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6 Common CIBIL Score Misconceptions


6 Common CIBIL Score Misconceptions

  • By Saral Credit
  • April 28, 2022

Nowadays, everyone wants to manage money, and the best way to have your essentials and still manage your expenses is through credit cards and loans. If you have one for yourself, you must be aware of the CIBIL score. Credit Information Bureau of India Limited is one of India's oldest information companies. Before moving on to the misconceptions regarding the CIBIL score, one must know what these companies do. Banks and financial institutions send monthly reports to these companies to evaluate the consumer's credit card and loan payment details. A credit information report is the details that these companies have about the consumer, and based on it, they calculate the CIBIL score. Lenders can easily check the CIBIL score of any loan applicants to decide whether to approve their application, and they can also determine their creditworthiness.

What is the CIBIL score?

Based on the credit history, CIBIL calculates the CIBIL score, which is the 3digit number. The CIBIL score helps banks, lenders, and credit card providers decide to approve or reject the application from the consumer's side. Some range determines whether your CIBIL score is good or bad. Ranging between 300 and 900 determines your CIBIL score. A score of more than 725 is considered good by most financial institutions. The higher score you have, the more chances you have of getting credit cards and loans at very reasonable interest rates.

But sometimes, given the nature and the importance of CIBIL in providing credit scores, people often create misconceptions about the CIBIL score, but CIBIL is very transparent when it comes to creating the credit report.

Are you one of them who is worried about checking your credit score, not knowing what it entails? Let's look out some misconceptions related to CIBIL scores and the facts behind them:

Myth#1 Changes in a credit report by CIBIL

People think that CIBIL has the authority to make changes in their credit reports, but they don't have such authority. They only write what your lender gives a report according to your credit history. The only thing they do is they can make changes, or we can say they update your credit report as lender reports. They never alter your credit report at their will, so next time you apply for any credit card or the loan, be free to make any changes by the CIBIL in your credit report.

Myth#2 Your CIBIL score depends on your assets and income

You know how people with a low income can have a high CIBIL score, and this is because they pay their EMI's and credit card bills on time. Your CIBIL score reflects your financial transactions in relation to your credit. There are some big groups of people, but they are in the habit of missing payment dates of credit card bills or EMI. This becomes the reason why people have high incomes but low credit scores. There is another possibility that people are earning high, but their credit score is zero, and this is all because they have never taken out a loan. Credit repayments dictate your score, so never keep in mind that your earnings decide your credit score, but your payment habit will decide your credit score.

Myth#3 CIBIL approves or rejects the loan application and also, they maintain the defaulter's list

This is the common misconception that people have regarding CIBIL scores that CIBIL has the right to approve or reject a loan application. But it's not true; it is entirely up to the lender or bank to decide about the approval or rejection of the application as they can evaluate the creditworthiness that is based on various aspects. CIBIL doesn't maintain the list of defaulters, although it accesses the credit history of borrowers who have taken the loan or enquired about credit cards or any kind of loan. Your credit activities are responsible for the credit score, and the bureau calculates the credit score based on a different algorithm.

Myth#4 Once you have low credit score you stuck with it always

It's a prevalent misconception that people always suggest to others and also follow them. There is no truth in this misconception. CIBIL evaluates your score based on your credit repayment behaviors. For example, if you missed out repayment date of your credit card bills or EMI just because of some authentic reasons, it doesn't mean that you always stuck to a low credit score. You can boost your credit score by starting to pay your bills and EMI on time. CIBIL updates your report regularly. The lender always checks your score when you apply for any loan, and if at that time you have a good credit score, then you can easily have the loan with reasonable interest rates.

Myth#4 Checking your report frequently can harm your credit score

According to some people, this habit can harm the credit score, but it's not true checking your credit report frequently is a good practice. By adopting this kind of habit, you can stay updated about your current credit score. This can also help you out in updating your financial position, and by this, you can spot any errors that you can report to the bureau. The fact is neither of these activities affects your credit score. But on the other hand, multiple credit inquiries can put your bad impression as it projects you are a credit-hungry borrower. So, in that case, you can find difficulty on behalf of lenders.

Myth#5 Paying off your debts can increase the CIBIL score

When you pay your debt in time, it's a good thing as you have complete control of your finances, and it's a good idea. Your credit score depends on other factors except this. Paying off the debts will not increase your score because it is based on other transactions. When you apply for any loan or credit card, your lender will check all the transactions before giving their approval or refusal about your creditworthiness.

Myth#6 In the way to credit score credit card is the hindrance

Many credit cardholders believe that using credit cards can ruin their credit score. They believe that canceling the credit card may significantly improve the CIBIL score. But it's totally wrong, and this misconception is quite common among credit card users. The ownership of a credit card doesn't affect your credit score, but the trouble arises when you are irresponsible about your repayments on time. High credit card usage and not paying your dues on time can ruin your credit score. This will affect your impression in front of the lenders.

What are the benefits of having a good credit score?

There are various benefits of having a good credit score that is above 750.

  • You can have the best credit card, which is a feature-loaded credit card by which you can reap the benefits.
  • You can have quick loan approval; a good credit score works like the expressway for your loan application. You don't have to wait for too long for your loan approvals from the banks or the lenders.
  • Interest rates matter a lot when it comes to the loan or the credit cards as everyone wants to manage their financial health. Having a good credit score, you can bargain for a lower interest rate on loans and credit cards.
  • Good credit score helps you to have more affordable loans. There are various charges like processing fees etc.; you can bargain your way out of some of these extra expenses during the loan procedure.

You can use a credit report to safeguard your identity. Every year, many people are affected by identity theft, so reviewing your credit score every month keeps you updated about your credit report. What you have to go through while checking the credit score:

  • Wrong personal details should be checked
  • Unknown credit cards or the credit accounts should be checked
  • Unanticipated usage of old credit accounts

Going through all these details can alert you that everything is in its place and that your credit report is safe and sound.

These are the most common misconceptions that people have regarding the CIBIL score. When you are applying for a loan or a credit card, you must be aware of all these to have transparency about the CIBIL and the credit score of how it works. Always remember the lender knows your creditworthiness.

Knowing about your credit score will help you to maintain sound financial health. If you are the person running a business, you must be aware that loans and credit cards are very beneficial to manage financial growth. So, if you want these loans at reasonable interest rates, then always keep an eye on your credit score. For a hassle-free loan to shoulder your financial burden with ease, one must not believe in such myths. Instead, you should make the right decision based on these myths and maintain a good CIBIL score that can help you get loans easily in future.