How Gold Loan Influences Your CIBIL Credit Score

Gold loan is the oldest and effective form of a credit which is given by a financial institution to a borrower. But some people must have told you that a gold loan can affect your CIBIL score, before getting into that you need to understand what is a gold loan and CIBIL score.

What is Gold Loan?

A gold loan is a credit against gold. It is made sure about advancements where gold articles, for example, gold gems, trimmings and so forth are taken as insurance by the loaning bank/NBFC. The advance is given to the borrower against this gold as insurance.  Also, there is a low gold loan interest rate on gold loan.

What is CIBIL Score?

CIBIL Score is a three-digit numeric summary of your credit history. The score is derived using the credit history found in the CIBIL Report (also known as CIR i.e Credit Information Report). A CIR is an individual’s credit payment history across loan types and credit institutions over a period of time. A CIR does not contain details of your savings, investments or fixed deposits. Currently, a CIBIL score of 750 and above is considered ideal for borrowers to get loans from major finance companies and banks. Hence, it is most important to have a higher CIBIL score for easy, affordable and fast loan approval.

So, coming back to the question does gold loan affect your CIBIL score? Yes, a gold loan impacts your CIBIL score. But handling the gold loan payments responsibly can improve your CIBIL score, however, a bit of negligence can hurt the score and reduce your chances of getting a loan in future.

  1. Gold Loan Application Requires Hard Inquiry

When you apply for a gold loan a hard inquiry is conducted by the lender. Hard inquiry means when a lender asks for a credit report from the credit bureaus to assess if the application should be approved or not.  If a lender conducts few inquiries it will not affect the credit score but several inquiries that are conducted in a shorter period of time will surely pose a bad impact on your CIBIL score.

  1. Gold Loan Payments

Payments are to be made as per the decided terms and conditions of the loan, once the loan is accepted. If the payments are not done on time then the CIBIL score will go down and if you make all your payments on time then it will definitely increase the credit score.

Regular payments

To buid a good score it is essential to make gold loan EMI’s before or on time. It creates a positive impact if a borrower makes payment on time then lenders prefer to give loans to such borrowers and might also reduce the interest rate if needed.

Loan Default

If you think that you will not come in to a defaulter list if you miss the payment by one or two days, then you are wrong. Even a day’s delay will be reported to all the credit bureaus in India. Which will be reported in your credit report and your credit score will eventually go down. Also, payment made within 30 days will also levy late payment fees with a few other charges. However, non-payment for 90 consecutive days will get you an NPA (Non-Performing Asset) label on your report which directly effects your score. If you don’t make payment then you might receive a legal notice and at the end, your pledged gold articles will be auctioned.

Conclusion: You are now aware that gold loan can have an impact on your credit score but to improve it make sure to make the payments before or on time and it is also very important that when you apply for the loan hard inquiry is not conducted. Another thing is to avoid collateral auction to reduce the impact of the gold loan on your credit score.

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