The Indian credit card market has seen a sudden growth in its user volume. From just 37.5 million issued credit cards in 2018, the number currently stands at 82.5 million as of January 2023. Most Indians usually opt for a credit card for its easy payment features, rewards, and benefits.
However, did you know that credit cards can also help increase your personal loan approval chances? Yes, timely credit card payments can make you stand out as a more trusted borrower for the financial institution.
Read on to learn how credit card bill payment affects your personal loan eligibility.
Factors affecting personal loan eligibility
When you apply for a personal loan, you need to fulfil the eligibility criteria set by the financial institutions to qualify the applicants. These factors include-
1. Debt-to-income ratio: The lender assesses your monthly income to judge your financial stability. Furthermore, many lenders also assess your debt-to-income ratio, which is basically your monthly debt obligations divided by your gross monthly income. With this, the lender wants to ensure you have enough disposable income to manage your existing payment along with the new loan.
2. Age: Age is another critical factor that affects your personal loan eligibility as it determines the number of working years ahead of you. Typically, you have to be between the age of 22 to 58 years to apply for a personal loan.
3. Employment status: A stable employment status ensures that there will not be any income-related issues with the borrower, which further boosts the lender’s confidence.
4. Credit score: A credit score evaluates various factors like your payment history, past credit history, and ongoing loans to determine your creditworthiness. The higher the credit score, the higher your personal loan eligibility.
How credit card payments affect personal loan eligibility
Credit card payment and personal loan eligibility are connected by a fine thread called a credit score. Your credit score will increase when you keep your monthly credit utilization under 30%, pay your credit card dues on time in every payment cycle, and maintain a healthy usage rate.
This increased credit score, in turn, is utilized by the financial institution as a factor of your creditworthiness. With a high credit score, your personal loan eligibility will increase. And the lender might feel more confident in disbursing the loan amount thanks to your healthy credit history.
Thus, owning and utilizing a credit card smartly can help build your credit score. The key things to remember are holding only a few credit cards, making timely payments, and keeping your credit utilization under 30% every month.
Why is it important to have a good credit score?
A good credit score is a deciding factor regarding loan disbursal. A good credit score reflects the following things about you:
1. Creditworthiness: It shows that you can repay your loans and debts on time, making you a less risky borrower in the eyes of the lending institution.
2. Financial responsibility: It shows that you are financially responsible and disciplined since you can manage your debts and make timely payments.
3. Income and debt balance: A good credit history shows you maintained a good debt-to-income ratio. Your debts are within your overall income, making you less likely to default on future loans.
If you maintain a good credit score, you will stand out as more reliable, increasing your chances of getting your loan approved.
What is a secured credit card?
We have established that credit cards are the best ways to build a good credit score, but only some have access to one.
Since a credit card is a form of unsecured loan, you need a good credit score to access one. This is difficult for people who have just started earning, are homemakers, or are retired. Secured credit cards are introduced to give this category of people a chance to either build or rebuild their credit scores.
When opting for a secured credit card, a security deposit is charged by the financial institution. The deposit amount usually is equal to your credit limit. Now, if you default on your credit card payments, the lender can deduct the default amount from the security deposit, making this credit card a secured loan.
What are the different types of credit cards?
There is no one-size-fits-all for credit cards, as different people have different needs and preferences. Some may like to travel, some enjoy dining out, and some may have business and household needs to take care of.
Therefore, just like a secured credit card, there are other different types of credit cards available as well:
1. Travel credit cards: As the name suggests, this kind of credit card caters to travel enthusiasts. Most credit cards in this category provide offers and benefits like lounge access, reward points on travel expenses, or even airline memberships.
2. Lifestyle credit cards: This kind of credit card offers depending on your lifestyle expenditures. They give reward points and cashback on expenses related to shopping, dining out, and entertainment shows. Some even offer concierge service and lounge access.
3. Student credit cards: This type of credit card is specifically aimed at students with low credit history. If you are a student over 18 years, then you can apply for this credit card with minimum documentation. Although the credit limit is comparatively less, it still provides various rewards, cashback, and offers. Student credit cards can be an excellent way to lay a foundation to build a good credit score.
4. Business credit cards: Specifically aimed at business owners, this kind of credit card is best suited for business-related expenses. These cards have a higher credit limit, longer interest-free credit duration, and perks related to business expenses.
With so many options available, you must do thorough research and choose a credit card that best suits your financial needs and spending habits.
In a nutshell
The credit card offers more than just ease of payment. By ensuring timely credit card payments and smart utilization, you can reap maximum rewards and make yourself stand out as a reliable borrower when opting for a personal loan.
Looking for an affordable personal loan? Streamline the process of acquiring your next personal loan with Tata Capital. With attractive interest rates, minimal required documents, and a paperless application process, getting a personal loan has never been this easy. Visit our official website today to know more!
03 July 2023
6 mins read
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