Top Myths About Credit Score
The CIBIL score is a numerical measure of your creditworthiness. It’s a three-digit number that ranges from 300 to 900. A credit score of 900 or higher may qualify you for better credit card and loan offers. A CIBIL score of 750 or more is preferred by most lenders, including banks and non-banking finance firms (NBFCs).
The Credit Information Bureau India Limited (CIBIL), which regulates your credit score, has direct power over your future interactions with lenders and financial institutions. A strong credit score will ensure that your loan or credit card application is granted without delay, but a negative credit score will jeopardise your current and future opportunities. The major reason we can’t always keep a decent credit score is due to a lack of understanding. We find ourselves in tough situations because of our lack of awareness, especially during challenging times. That’s why we at Bajaj Finserv, compiled a list of five key characteristics that can assist you in building and maintaining a strong financial history.
What Is the Importance of a Good Credit Score?
Most people will save hundreds of thousands of dollars over the course of their lives if they have a decent or exceptional credit score. Mortgages, vehicle loans, and other forms of finance are more affordable for people with good credit. Better credit scores are considered lower-risk clients, and more banks are fighting for their business by offering better rates, fees, and bonuses. Those with bad credit, on the other hand, are higher-risk customers, with fewer lenders competing for them and more firms getting away with illegally high annual percentage rates (APRs) as a result. Furthermore, because your credit score influences your ability to rent housing, rent a car, and even receive life insurance, having a bad credit score might make it difficult to find rental accommodation, rent a car, or even get life insurance.
There are several credit score misconceptions that continue to circulate because of ignorance. People find it challenging to confirm the accuracy and relevance of these myths and rumours. However, occasionally falling for the myths can get you into problems. Consequently, the most common myths are listed below along with a truth check.
Myth 1: Regularly checking my credit score would make it decline
The most typical misconception about credit scores is this one. It is considered a “soft inquiry” when you check your credit score, which DOES NOT impact your credit score. In fact, your chances of getting credit approved increase the more frequently your credit score is updated.
Myth 2: My income has an impact on my credit rating
Your income is NOT listed anywhere in your credit report, which is the basis on which your credit score is created. Therefore, if your credit behaviour is poor, you may have a CTC of Rs. 15 lakh and still have a low credit score. Similarly, a person with a relatively low income may have a good credit score if their credit history is strong, which includes, among other things, regular bill payment and a balanced credit use ratio.
Myth 3: Obtaining a loan or credit card is only based on one’s credit score
Yes, your credit score is important for acquiring good loan alternatives and credit cards, but it’s not the only thing to consider. Other variables include your age, the type of your employment (such as whether you receive a salary or not), and others. Even if your credit score is excellent, it won’t be the only thing used to decide.
Myth 4: Getting rid of outdated accounts helps raise credit scores
Many people think their credit score will suffer if they have more than two credit cards. As a result, they frequently cancel their older credit accounts by returning their unused credit cards. Since cancelling an old credit account would reduce your credit history, this could inadvertently go wrong. Lenders can better understand your credit behaviour if you have a long credit history. However, after careful consideration, you might choose to close your credit card if you believe you risk losing it or won’t be able to use it responsibly.
Myth 5: Using a debit card will raise your credit score
Using a debit card to make a purchase is equivalent to using cash. You are merely using the funds that are already in your bank account; you are not taking out a loan from a lender. Your credit score is unaffected by this in any way.
