In India, gold holds great significance, whether it is for weddings, festivals, or other occasions. Almost every Indian household possesses gold jewellery, which represents luck and prosperity. However, the value of gold extends beyond its cultural significance.
Gold serves as a tangible asset and can be utilised as collateral for obtaining a loan during times of financial uncertainty. Gold loans involve pledging your gold possessions temporarily to a lender in exchange for a sum of money based on the gold's value.
Unlike unsecured loans, such as personal loans or credit cards, your CIBIL Score, or credit score does not play a significant role in getting approval for a gold loan. As a result, you can easily avail of a loan with just the required gold loan documents. However, it's important to note that taking a gold loan can have an impact on your CIBIL Score and credit report, which keep track of your credit and loan history.
Here are a few different ways in which a gold loan can impact your credit score.
Gold loan application
When you apply for a loan, the lender may make an inquiry, either a hard or soft inquiry. Hard inquiries involve the lender requesting your credit report from credit bureaus, and these inquiries are recorded in your credit report. Soft inquiries do not affect your credit report or credit score. Hard inquiries have a greater impact on credit scores for applicants with limited credit history, which can influence your CIBIL Score.
Repayment on time
Paying your gold loan EMIs on time is crucial for establishing a strong track record of regular payments, which directly affects your CIBIL Score for gold loans. By consistently making timely repayments, you enhance your chances of securing future loans with better interest rates and faster approval processes.
Loan default
Failure to repay your gold loan as per the loan agreement puts you in a default status. It is important to note that a delay in making loan payments is reported to all credit bureaus in India, resulting in a drop in your credit score as this information is added to your credit report.
What is a Credit Score?
A credit score is a three-digit number that reflects your creditworthiness. It tells lenders how reliable you are when it comes to repaying borrowed money. This score is calculated based on your credit history, which includes information about loans, credit cards, and bills you've paid in the past. The higher your credit score, the more trustworthy you appear to lenders, making it easier to get approved for loans and credit cards. A good credit score can also mean lower interest rates, saving you money in the long run. So, it's essential to manage your finances responsibly to maintain a healthy credit score and secure better financial opportunities.
How to achieve a higher CIBIL Score with a gold loan
Here are a few ways to boost your credit score:
- Timely repayments: Make sure to repay your gold loan on time, as any delays or defaults can negatively impact your CIBIL Score. Set reminders or automate payments to ensure timely repayments.
- Responsible borrowing: Borrow only the amount you truly need and can comfortably repay. Taking on excessive debt can strain your finances and increase the risk of repayment difficulties.
- Regular credit monitoring: Monitor your credit report regularly to stay aware of any errors that could affect your CIBIL Score. Promptly address any issues with the credit bureaus.
- Clear existing debts: Prioritise clearing existing debts before taking on new loans. This demonstrates responsible financial behaviour and improves your creditworthiness.
- Communication with lender: If you anticipate any difficulties in repaying the loan, communicate with your lender. They may be able to offer alternative repayment options or solutions to avoid defaults.
Bajaj Finance provides gold loans with several benefits, including low gold loan interest rates, multiple repayment options, and quick loan disbursal. You can apply for a gold loan online with Bajaj Finance or visit your nearest branch.
