Know How EMI Payments Impact Your Credit Score?

Did you know that EMI repayment leaves a financial trail behind you? It highlights your financial habits.

Consider this: Person A borrows ₹2,00,000 for home renovation and sets his EMI payments at ₹6,500 a month. However, his busy schedule prevents him from making the EMI payments in a timely manner.

Person B borrows ₹2,00,000 as a personal loan, setting the same EMI at ₹6,500. He enables the auto-debit feature, ensuring that his payments go out on the same day each month.

Fast-forward a few years, when Person A applies for a car loan, he learns that the interest rate is much higher for him. Person B, on the other hand, is offered a much lower interest rate on the same loan.

Reason? Consistency in past EMI payments.

Impact of EMI on Credit Score

As soon as you apply for a loan, your EMIs become the hallmark of your financial habits and reputation. Let's compare the impact of Person A and Person B's repayment habits and see how they affect the credit score:

As is evident, even a single delayed or missed payment has a considerable impact on your credit score. Your EMI repayment habits write a credit quality trail for you: think of it as creating a reliable, trustworthy track record of repayment, consistently, for every loan. Having simple, flexible repayment options, like those offered with all Hero Fincorp loans, helps you stick to repayment schedules and improve your credit score.

Fun fact: A CIBIL score of 700 or above is a good credit score. You can do a free credit score check here.

Profiling, Behaviour, and Performance

When you apply for a loan, the lenders create a profile for you and compare it with similar borrowers. For example, if you are 35 years of age, have two credit cards, one personal loan, and a car loan, your financial habits are benchmarked against similar borrowers.

The Credit Bureau then assigns you a score segment depending on these financial habits.

If you have multiple ongoing loans, you would be assigned a "risk factor", which can significantly impact your credit score.

Your EMI repayment performance matters a lot as well. The credit score system rewards consistency in repaying loans by increasing your score. Even if you are unable to send a few payments on time, you can recover your score by staying consistent with all future payments. Your "performance after delinquency" determines how quickly your credit score improves after defaulting on past payments.

A Few Helpful Tips

Here are a few things you can do to gradually improve your credit score:

• Make sure your EMI payments are done on time. Enable auto-debit if it helps.
• Use the credit card only when absolutely necessary.
• Reduce your reliance on unsecured loans.
• Try to avoid taking out multiple loans at once.

You don't need to visit your bank branch each time you need to take out a loan. Visit Hero Fincorp online to get personal loans of up to INR 5 lakh , collateral-free, and with 24x7 access to the loan app to help you maintain and improve your credit score.

EMI and Credit Score Go Hand-in-Hand

For each instance you make a timely EMI payment, it boosts your credit score and bolsters your financial discipline. It shows your lenders that you are responsible with your money. It is more like a pattern instead of a one-time stamp.

Hero Fincorp helps you navigate your financial journey with readily available personal loans and a free check for your credit scores. Visit Hero Fincorp today to get a 10-minute personal loan.

Frequently Asked Questions

How do EMI payments affect my credit score?

Your EMI payments have a direct and significant impact on your credit score. Timely and consistent payments demonstrate financial discipline and reliability to lenders, which helps to increase your credit score. Conversely, late or missed payments can lead to a considerable drop in your score and may result in you being offered higher interest rates on future loans.

What is a good credit score?

A CIBIL score of 700 or above is generally considered a good credit score in India. Lenders often view individuals with a good credit score as low-risk borrowers, making them more likely to be approved for loans and credit cards at competitive interest rates.

Can I improve my credit score after a late payment?

Yes, you can. While a single late payment can negatively impact your credit score, you can recover by consistently making all future payments on time. Lenders look at your "performance after delinquency" to determine how quickly your score improves. Maintaining a steady record of on-time payments for a sustained period is key to rebuilding a strong credit score.

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