4 Credit Score MythsA credit score is a 3-digit number and an essential aspect for a loan that reflects the creditworthiness of a borrower. Various credit bureaus such as The Credit bureau of India limited (CIBIL) evaluates and analyzes repayment history and sends credit reports to the lender. Lenders use the credit score to probe the repayment ability of the borrower before the approval or rejection of the loan application.
Numerous financial Institutions and NBFCs offer loans whether personal or home loans by checking your creditworthiness. A good credit score ensures that you will be offered the most nominal interest rate and flexible repayment tenure by the lender.
But unfortunately, due to lack of knowledge, many borrowers believe and continue to hold toxic misconceptions about credit scores that can run you in trouble at times.
Here are some of the most common credit score myths and truths you should be aware of:
- Checking credit report lowers your score - This is probably the most common myth that resists many to check their credit score. Checking your credit score is a soft inquiry that does not affect your credit score. Monitoring your credit score at intervals helps you track your credit and make improvements, if required. If you are checking from the right source, like the credit bureaus themselves, it won’t lower your score. In fact, checking your credit report regularly is a good idea to wave off errors, if any.
- A bad credit score lasts forever - Disagreeing to what you might have understood, a poor credit score can be improved in a few months. If you follow healthy credit practices like clearing debts timely, keeping your credit utilization low, shunning too many credits inquires, these can help in boosting your credit score. Reports on payment defaults can remain for several years, but this is a myth that it will last forever.
- Debit card builds your credit score - Debit card consists of your own money and is not a credit-based product like a credit card. So, this is a misconception that a debit card builds your credit score like a credit card. There is no scope of payment of bills while using debit cards like paying credit card bills. Taking a credit or a loan and making timely payments determines your creditworthiness.
- A good credit score depends on your high annual income - Your income does not influence a good credit score; your debt payment habits have an impact on your credit score. No matter what your annual income, paying your bills and EMIs on time makes all the difference for a good credit score.
The above factors determine whether you have a good or bad credit. Be clear about what impacts your credit score instead of believing in the myths. The most important thing is to increase your credit score, your payment history, credit card utilization ratio, and length of credit history. If you have a score of 750 or above, you are likely to qualify for the best options of personal loans and credit card deals.
Is credit score the sole element for securing a loan?
No, a credit score is not the sole element for a personal loan approval. Borrowers should stand by the eligibility criteria and submit mandatory documents, besides having a good credit score.
There are factors that decide your eligibility for a loan like age, income, nature of your job (whether salaried or self-employed). Your credit score could be good, but lenders don’t just rely on your credit score, other factors are also considered important for a loan approval.
Hence, never follow the above-mentioned myths related to the credit score and keep your credit score stable with timely payments of bills and debts.