Explained! Loan On Credit Card And Its Impact On Your Credit Score
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If you need quick funds for your financial needs, a loan on credit card can be a good idea. Use it well to keep your credit score healthy!
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A loan on credit card is offered against your credit limit.
For example, if the credit limit is ₹5 lakhs, you can get a loan of up to ₹5 lakhs.
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Your credit limit affects your credit utilisation ratio - a factor affecting your credit score.
The higher the ratio, the lower the credit score.
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Credit utilisation ratio = (credit used / credit limit) X 100
So, if your limit is ₹5 lakhs and you use ₹1 lakh credit, the ratio is 20%.
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When you take a loan against the card, the credit used increases, but the limit doesn’t.
This drives up the credit utilisation ratio, affecting the credit score.
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Moreover, if you do not repay the loan EMIs on time, your credit score is impacted due to missed payments.
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To avoid any impact on your credit score, borrow only what you need to and pay the EMIs on time. Get the funds and protect your score too!
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For affordable loans, choose IDFC FIRST Bank Credit Cards. Get loans at interest rates starting from just 9% p.a., one of the lowest in the market.