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Usually people take loans when they are in need… Loan is a kind of financial help, which is given by the lender i.e. based on the assurance that you will repay the amount on time. Timely loan repayment improves the credit score. Credit score refers to the credit history of a person. Credit score tells you how responsibly you pay off your loan. Now the question arises that, does gold loan affect the credit score? So the answer is- yes. While timely repayment of gold loan installments improves the credit score, defaulting in it also brings down the credit score sharply.

Applying for a gold loan can bring down your credit score, but there is a slight downside. When you apply for a loan, the bank or financial institution asks for your credit report from the credit bureaus to decide on your application. This is called a hard inquiry. This type of inquiry appears in your credit report. Loan is not available without inquiry. In such a situation, if there are a lot of inquiries in the credit report, then there is no problem. However, if your credit report shows more number of inquiries, that too in a shorter period of time, then it indicates that either you have a high need for loans or you are taking more loans than you need. None of these signs are good and will affect your credit score.

After getting the gold loan, you have to return the money according to the stipulated terms. Your credit score increases on fulfilling the loan terms. To build a good credit score, it is important to pay the loan EMIs on time or ahead of time. Paying EMIs on time shows responsible credit behavior and banks give loans easily to such people. Not only this, some financial institutions also provide some discount in interest rates.

On the other hand, defaulting in repayment of loan will not only spoil your credit score but you will also have to pay late fees.

To know more about how gold loan affects your credit score, click here: IIFL