A credit score is a critical financial parameter and a testimony to your financial viability. Consider it as a report card for your financial health. One look at your credit report or the credit score can tell a lot about your financial history. A credit score provided by authorised credit bureaus ranges from 300 to 900 and gives details about all the debt you have taken in the past and the status of repayment.
A credit score is a crucial parameter for taking a new loan, as most financial institutions prefer to check your credit score before processing your loan application. A person with a low credit score will either not get a loan or get a loan at a higher interest rate. Contrary to that, a person with a higher credit score will be able to avail of a higher amount of loan at a lower rate of interest, considering all other conditions are the same.
Many people think that taking a loan decreases your credit score. However, it is not the debt that affects your credit score, but it is the timely repayment that affects the credit score. If you take a loan and repay it on time, then your credit score will get a boost. In recent years, gold has become a prominent instrument of credit in India. Due to the phenomenal rise of gold prices in the past year, more and more people are putting their idle gold to work and availing loans against gold. This article will discuss how you can improve your credit score by taking a loan against gold.
Improving Credit Score by Taking a Loan against Gold
1. Timely Paying the EMIs
Financial institutions offer great flexibility in options to repay the loan. You can take leverage of these options to repay all the EMIs on time. EMIs are the easiest way to repay your loan. You can leverage an online gold loan interest calculator to get an idea of the estimated EMI you will need to pay for a specified loan amount. It will give you a fair idea about the financial discipline you will have to implement to repay all those EMIs on time every month.
Every time you repay the EMIs on time, your credit score gets a boost. Repaying EMIs on time is one of the best ways to improve your credit score. Hence, if you are in dire need to get your credit score boosted, take a loan against gold lying idle in your house and repay all the EMIs on time.
2. Early Repayment
Most lenders allow you to repay the entire amount before the tenure of the loan gets over. Ensure that lenders don’t charge you extra fees for this foreclosure, as they will be losing out on the interest. However, repaying the whole amount in instalments can positively reinforce your overall credit score in the long run.
3. Diversification of Credit
Taking a gold loan diversifies the entire credit mix. This diversity brings some stability to the credit options and hence, helps in increasing your credit score. A credit mix implies that you have a combination of both secured and unsecured loans. Secured loans are considered as safe as they have collateral deposited against them. A loan against gold is an example of a secured loan. Having a credit card, on the other hand, is unsecured credit.
If you already have a credit card and you are behind on payments, then you can take a loan against gold to bring a credit mix and stabilise your credit score. Gold loans are offered at an attractive rate of interest by financial institutions. You can check the interest rate using a gold loan interest calculator.
Gold loan is gradually becoming mainstream credit option for the middle-class of India. It is also one of the easiest ways to procure a loan as gold acts as stable collateral, and hence, there is not much paperwork required. You can check the latest interest rates offered by financial institutions by using a gold loan interest calculator.