10 Common Myths about CIBIL Score

A credit score is one of the parameters in the eligibility criteria based on which lenders extend a Home Loan to prospective homebuyers. 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. 

There are many myths and misconceptions about credit scores. Read this article to avoid any discrepancies in your financial planning as we debunk the myths related to credit scores. 

Debunking Common Myths about CIBIL Score  

Myth #1 Checking Credit Report Hurts Your Score

One of the most common misconceptions is that checking your credit score frequently affects it while in reality, it doesn’t. 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.
• When lenders, banks, or financial institutions request CIBIL to check a customer’s score, it is termed as a hard inquiry. 

When you apply for a loan, lenders pull your credit report to check your creditworthiness. Applying for multiple loans simultaneously can affect your credit score negatively. However soft inquiries do not affect your CIBL score. 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 track of your credit report and score at regular intervals of time and monitor it to gauge if you need to improve your score.

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

Myth #2 CIBIL is the Only Source for Getting Credit Scores/Report

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 scores similar to Experian, Equifax, and CRIF High Mark. These bureaus are authorised by the RBI. All these bureaus are equally qualified to provide credit reports. Each bureau considers its own factors to generate credit scores and credit reports, which may cause variations in the credit reports of the borrowers. 
 

Myth #3 A Low 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 A Low CIBIL Score Means No Loan

While a low CIBIL score can make loan approval complex, it is not impossible. A 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 your income, age, and employment type. 

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 a substantial amount in a month, but if your credit behaviour isn’t good enough, your credit score will decrease. 

Myth #6 Anyone Can Check My CIBIL Score

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 authorised to check your credit score. It is either you or registered financiers have the right to check your CIBIL, that too after obtaining your consent as the borrower.  

Myth #7 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 #8 Closing Old Accounts Can Boost Your Credit Score 

Closing an old credit card account will lead to a shortening of your credit history. When you have a long credit history, lenders will get a better idea of your credit activities. Closing an account may save you on annual fees or reduce the risk of fraud on those accounts, but this may lead to a decrease in 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 #9 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. 

Myth #10 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 have just availed of your first loan, credit card, or other form of credit, you may see zero 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 to avoid inaccurate financial planning before availing of a Home Loan.