build a CIBIL credit score?
Credit card EMI is not a good choice just to build a credit score. If you make your transactions through a credit card and pay the bills on time, then it will eventually build your credit score. But if your transaction is so high that you may not pay the bill in a single payment, EMI is a great option.
Which credit card, EMI, or cash payment is better for CIBIL score improvement?
Cash payments do not impact credit scores, and credit card EMIs also have no direct impact on CIBIL scores. However, if you miss or delay an EMI due, it can affect your credit score.
Does the tenure of EMI affect credit score?
No, the tenure will not impact your credit score.
What if I miss my EMI payment once?
Missed payments have a higher impact on your CIBIL score. Even a single missed payment will negatively impact your score. Also, the delay from the due date will be considered in the CIBIL score. The more delay there is, the lesser your credit score will be.
Do banks provide me with the EMI tenure that I ask for?
Banks have a policy of offering flexibility within a specified range of periods. Usually, this range is from 3 months to 18 months, depending on the bank policy.
My budget for this month is low, and I can pay only any one of my two credit card EMIs. Which one should I choose to pay?
Missing a payment is not a desired one. But if you have no other option, pay the one that has a higher interest rate. Because missing that will accumulate more quickly and impact your CIBIL score more.
Can I close EMI in advance to build my CIBIL score?
Mostly, banks allow you to close your EMI in advance by paying out the outstanding amount. But that will not directly improve your CIBIL score. However, by advance EMI closure, if your credit utilisation ratio improves, it will impact your score.
Do early credit card EMI payments improve my CIBIL score?
No, not directly. If you pay it earlier, you can avoid delayed or missed payments. Since the interest amount is calculated based on the principal amount due, by advanced payment, you can have a lesser interest amount.
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