Debit Card EMI: Do you use debit card EMI? This small mistake can lead to a huge loss..

The way we shop has changed rapidly. There was a time when the first thought of buying something on EMI was a credit card. But that's no longer the case. Almost all major banks, including HDFC Bank, SBI, Axis, and ICICI Bank, have started offering their customers the facility of debit card EMI. This means that you can now easily buy an expensive mobile phone, laptop, TV, or any other gadget on installments without a credit card.

This facility is a boon for those who don't have a credit card or who simply don't want to have one. But hidden within this convenience lies a significant question: Does this EMI payment with a debit card affect your CIBIL or credit score?

How do you get EMI without a credit card?

This facility is usually pre-approved. The bank sets an EMI limit based on its customers' savings account balance, their transaction history, and their long-standing relationship with the bank. This limit can range from ₹5,000 to ₹1 lakh or more.

When you purchase an expensive item, you're offered the option of "Debit Card EMI" at the time of payment. You can choose the installment term (e.g., 3, 6, 9, or 12 months) as per your convenience. The most important feature is that you don't have to wait for a credit card bill. The installment amount is deducted directly from your bank account on the scheduled date each month.

This feature is a "double-edged sword" on CIBIL.
Now let's address the biggest question: Does it affect your CIBIL score? In most cases, debit card EMI doesn't directly impact your credit score, as it's not a traditional line of credit (like a credit card or personal loan). This is a feature provided based on your own account.

But this is where a big catch lies. Some banks and financial institutions treat these debit card EMIs as short-term consumer loans. When the bank treats them as a loan, it may report them to credit bureaus like CIBIL, Experian, or Equifax. If the bank is sending this EMI information to the bureaus, it can impact your credit score in two ways. This can be both positive and negative. It depends entirely on your payment discipline.

A 'Golden Chance' to Improve Your CIBIL Score
This feature proves beneficial if the bank reports your EMI information to the credit bureaus and you pay every installment on time. If you don't miss a single installment, it is recorded as a 'positive' behavior on your credit report. This shows the bureaus that you're a responsible borrower and fulfill your financial commitments on time.

One default and your score crashes
The other side of this coin is much more serious. If your bank reports this EMI to CIBIL and you miss a monthly installment on time, it can have a devastating impact on your credit score. For example, if you don't have sufficient balance in your savings account on the EMI deductible date and the payment bounces, it will be recorded as a 'missed EMI' or 'late payment'.

This is a 'red flag' for the CIBIL score and can cause your score to drop sharply. It's like a black mark on your credit report, affecting your financial standing for a long time. Furthermore, even if the bank doesn't report your EMI information to CIBIL, it will still charge you a penalty for the failed payment. Additionally, repeated payment failures could result in you being listed as a defaulter in the bank's internal rating. Consequently, if you ever need a loan from the bank for any urgent needs, your application could be immediately rejected.

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