What is more effective for my CIBIL score – Credit Card or loans?


When the credit scores are getting calculated, the ratio of the type of credit facilities being used by me come into consideration. What this means is, any person servicing loans and credit cards, should have a healthy credit-mix of secured and unsecured loans. ‘Secured loan’ means a loan where the loan amount is covered against a security pledged by the borrower with the lender. Examples are home loan, loan against property, education loan, secured credit card, automobile loan. Unsecured loan means a loan where the borrower does not need to deposit any asset as a guarantee against a loan taken. Examples are personal loan and credit cards. Both the types of loans have a bearing on one’s CIBIL Score.

Let us understand the credit mix matrix of loans, which is an important factor in the process of underwriting.

There are two types of trade lines in loans – fixed and revolving. Revolving trade line means, those that do not have a fixed monthly payment. Fixed trade lines means, those that require fixed monthly payments until the loan is completely paid off. Credit cards are known as revolving trade lines because the amount to be paid is not fixed and the credit card holder can chose the pay back only as low as 5% of the total amount due and rest at any point of time within the next month. Equated Monthly Installments are fixed and a pre-decided amount needs to be paid back to the lender on a particular date of every month.

Both [credit cards and loans] are about the same, they are equally impactful on the credit score and on credit tracking. Let’s understand this better with examples.

A person is servicing a few loans [irrespective of loan segment], and a few credit cards. They may be paying off all dues on the loans, properly. But, possibly, defaulting on their credit cards on payments and usage. In that case, it is not that their score will be good because their loan servicing is good. But, because of their improper payments against credit cards, their credit score will drop down.

Similarly, in a vice-versa case, where a person servicing a few loans every month is making credit card payments on time, but in some way, is defaulting on loans to be serviced. In this case too, their credit score would not be good considering only the loan history.

Credits and loans are one and the same thing. Which is, borrowing money from a lender, for a certain period, promising to pay back within a certain time frame, at an amount agreed upon.

Therefore, both credits and loans have an equal effect on the CIBIL score or credit score. None is more effective than the other.


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