11 Common Myths about CIBIL Score

Credit score is the first and foremost thing lenders consider when you apply for a loan. Hence, it is important to know what it is, what factors affect it, and most importantly, the common myths about the CIBIL score. 

A credit score is a 3-digit numeric value that shows your creditworthiness. The higher the score, the better for the borrower in terms of loan amount available and interest rate. A credit score is based on credit history, that is, your financial behaviour, the number and types of credit accounts, total debt, repayment history etc. Credit scores help lenders analyse the ability of an individual to repay the loans on time. 

Due to lack of awareness, CIBIL or credit scores are easily misunderstood. There are many myths and misconceptions about it. These myths can be harmful, as they can lead to misunderstandings and poor financial decisions. In this essay, we'll debunk 11 common myths about CIBIL score. 

Debunking Common Myths about CIBIL Score  

Myth #1 Checking Credit Report Hurts Your Score

This is one of the most common misconceptions about the CIBIL score that people have. People often think that checking your credit report affects your credit score while in reality it doesn’t. This is contrary to a hard enquiry where lenders pulling your credit report when you apply for a credit. In fact, it's important to check your credit report regularly to ensure its accuracy and identify any errors or discrepancies. It is a healthy practice to keep a track of your credit report and score at regular intervals of time, say once every 4-6 months. It is good to monitor and track and tells you if you need to improve your financial behaviour or not. 

When someone checks their CIBIL score, an inquiry is generated. The inquiries are of two types: 

• when a customer checks their own CIBIL score, it is termed as a soft inquiry and it does not affect the customer’s credit score at all. 

• if lenders, banks or financial institutions request CIBIL to check a customer’s score, then it is termed as a hard inquiry. 

In this case though, hard inquiries impact a customer’s credit score. So, your credit score will be affected if many hard inquiries are made in a short span of time.  So, checking your credit or CIBIL score will NOT in any case lower it. It will only help you to track your progress. 

Also Read: 7 Tips to Help You Improve Your CIBIL Score 

Myth #2 CIBIL is the only source for getting credit score/report

You may have different credit scores from different credit bureaus. Each credit bureau has its own methodology for calculating credit scores. People usually use the terms ‘CIBIL Score’ and ‘Credit Score’ in the same context. CIBIL is a credit bureau that provides credit score similar to Experian, Equifax, and CRIF high mark. RBI has given permission to these four credit bureaus in India to generate credit reports. All these bureaus are equally qualified to provide credit reports. each bureau considers its own factors to generate credit scores and credit reports. This is why the credit score of borrowers is varied sometimes. 

Myth #3 A Bad Credit Score Lasts Forever

Your CIBIL score is not permanent and can be improved over time by making timely payments, reducing debt, and managing credit responsibly. There are many ways you can improve your credit score and try and build a good credit history which will, in turn, build a good credit score in time.  

Myth #4 Poor CIBIL score means no loan

While a low CIBIL score can make loan approval more difficult, it is not impossible. There are lenders who specialise in making loans to people with bad credit. Low credit score can affect the result of your loan application but it does not imply outright rejection. There are several other factors that can influence your loan application such as an individual’s income, their reputation, co-applicant credit score, etc. 

Myth #5 Credit Score Depends on Your Annual Income 

A credit score does not depend on your annual income but is influenced by factors such as the credit lines you have and your efficiency at handling them. You could be earning in lakhs in a month, but if your credit behaviour isn’t good enough, your credit score will lag behind. 

Myth #6 Getting Married will Merge Your Scores

It doesn’t matter if you are married or un-married, your credit score remains the same. Marriage has no effect on your credit score because credit scores are individual entities. However, if you decide to take out a loan or other credit product together, both of your credit scores may be affected. CIBIL or credit scores are majorly dependent on a person’s financial behaviour and it has nothing to do whatsoever with your marital status. Merging of credits is not possible. No matter what your marital status is, credit scores are determined based on individual financial behaviour. Joint bank accounts will not affect your credit score. 

Myth #7 Anyone can check my CIBIL score

False. With so much personal information available online, you might suspect that your credit history is accessible to anyone with a basic understanding of Google search. Although you are not the only person who has access to your credit scores and reports, you can rest assured that this financial information is only shared with those who have a legitimate need for it. Not everyone can check or is authorized to check your credit score. It is either you or registered financiers have the right to check your CIBIL, that too after taking your consent as the borrower.  

Myth #8 Debit Card Builds a Credit Score

Debit cards do not contribute to your credit score. Since a debit card is a way to access your savings account and it does not cover credit, any transactions done with a debit card will not be factored in to build your credit history or credit score. Because there is no borrowing involved in the process, debit card use has no direct impact on the credit score. In order to build a CIBIL score, you have to get yourself a credit card or a loan.  

Myth #9 Closing old accounts can boost your credit score 

Closing an old credit card account will lead to shortening of your credit history. When you have a long credit history, lenders will get a better idea of your credit activities.  Before you close any accounts, you should consider how many you have, how much they cost you, what you use them for, and how they may affect your credit score. Closing an account may save you money on annual fees or reduce the risk of fraud on those accounts, but closing the wrong accounts may harm your credit score. 

Before closing accounts to improve your credit score, check your credit reports online to see the status of your accounts. Keep in mind that accounts that have been open for a long time, as well as those with high credit limits but low balances, may have a positive impact on your credit score. 

Myth #10 Clearing off debt will remove the transaction from your credit report

Paying off debt will NOT completely remove the transactions from your credit history. It will remain on your credit report for years to come. Unfortunately, negative information can stay on your report for up to 7 years, whereas bankruptcy information can remain for 10 years.  

Myth #11 Having zero credit is good

Not really. When you apply for credit card or loan applications, lenders judge you on the basis of your credit history. Therefore, having no credit history at all is not ideal or good. If your credit history is less than six months old, your credit score will be zero (0) because the credit reporting bureau does not have enough information to assess your credit history and assign you a credit score. It takes time to build a credit history, so if you are new to credit and have just taken out your first loan, credit card, or other form of credit, you may see zero (0) as a credit score on your report. 

Also Read: Zero or Negative Credit Score: What Does it Mean? 

Conclusion:

Credit scores are easy to understand computations. It is best to understand the way credit scores work, with experts. Hearsay will just cause you  to worry, usually, about nothing.