Beware! Use of Fintech services may make or break your creditworthiness
Advancement in technology and growth of startups have made it easy to avail small credits from Fintech companies almost instantly without much paperwork.
“Features like buy-now-pay-later (BNPL) or EarlySalary or any of these small neatly packaged zero EMI with a flexibility to pay back within three months to six months, including some cards, are extremely convenient tools that enable you to buy the products that you want. They have a very quick turnaround, very easy access to funds and therefore you are able to buy the stuff that you need, or get the liquidity of the cash that you like,” said Santosh Joseph, Founder and Managing Partner, Germinate Investor Services LLP.
However, you can’t neglect the repayment schedule of such a service simply because the size is small.
This is because once you avail such a service, your CIBIL account will reflect a new loan account. More Fintect products you use, more will be the number of loan accounts.
Not only such services will be reflected as loan accounts, but will also influence your CIBIL score.
So, by strictly following the repayment schedule, you may improve your CIBIL score through Fintech products.
“In normal circumstances, when your credit score is bad and you utilise these types of loans where you can acquire a loan much more easily than a regular loan, if you end up paying these back with a good consistent track record, your credit score actually goes up and it can help you recover your bad credit scores,” said Joseph.
On the other hand, you may hurt your CIBIL score by reckless use of such Fintech services.
“The worst thing that could happen is, if you take these kinds of loans and though they have shorter timeframes and quicker turnaround periods, if you ever bounce these, your actual credit score will take a beating,” said Joseph.
So, Fintech services not only provide easy access to small credits, but also provide opportunity to new-to-credit individuals to build a good credit score before applying for a loan.
By availing such a service, individuals already having CIBIL scores may quickly improve or diminish it.
“So, these are actually tools that can be helpful to revive or improve your credit score. Therefore, if these things go bad, your credit score actually goes wrong and instead of getting better, your credit score gets worse. The tool of convenience that you used, actually does do more harm than good over a period of time,” said Joseph.