Does taking loan on credit card impact credit score?

Credit cards can be used for various expenses such as travel, food, electronics, clothes etc. By using credit cards, you can also save money as the credit card companies offer several discounts, cashback and rebates on the transactions.

Those with good credit, a history of payments, higher salary, etc., can get pre-approved personal loans from lenders who already offer credit cards to those customers. CIBIL and other credit bureau scores, among other things, help determine whether or not you qualify for a loan of this kind.

If you take a loan, it will affect your credit score. A good CIBIL score is essential, and you should be aware of this. This loan will have a negative impact on your CIBIL score. Let’s take a look at how your loan on a credit card impacts your CIBIL score:

Repayment obligation

Your CIBIL score is heavily influenced by your payback history, regardless of the type of credit you hold. The repayment history will include the date and amount repaid, as well as any credit card bills paid. So, whether or not your credit score rises or falls will be determined by your ability to make your debt payments on time.

Your credit score will rise as long as you make your loan and credit card payments on time. However, if you miss more than one payment in a row, the lender will notify CIBIL. A well-known credit agency will recognise this, and it will lower your score by a few points. Delays might cause a rapid drop in the credit score because of the unsecured nature of credit.

A mixture of credit 

When you pay off multiple debts, the credit mix enters the picture. If you only owned a credit card and took out a loan against it, your credit limit would have increased to two. More secured debt should be included in the credit mix, if possible.

So long as you don’t miss or default on your payments, you won’t run into trouble even if there are more unsecured credits. If you miss payments, your grade will drop significantly.

Credit utilisation 

You’ll be able to come up with the money you need to make the monthly loan payments. However, your credit card usage and needs will have a significant impact on your monthly bill. How you shop might have a significant effect on how much money you end up spending.

Using more than 30% of your credit card limit is a bad idea, even if you have no other debt. You have to be much more careful with your spending now that you have a personal loan. If you exceed your restrictions, you may find it challenging to cover both or either of the two. Your CIBIL rating will be impacted if you fall into any of these categories.

You should set a credit card shopping limit for yourself, just like you would for an EMI on a personal loan. You’ll be able to pay more conveniently while also improving your CIBIL rating.

If you want to fix the problem, you’ll have to learn a lot about your financial situation. Reduce your outside spending to a minimum and forego some costs that seem excessive to you. All of these sacrifices will only pay off if your CIBIL score improves.

End note

There is no requirement for customers to apply for a credit card loan because it is pre-approved based on their CIBIL score and a healthy income. It’s possible that even having these things, you’ll still be denied this pre-approved loan.

If that’s the case, you’ll likely have to apply. Once you’ve used it, the lender will run a hard inquiry to see if you’re creditworthy. If you miss a payment, your credit score may go down a notch, but it will rise faster if you make it up on time.