When it regards credit scores, there are several misconceptions or myths that keep the judgement of the borrower clouded. Note that a credit score is a vital number that ranges anywhere between 300 and 900, with 750 being a preferable score by the lenders and issuers for considering your credit approval. At times, your score is even fetched by the company you interview for to judge you as an individual with finances. Based on their judgement, the organization may decide whether to provide you with the job. In case you hold a good credit score, your chance of securing a job is higher.
There are various misconceptions linked with your credit report and credit score, and listed here are debunks of a few of the common ones. This determines your credibility as an individual, and this ranges anywhere between 300 and 900. Anything over 750 is looked upon as a strong credit score. However, as awareness and usage of credit reports and credit scores have increased, it has even given rise to various misconceptions.
Also, ensure that the credit score provided by the CIBIL is given high importance by lenders and credit card issuers. CIBIL full form is Credit Information Bureau Limited. Thus, besides checking the credit score of any other credit bureaus, ensure to conduct your CIBIL score check first. Doing so would allow you to understand where you understand on the grounds of credit score. It will also allow you to know your chances of securing a credit card and loan approval.
Debunking important credit score misconceptions –
A few of the common credit score misconceptions are –
Misconception No. 1 – All the credit bureaus compute the same credit score
While the meaning of credit score for all the credit bureaus is the same, each credit bureaus have a distinct computation for credit score. There are 4 credit bureaus in India – CRIF High Mark, Experian, Equifax, and TransUnion CIBIL. Every credit bureau has its own proprietary model and algorithm to compute your credit score. So, there are four distinct credit scores at four credit bureaus.
Misconception No. 2 – Reviewing your credit report can hurt your credit score
It is a common misconception floating around that periodically reviewing your credit score lowers it. The fact is if a lender fetches your credit report from the bureau against a loan or credit card, there are high chances your credit score might be impacted. However, when you review your own report, it is a soft inquiry and doesn’t hurt your score at all. In fact, reviewing your credit report periodically is a great idea.
Misconception No. 3 – Disputing all credit report errors enhances your score.
There can be different kinds of errors in your report pertaining to your contact details, name, date of birth, or wrong transaction. When you raise this dispute, the credit bureau will get a lender to confirm such discrepancies. Any change in the credit score will be based on whether the item is a disputed part of the credit bureau’s scoring model.
Misconception No. 4 – Debit cards assist in forming your credit score.
It is often thought that debit cards can assist you in forming your score like credit cards, but this is incorrect. The reason for it is very simple – your score determines your credibility as an individual, which depends on your timely repayments of credit. However, when you utilize a debit card, you are not availing of any form of credit. Instead, you are using the funds from your own account.
Misconception No. 5 – Credit repair agencies can assist in fixing your score.
There are various credit repair agencies that assure to assist in ameliorating your credit score. While such agencies might help you by filing disputes to correct errors etc., they cannot fix directly or repair your score.
Misconception No. 6 – Low credit score lasts for a lifetime.
In contrast to what you may have heard, a low credit score can ameliorate in a few months if you effectively work for it. Information on the payment defaults can stay in the credit report for many years. However, if you adopt certain healthy credit practices, such as making timely repayments, keeping your CUR (credit utilization ratio) low, and avoiding a lot of credit inquiries, these can assist in ameliorating your score.
Misconception No. 7 – Wedding means having a merged credit profile and score.
Credit scores are computed as per your credibility and not according to your married status. In case you hold a joint bank account or a joint loan along with your spouse, you will continue to have a separate credit score. However, remember, in the case of any joint loan, delayed EMI repayment or default can thoroughly impact the credit scores of the co-applicants.
Misconception No. 8 – High annual income equates high credit score
Note that your score is determined based on how many credit products you have and how you can repay their dues. You can have an annual income equaling Rs 10 lakh with zero credit score and a credit line against your name. On the contrary, you may be earning Rs 4 lakh in a year and have a score equaling 800 plus as you have availed of a credit product and hold a strong repayment record and past credit background. Your annual income does not have any bearing on your score.
In fact, whether you are an NTC, i.e., new to credit or holding a credit score already, you can get your free report by visiting any of the online platforms. You can get the free TransUnion CIBIL score and report every month.
So, what can help enhance your score?
Ensure to do the listed to see your score improve steadily –
∙ Pay your bills timely
∙ Try to pay in totality. If not, then try breaking the overall amount into smaller portions and repaying across the billing cycle.
∙ Turn on the feature of auto-pay, and do not miss out on your EMI.
∙ Do not close the old accounts without any proper consideration.
∙ Check out your score regularly.
If you find any errors, then instantly report them to the concerned bureau and lender for rectification.
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