Although credit scores are becoming increasingly important, many customers continue to hold numerous myths about them, owing to a general lack of understanding about credit reports and credit scores in the first place. Many of such myth believers don’t even know what is cibil score. And it is harmful to your financial health to believe common misconceptions such as: obtaining your credit report will harm your credit score, only loan or credit card applicants should track their credit score to know where it falls in the credit score range, closing old credit cards will result in an increase in credit score, and staying away from loans will indicate high creditworthiness can be detrimental to your financial health.
With the increasing importance and significance of knowing what is cibil score, it has become more critical for people to avoid these myths and adopt habits such as keeping their credit utilisation ratio under 30%, repaying their loan EMIs and credit card bills on time, and maintaining a balanced credit mix.
Obtaining your credit report can have a negative impact on your score
As soon as you submit a loan or credit card application, the lender will obtain a copy of your credit report from one or more credit bureaus and use it to determine your creditworthiness by getting to know where your score falls, whether on the lower or higher side of the credit score range.
A hard inquiry is a credit report request started by the lender, and each hard enquiry is recorded in your credit report, lowering your credit score by a few points for every recorded inquiry. The queries for your credit report that you make on your own initiative, whether directly from the credit agencies’ websites or through online financial portals, are referred to as soft inquiries, and they have no effect on your credit score. As a result, it’s better to try visiting online financial portals to learn what is cibil score and obtain your free credit report, as well as to obtain the greatest loan and credit card offer available depending on your income and credit score, and other qualifying requirements.
Loan and credit card applicants are the only ones who need to keep track of their credit scores.
In light of the fact that your credit score amidst the credit score range is calculated on the basis of information contained in your credit report, any errors or omissions from the report might have a negative impact on your score. It’s a good idea to get into the practice of checking your credit report on a regular basis to avoid such inaccuracies or even probable frauds from being overlooked and lowering your credit score.
Checking your credit report on a frequent basis would enable you to know what is cibil score, besides being able to identify and correct any inaccuracies in your credit report as soon as they are discovered.
At least once a year, you should request a free credit report from each of the four major credit bureaus. Alternatively, you can visit online financial portals to obtain free credit reports as well as monthly updates on your credit history and where your credit score falls in the credit score range of around 300-900.
Getting rid of old credit cards will help you improve your credit score.
Credit card users are more likely than not to believe the notion that cancelling their older credit cards will improve their credit score. On the contrary, doing so may have a bad impact on your credit score in more than one way, as well as in two other ones. First and foremost, it reduces your overall credit limit, which in turn causes your credit usage ratio (CUR) to increase, assuming you continue to use your credit card at the same frequency.
If your credit utilisation rate (CUR) exceeds 30%, lenders may interpret this as an indication of credit hungriness, which may prompt credit bureaus to decrease your credit score by a few points, hence increasing the chances of your score falling into the lower side of the credit score range. The second consequence of cancelling old credit cards is that the average age of your credit history is reduced as a result of this action. Considering that the average length or age of your credit history is one of the parameters taken into consideration in the computation of your credit score, a decrease in the average age may have a negative impact on your credit score, which may have an adverse impact on your future credit eligibility and approval chances as well as your credit score.
The absence of a credit history indicates greater creditworthiness.
Another prevalent fallacy about credit scores is that refraining from using any type of credit, including loans and credit cards, indicates greater creditworthiness. In reality, not taking out any kind of credit precludes the construction of credit history, resulting in a credit score of zero or a low credit score. The absence of credit history makes it difficult for lenders to estimate your creditworthiness since lenders are unable to determine your credit repayment behaviour because of the absence of credit history.
This frequently leads to lenders designating such first-time credit applicants as high-risk, which may limit their chances of receiving a loan or credit approval in the future. In most cases, applications from borrowers without knowledge of what is cibil score or those with low or no credit scores are surprised to know the score and either denied outright or subjected to a higher interest rate than those from applicants with higher credit scores.
Credit scores are not impacted by guaranteeing or co-signing loan agreements.In the event that you co-sign or act as guarantor on the loan, you are jointly and severally liable for the prompt repayment of the linked debt. Similarly, if the primary borrower exhibits indisciplined repayment behaviour toward the loan and makes any late payments or defaults, this action is recorded in your credit report as well and is therefore capable of negatively impacting your credit score in addition to the primary borrower’s credit score. So, keep track of the loan payments on the account for which you have co-signed or guaranteed, and make sure that the EMIs are paid on time. This will ensure your credit score remains on the higher side of the credit score range when both your guaranteed accounts are repaid timely along with other loans and credit cards.