Do EMIs and BNPL Affect Your Credit Score?

Understanding the impact of financial products like Equated Monthly Instalments (EMIs) and Buy Now, Pay Later (BNPL) schemes on your credit score is crucial in managing your financial health. This blog will delve into how EMIs affect credit scores, and the BNPL credit score effect, and provide tips on how to navigate these financial tools effectively.

How Do EMIs Affect Credit Score?

Equated Monthly Instalments (EMIs) are a popular way to repay loans in manageable portions over a fixed period. These are typically used for big-ticket items such as home loans, car loans, and personal loans.

1. Timely Payments

One of the key factors in determining your credit score is your payment history. Consistently making your EMI payments on time positively impacts your credit score. The Airtel Axis Bank Credit Card EMI calculator on the Airtel Thanks App lets you calculate the monthly EMIs and manage payments efficiently.

2. Credit Utilisation

When you take out a loan, your credit utilisation rate increases. This rate is the ratio of your outstanding loan amount to your total available credit. Keeping your credit utilisation rate low is beneficial for your credit score. Paying down your EMIs regularly helps manage and reduce this ratio over time, thereby positively impacting your score.

3. Debt to Income Ratio

Lenders look at your debt-to-income ratio to assess your ability to manage additional debt. High EMI payments can increase this ratio, which might negatively affect your credit score if not managed properly. Ensuring that your EMIs do not take up a significant portion of your income is crucial for maintaining a healthy credit score.

4. Credit Mix

Having a mix of different types of credit, such as credit cards, personal loans, and home loans, can be beneficial for your credit score. EMIs contribute to this credit mix and demonstrate your ability to handle various types of credit responsibly.

How Does BNPL Affect Credit Score?

Buy Now, Pay Later (BNPL) schemes have become increasingly popular for their convenience and ease of use. These schemes allow you to purchase items immediately and pay for them in instalments over a short period of time, often without interest.

1. Credit Inquiry

When you sign up for a BNPL service, the provider may perform a soft or hard inquiry on your credit report. A hard inquiry can slightly lower your credit score temporarily, while a soft inquiry has no impact.

2. Payment History

Just like with EMIs, your payment history with BNPL schemes is crucial. Missing payments or making late payments can significantly impact your credit score. Most BNPL providers report to credit bureaus, so it is essential to adhere to the payment schedule.

3. Short-Term Debt

BNPL schemes are typically short-term debt. Although they may not appear as significant as loans, failing to manage them properly can lead to a negative impact on your credit score. Keeping track of multiple BNPL payments and ensuring timely repayment is key.

4. Credit Utilisation

Using BNPL increases your credit utilisation rate. Even though BNPL limits might be smaller compared to traditional loans, multiple BNPL plans can add up, affecting your overall credit utilisation. Managing these plans efficiently helps maintain a good credit score.

In conclusion, both EMIs and BNPL schemes can significantly impact your credit score, depending on how they are managed. The Airtel Axis Bank Credit Card available on the Airtel Thanks App offers numerous benefits, including discounts on Airtel services. Your credit score plays a vital role in determining your credit card options, the benefits you can access, and the overall cost of credit. Timely payments, managing credit utilisation, and maintaining a healthy debt-to-income ratio are crucial to ensuring these financial tools work in your favour.

Frequently Asked Questions

1. Can using BNPL services negatively affect my credit score?

Yes, using BNPL services can negatively affect your credit score if you miss payments or exceed your credit limits. It’s crucial to manage these payments diligently to avoid any negative impact.

2. How does my debt-to-income ratio affect my credit score when using EMIs?

A high debt-to-income ratio can negatively affect your credit score as it indicates that a significant portion of your income is going towards debt repayment. Keeping your EMIs manageable relative to your income is essential for maintaining a healthy credit score.

3. Do all BNPL providers report to credit bureaus?

Not all BNPL providers report to credit bureaus, but many do. It’s important to check with your BNPL provider to understand how they handle credit reporting.

4. What are the benefits of using the Airtel Axis Bank Credit Card on the Airtel Thanks App?

The Airtel Axis Bank Credit Card offers benefits such as discounts on Airtel services, cashback on various purchases, and easy access to your credit card statement. The Airtel Thanks App makes it simple to manage your finances and keep track of your credit card usage, helping you maintain a good credit score.