How debit card EMI impacts your credit score and why timely repayments matter

If you have ever chosen to pay your EMI using your debit card, it is natural to wonder if this affects your credit score. Debit card EMIs have their own unique features, allowing borrowers to buy now and pay later. These repayments are made through monthly payments. This makes buying new products and services easier for individuals who do not have a credit card.

Still, does this impact an individual's credit score and credit report? The answer to this question is a simple yes. Let us discuss this concept in detail.

What is a debit card EMI?

In regular debit card payments, funds are instantly deducted from your account. A debit card EMI is different. It works like a small personal loan. In this case, the bank pays the merchant upfront, and the borrower of the funds repays the bank in fixed monthly instalments.

For example, buying a ₹60,000 mobile phone on a six-month EMI plan simply means paying approximately ₹10,000 per month. Additionally, a nominal monthly fee and interest are also paid by the borrower to complete the entire transaction successfully.

How does it affect your credit score?

1. Banking institutions often report debit card EMI repayments to credit bureaus. These transactions are reported as loan transactions.
2. On-time clearance of EMIs can hence boost your credit score. A solid repayment history is a critical element of your credit report.
3. Your credit score can dip if you miss your pending loan EMI or debt repayment due date.
4. This happens as defaults appear on your credit report and stay there for several years.

Key points for a debit card holder to remember

• It is essential to keep in mind that debit card EMI is just a loan. Even 0% EMI plans, or other similar plans, may include processing fees and additional charges.
• This makes it crucial to follow a diligent payment plan, as missing due dates can negatively impact an individual's creditworthiness. When you apply for a new loan, it can temporarily cause a slight dip in your credit score.
• Still, consistent repayments of these borrowed funds help in the recovery process.
• If you don’t have a credit card, you can still build a credit history by making on-time repayments on your debit card, provided it is managed responsibly.
• Before selecting an EMI option on your debit card, have a fair discussion with your debit card-issuing financial institution. Understand the pre-closure penalties, deadlines, and legal consequences of entering into such a transaction.

How to use your debit card EMI wisely?

You should follow the given steps to diligently use your debit card EMI:

1. Review the EMI details, basic eligibility criteria, and repayment terms before proceeding.
2. Choose the repayment tenures, instalment amounts, and other essentials according to your repayment comfort.
3. Always keep your bank account with sufficient funds for EMI deduction.
4. Sufficient funds will prevent you from suffering any penalties or fines for payment rejection.
5. Avoid multiple EMIs to prevent putting more financial burden on yourself.
6. Before proceeding with any particular product or service on a loan, understand its necessity.

Debit card EMI can significantly impact one’s credit score. Still, the impact on a fundamental level depends entirely on your repayment behaviour, EMI management integrity and sincerity. When used sensibly, it can help build your credit profile.

If not handled properly, it can damage your credit score and complicate your future borrowing potential. That is why it is essential to stay informed, pay on time, and treat your debit card EMI as a responsible loan. Clearing it will keep the entire borrowing process and experience pleasant.

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