A loan or credit is a financial help that lenders give to you with a trust of receiving it on time. And a credit score is a reflection of how responsibly you handle your credit payments. So to answer the question, yes, gold loan or credit, in general, influences your credit score. Handling your credit or gold loan payments responsibly will improve your credit score. On the other hand, negligence of any sort regarding the loan payments will hurt your credit score and subsequently your chances to get any loan in future. If you want the credit facility to be at your disposal at all times, then handle it carefully. And to do so, you need to learn about different ways a gold loan can alter your credit score.
To help you better understand the effect of the gold loan over your CIBIL credit score, we have discussed a few points given below:
1. Gold Loan Application
Did you know that applying for a gold loan can impact your credit score? Yes, you read it right. Simply applying for a gold loan can reduce your credit score even if it is only by a few points. How? Every time you apply for a gold loan, a hard inquiry is placed by lenders. If you’re wondering what ‘Hard inquiry’ is, it is a term used when lenders request your credit report from credit bureaus to assess whether your application must be approved or not. This hard inquiry gets reflected in your credit report. A few hard inquiries in your credit report do not pose an issue as without an inquiry you cannot get a gold loan. But several inquiries getting reported in your credit report, that too in a short period, may indicate that you are credit hungry, i.e., either you desperately need a loan or you are borrowing more than you require – neither of which is a good sign.
2. Gold Loan Payments
Once a lender accepts your loan application, you will have to repay it as per the decided terms and conditions of the loan. Meeting the loan obligations will boost your credit score and failure to do so will bring the score down substantially.
To learn in what ways your gold loan payments will affect your credit score, read below:
Making loan payments before or on time is essential to building a good credit score. Borrowers who pay their loan EMIs on time exude a responsible credit behavior which makes them more attractive as a borrower than those who are irregular with their loan payments. Lenders too prefer giving gold loans to such borrowers. Some even go as far as giving a little relaxation on the gold loan interest rates.
A default is when you fail to meet the gold loan repayment obligation as per the loan contract. Even a day’s delay in making the loan payment gets reported to all credit bureaus in India who further add this information in your credit report, thus reducing your credit score substantially.
Additionally, making the required payment within 30 days attracts late payment fees and maybe a few other nominal charges. But defaulting on a gold loan for consecutive 90 days will get you NPA (Non-Performing Asset) label on your credit report – a title that bars your chances to get a loan from other lenders. Further non-repayment of the loan might also get you a legal notice and in the end, selling of the gold articles that you had pledged to lender in the lieu of gold loan.
So now you know in what ways a gold loan can influence your credit score. Multiple loan inquiries can reduce your credit score and regular payments can boost it. As far as defaulting on a gold loan is concerned, it comes with various consequences. The specifics of these consequences differ from one case to another. But on the whole, you can expect substantial damage to your credit score along with fewer chances to get credit in the form of loan or credit card, a legal notice, additional expenses in the form of late payment fees, other penalties and legal costs and maybe auction of your gold articles. If you are a busy person and often miss the due date of your loan payments, set a reminder on your mobile, computer and every other possible device which you daily use. Setting a reminder will help you make your payments timely. Another thing you can do to avoid late payments is asking your lender to directly debit the amount from your bank account.