Does converting your credit card bill into EMI impact your credit score? Find out | Mint

Managing credit card bills can be difficult, especially when the bill amount is large. To take away this financial burden, many credit card issuers give you the option to convert the bill amount into Equated Monthly Instalments (EMIs). Although this may provide you temporary relief, it is important to know how this decision will affect your credit score and your overall financial health. Let us discuss in detail

What is EMI on credit cards?

If you have a credit card bill, which you cannot afford to pay in one go, converting your credit card bill into an EMI means dividing the total due amount into smaller, fixed monthly instalments over a pre-defined tenure. This option is usually available for purchases exceeding a certain amount and the EMI attracts an interest rate and processing fees. The EMI conversion helps in better handling high value payments as it relieves the immediate financial burden.

Does EMI conversion affect your credit score?

1. No immediate negative impact

Converting your credit card dues to an EMI does not directly affect your credit score. This is good for your credit profile because the lender considers it a planned repayment strategy.

2. Positive impact with timely payments

Timely EMI payments can also help you keep or even increase your credit score over time. This will improve your creditworthiness and help your chances of getting approvals on your future borrowings.

3. Utilisation ratio concerns

A critical component of your credit score is credit utilisation ratio. Converting your bill into EMIs doesn’t help you lower your utilisation ratio right away because the outstanding amount still counts towards your credit usage. If your utilisation has been consistently high, it can affect your score negatively.

4. Missed payments and their potential risks

Missed or delayed repayments of your EMI can hurt your credit score badly. Financial instability negatively impacts the repayment history that is one of the most important components of your credit score.

Advantages of converting credit card dues in EMIs

Immediate financial relief: By splitting a large bill into smaller EMIs, it reduces the financial burden of a one time payment. This is particularly useful in case of unexpected expenses or emergencies when you are unable to pay the bill in full.

Lower interest than minimum payment: EMIs attract interest charges but the rate of interest is usually lesser than the interest charged on unpaid credit card balance if only the minimum is paid.

Planned repayments: EMIs offer better financial planning with fixed interest rates so that you can make a dedicated budget and ensure timely repayments.

Disadvantages of converting credit card dues in EMIs

Additional costs: Interest rates for EMIs although are lower than standard credit card interest, they are still significantly high. Additionally, processing fees and GST add to the overall cost.

Locking your credit limit: The blocked credit amount is not released until the entire EMI tenure is over once you convert your dues into EMIs. It can restrict future credit card availability for future transactions.

Long term financial commitment: Choosing an EMI option means you have to pay every month for a specific tenure and if you haven’t planned it well, it can be a burden on your budget.

In conclusion, converting your credit card dues into EMI can be a great option when you are in financial strain and are paying a large bill amount. Although EMI doesn’t hurt your credit score, unplanned repayment and defaults can have a major impact on its overall effect. Hence, before you choose this option, consider other options and evaluate your financial position to understand whether you can really afford the loan.

(Note: Using a credit card carries its own set of risks)