What Factors do Not Affect Credit Scores?

Your credit score is a numerical representation of your creditworthiness as a borrower. It is the first thing that credit issuers check about a borrower. An individual’s credit score is made of several credit score factors, such as repayment history, existing debt, income, credit utilization ratio, etc. While filling out loan applications, lenders ask applicants to provide details, such as marital status, age, employment history, etc. Many applicants assume that everything mentioned in a loan application makes up CIBIL score factors. This is not the case; an individual’s CIBIL score is influenced by only a few different factors. So, what factors do not affect an individual’s credit score? What is the maximum score and what is the minimum CIBIL score required for a Home Loan? How long does it take for your credit score to improve? This article answers these very important questions. 

These Factors Do Not Affect Your CIBIL Score

A good CIBIL score, i.e. anything above 750, helps borrowers get approved for a loan quickly and avail of beneficial loan terms and conditions, such as low-interest rates, long loan tenor and higher loan sanction than one is eligible for. Borrowers understand this and therefore, spend a considerable time working on CIBIL score factors that affect their credit rating. However, borrowers often get confused about factors that affect their CIBIL score. They, sometimes, focus on factors that do not even affect their credit score. This ultimately leads to their credit score remaining the same as it once was before. Here, instead of focusing on what factors affect one’s credit rating, we focus on the factors that do not affect one’s CIBIL score. 

Bounced Cheques 

Credit borrowers think that bounced cheques affect one’s credit scores negatively. However, this is not the case. When a credit information bureau calculates your credit rating, it collects all information about you, including the number of bounced cheques you have had. However, until and unless, the bounced cheque was supposed to be one of your EMIs, which you, therefore, missed paying, your credit score won’t be affected. Reiterating it: a bounced cheque will negatively affect your credit score only if you used to clear an EMI. In any other case, the credit information bureau will not concern itself with why the cheque bounced and therefore, your credit score or credit report won’t be affected. 

Account Balance

This is a very common myth or misconception: one’s account statement makes an important CIBIL score factor. The truth is it does not matter what’s in your account, how much you have saved, how many policies you have bought and how many premiums you are paying. Your CIBIL score is only affected by details related to your loan account, such as whether you pay your EMIs on time, your credit utilization ratio, how many credit cards have you applied for, how many times you have been rejected, etc. So, if you are thinking adding two more investment policies to your kitty will help you push your credit score from good to excellent, you couldn’t be more wrong. 

Also Read: Impact of a Co-Applicant CIBIL Score on Your Home Loan Application  

Soft Enquiries

When a borrower applies for a loan or a credit card, the first thing that a lender does is check their credit rating. Every time a lender checks your credit score, the enquiry gets registered as a hard enquiry. Too many hard enquiries hamper a borrower’s credit score because it shows them to be highly credit hungry. On the other hand, when a borrower checks their credit rating, it is known as a soft enquiry. Borrowers presume that both hard enquiries and soft enquiries negatively affect one’s CIBIL score. This is not the case – soft enquiries have no bearing on a person’s credit score. So, you can check your credit score as many times as you want and your credit rating won’t be affected. 

Usage Of Debit Card 

How you use your credit card affects your credit score. However, how you use your debit cards has no impact on your credit rating. Borrowers must try and keep their credit utilization ratio (i.e. the ratio of the credit used by them to the total credit available to them) under 30% if they want their credit report to reflect a good rating. On the other hand, how you use your credit card, the number of transactions you perform with it each month, the minimum balance you maintain on it, etc., does not affect your credit report.   

Changes in Income

The world is fighting inflation and layoffs have become routine. People are losing jobs and life is tough as it is. Over and above this, when people think that any changes in their income will affect their credit rating, it adds to their stress. Thankfully, this is only a misconception – how much you earn and any changes in your income do not affect your credit score. However, when people lose jobs and their income becomes zero, their ability to spend money changes. Sometimes, being without a job for too long forces people to miss EMI payments and credit card bills. Unfortunately, this impacts a borrower’s CIBIL score negatively. 

Demographics

Lastly, many people also assume that their age, gender, marital status and education level also have an impact on their credit rating. In fact, some people think that religion is one of the credit score factors. This is not the case – your lender collects all this information about you since you are one of their clients and though all of this information is passed to credit information bureaus, it only helps them identify you and your borrower profile. These demographics do not impact your credit rating. 

Final Words 

Your credit score is important. Therefore, you must develop an understanding of the factors that affect it and factors that don’t. We have tried to be detailed in this article. Let us also answer some of the other questions that borrowers have about credit scores. 

Also Read: 6 Ways How Outstanding Balance Affects Credit Score 

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