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Impact of secured and unsecured loans on Cibil score

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It is not uncommon for people to ask about the difference between unsecured debt versus secured debt and how these two types of debt may affect credit scores.Some loans can have the opposite effect and actually damage your score.


Sharat Kumar De, a Mumbai-based 3D artiste, held a personal loan, a home loan and a couple of auto loans. His company went through recession and slowly started downsizing. Thankfully Sharat was spared and he was asked to go on unpaid leave for just a couple of months. But before he could do this, he wanted to make arrangements for EMI of the loans held by him and his wife.

But soon he found out that he would not be able to make provision for all the EMI for two months. So he wanted to know the impact of delayed EMIs on his Cibil score.

For this, it is important to for us to understand what a secured and unsecured loan is in the first place. If a loan is unsecured, it does not have any collateral. Personal loan and credit cards are the most popular unsecured loans available today.

Any loan that has collateral is considered secured loan; for example, a home loan or car loan or gold loan. Any default or delay in the repayment in both kinds of loans is bound to affect the Cibil score of a person. The banks report credit limit and balance on credit card and the loan amount for personal loans. The banks also report repayment information to the credit Information companies.The same is the case with secured credit. The banks report all the secured loans held by and also the repayment history.

Secured loans have the largest positive impact on your credit when they are repaid. If you have never taken a secured loan, your credit may be low despite your good record of repayment.

“Non-payment of or serial delays in repayment of credit card dues negatively impact the credit score. Possession of too many credit cards and little or no secured loans can negatively impact the credit score,” said Sridhar K, vice-president, Highmark Credit Information Service Pvt Ltd.

So, before you decide any changes in the repayment schedule, be aware of the impact of each loan has on your credit score.

The End

Creditvidya.com is a leading credit management company. All information in this article has been provided by Rajiv Raj, Director & Co-Founder, CreditVidya.


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