There are various guidelines that specify the importance of preserving a healthy CIBIL score in order to speed up your prospects of getting an approval on your loan. However, this information may be confusing for people and hence, they may tend to overlook its importance which may cause an adverse impact on their credit scores.
It is of utmost importance to have a good CIBIL score. It is an RBI mandate for lenders to verify the CIBIL report before concluding their credit approval decisions. As there is ample information on the internet about preserving healthy credit scores, there is a possibility that some of this information might be misleading. Let’s bust some of the common myths around credit scores that are circulating on the internet:
Higher Credit score is the cause of higher income: An individual’s CIBIL score is affected not by their income but by their credit transactions. Imprudent credit transactions often tend to lower credit scores. Your credit score in strengthened by the length of your credit history.
Scrutinizing your Credit score has a negative impact on your report: Many people evade from enquiring about their CIBIL report owing to the myth that doing so would lead to negative marking; while in fact it is considered to be a healthy financial exercise to check your credit report at least once a year.
A “soft enquiry” pertaining to your own credit report will not impact your score. However, if a financial institution asks for CIBIL report, it is considered to be a “‘hard enquiry” as it gets filed in the enquiry section of your credit report. Numerous loan applications to banks lead to enquiries and the individual may be tagged as “credit hungry” which will negatively impact your score.
No credit equals to a good CIBIL score: It is a common Indian misconception that sustenance on credit is a bad thing. Many people assume that their credit score would be perfect due to non-usage of credit cards and evading loans, however, these people are more susceptible to bad credit scores than those who harm their CIBIL scores by over stretching their credit. Credit scores cannot be assigned to people who do not have any credit history making it difficult for them to get a loan. Hence, it is wise to use your credit card responsibly that having no credit history at all.
Your records are maintained only by one credit bureau: A lot of people who are well informed about credit reports and the importance of good credit scores think that the financial records are maintained only by CIBIL. There are three other credit agencies that track and maintain financial records viz a viz. CRIF High Mark Credit Information Services Private Limited, Equifax Credit Information Services Private Limited and Experian Credit Information Company of India Private Limited. If you apply for a loan or a credit card, financial institutions and lenders generate your report from any one of these agencies besides CIBIL. Although your score can vary from one agency to the other depending upon the scoring model used, these scores are exceedingly corresponding. All these bureaus have different scoring models, so your score can differ from one bureau to another. But, even though their scoring models may differ, these scores are highly correlated. Hence, if your credit transaction is considered good by one bureau, it will possibly be considered to be good by the other bureaus as well.