Does Gold Loan Affect Your CIBIL Credit Score?

A credit score is a huge concern for those planning to apply for a loan. It helps the lender identify the credibility of the borrowers and how efficiently they manage credit payments. A gold loan is a secured loan that one can take by pledging their gold as collateral. Since the lending banks and NBFCs have security against the loan, the borrowers have a better chance of getting the loan approved quickly. As the gold loan is secured against the gold articles, credit scores are not required to apply for the loan. The purity of the gold is the main criterion for getting quick loan approval. Also, you have to fulfil the easy gold loan eligibility criteria for age, weight and number of gold ornaments. Here’s more on the gold loan and its impact on your credit score.

What is a Credit Score?

A credit score ranges between 300-900, depicting a person’s creditworthiness. It helps the lender check your credit record, repayment behaviour and how well you manage financial activities. Any number around 700 to 900 is seen as a good credit score, increasing the chances of loan approval for the borrowers. The RBI has made it compulsory to consider the credit score of a person before processing any type of loan. However, gold assets work as a security for the banks. So, even if your credit score is low, you can get the loan amount sanctioned quickly.

Does Gold Loan Affect CIBIL Score?

Yes, a gold loan affects your credit or CIBIL score. Unlike other types of unsecured personal loans, a gold loan taken and repaid on time can improve your credit score significantly. Those in urgent need of cash but have a poor CIBIL score should take the help of the gold loan to boost their score. As this type of loan is secured against your gold, you have to be careful about the repayment and apply for the amount you really need so that you can repay with ease. Defaulting or late repayment of a gold loan can adversely affect the CIBIL score and lead to the cancellation of any future loan applications.

How to Boost CIBIL Score with Gold Loan?

A gold loan proves to be the best financing option for those in need of immediate funds. Also, the low-interest rates, easy gold loan procedure and quick disbursal make this loan different for borrowers. The repairing of your CIBIL score is possible with the jewel loan. Once the loan amount gets approved by the selected bank or lender, you can use this chance to improve your credit score. Here are a few ways to boost your credit score:

Timely Repayment of Gold Loan

As we mentioned earlier, the CIBIL score is affected by your repayment history, so making timely repayment of the loan amount can help you start building a better record of on-time payments. When you choose EMI (Equated Monthly Installments) options to repay the gold loan amount, you will have to pay a specific amount every month. There will be a percentage of both principal and interest amount involved in this monthly sum. Paying your EMIs on time will raise your credit score, increasing the chances of getting a better rate and fast approval of future loans. However, if you default or fail to repay the amount in the specified time, it can make your credit score suffer badly.

Maintain a Credit Mix in your Profile

A credit mix can help you build a perfect credit score. It means having personal, secured and unsecured loans in your total financial profile. A gold loan is a secured loan because you pledge your gold against the loan amount. Also, if you have a higher number of secured loans instead of a personal or unsecured loan, you will have better chances of loan approval. The jewel loan brings a specific credit mix to your profile and its effect will be visible on your credit score. Make sure you repay the amount on time to get better results on your credit score.

Limit your Credit Accounts

While a new credit account increases your overall credit limit, you need to limit your credit applications. Remember, each application for a new credit account leads to hard inquiry, which affects your CIBIL score. So, it is wise to avoid applying for new loans or credit accounts in a short period of time.

So, a gold loan can affect your CIBIL score in a drastic way. Being prompt and responsible towards repayments of the loan amount can help you have a good credit score.

Muthoot Finance provides gold loans with several customer-centric schemes, including low-interest rates and quick loan disbursal. You can apply for a gold loan online with Muthoot Finance! Visit your nearest branch of Muthoot Finance for more information and guidance from experts.