Home >Money >Personal Finance >Two little-known things that can lower your overall credit score
Given the ongoing cash crunch, some borrowers may be considering going for the loan restructuring option.
Given the ongoing cash crunch, some borrowers may be considering going for the loan restructuring option.

Two little-known things that can lower your overall credit score

The higher the credit score, the more your chances of getting a loan in future at better rates

A credit score denotes the creditworthiness of a borrower. It is assigned by credit bureaus, based on data collected from lenders. The higher the credit score, the more your chances of getting a loan in future at better rates. Borrowers with a lower credit score are seen as high-risk who may not be willing to pay their loan. As a result, banks are likely to lend lower amounts and may charge higher interest rates.

It is, therefore, essential to be careful about factors that can affect your credit score. It is a well-known fact that defaulting on a loan or credit card dues can affect your credit score. However, there are many other little-know factors that can also affect your score. These include becoming a guarantor to someone else’s loan and opting to restructure your loan.

Signing up as a guarantor for family members is common. But often people do it with little knowledge about how it could affect their own credit lives (read more at If you are a loan guarantor, your liability will increase and credit eligibility will go down). Not only does your own eligibility for new loans will decrease, but in case there is a default by the original borrower, you may also suffer.

Given the ongoing cash crunch, some borrowers may be considering going for the loan restructuring option that the Reserve Bank of India has asked banks to provide, with the moratorium facility coming to an end in September. This may give temporary relief, but the fact that these loans will be reported as “restructured" to credit bureaus will end up lowering your credit score (read more at bit.ly/30s8TIE).

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