A credit score is the quantified assessment of the creditworthiness based on the financial records of the individual related to the repayment record of credit cards, loans etc. The credit agencies analyse, process and represent the financial records of the individuals taken from banks and non-banking institutions in the form of credit score. The first important step is to check cibil score online as it will make things simpler.
Without any doubt, having a credit score is essential for the lending process of banks and non-banking institutions. The lending institutions thus check the credit score of the borrower before providing the credit. While having a credit score is essential, it is crucial to demystify all the myths surrounding the credit score.
Myths surrounding the credit score:
NO BORROWING= GOOD CREDIT SCORE: It is one of the biggest misconceptions among the borrowers that if they don't avail any credit, they will have a good credit score. If you haven't taken any loans in the future, then it signifies that you have a zero credit history. Thus, the banks and non-banking institutions may hesitate to provide you with any loans as you don't have any financial transactions in the past; this will lead to the rejection of loan applications. Further, if you don't have a credit card as well, then it can complicate the process of availing the loans.Applying for the loan frequently: It is a wrong conception that if you keep on searching about the loan products of different lending institutions, then you may appear in their credit history. However, most of the people don't know that enquiring about the loans frequently is counted as a hard inquiry, and it can hurt the credit score. Making multiple inquiries this indicates that you are hungry for the credit, which will lead to rejection of loan applications.
There is no credit blacklist: There is nothing like a credit blacklist. If you have a poor credit score today does not mean that you will have the same credit score always. Your credit score keeps on changing as you take any credit. Further, it is easy to improve your credit score if you repay the loans on time, maintain a good credit utilisation ratio etc. Also, most of the credit history gets discarded after a specific period. For instance, any bankruptcy can stay in your credit reports for only ten years. You can thus build a good credit score based on your recent financial transactions.
Taking too many debts: The only reason why lending institutions check your credit score is that they want to ensure that you make timely payments on time. If you have already taken multiple loans from multiple institutions, then they may be reluctant to provide you with the credit as you already own a substantial debt. It is thus crucial that you don't max out your credit cards. It would be best if you kept a low credit utilisation ratio of 30% on your credit cards and don't use the credit cards unnecessary. Always remember that the more credit accounts you own, the less credit score you will have.
Your spouse score affects your credit score: It is also a big myth that a credit score of the spouse affects your credit score as well. In cases where you take a joint loan or add your spouse as co-applicant banks, and non-banking institutions will check the credit score of both of you individually.
Checking your credit score affects your credit score: If you check your credit score, then it is termed as a soft enquiry, and it does not appear on the credit reports. Also, the soft enquiries made by the lending institutions for a pre-approved loan offer does not affect your credit score.
Don't make use of your Retirement Funds: There are often many times in our life we encounter overwhelming emotions. Closing your debt by way of extracting the funds from retirement is not considered to be a good idea. Retirement is an uncertain and not seen area. But, indeed, there will be no income post-retirement.
Cibil makes a note only about the defaulter: A cibil report details a comprehensive report that carries all the information about loan and credit card, all the transactions. Sometimes even the personal fact is carried in the report. The bank reviews this report. So, you are not a defaulter, Payment made, not made, late made, every single record is noted.
Go for debt counseling: Go and seek debt counseling only if you need it. Being self-reliant is the key. Managing our finances is not that hard. We are here guiding you. It is not mandated to go to a financial adviser. Sometimes, we may require external help, and there is nothing wrong in going and seeking out for one.
Thus, you must regularly check the credit score to have an understanding of your credit standing and to report the error, if any, to the concerned credit agency or the lending institution.
