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10 Credit Score Myths

IndianMoney.com Research Team | Posted On Thursday, January 24,2019, 03:17 PM

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10 Credit Score Myths

 

 

What is credit score?

Credit score is a three digit number that shows credit worthiness. Credit score is based on your credit related transactions. Credit score basically shows how well you have managed debt in the past. It is very important to have a good credit score to avail credit in any form, from banks and financial institutions.

All banks and financial institutions check credit score when you submit a credit application. Reserve Bank of India, RBI, has authorized TransUnion Cibil, Highmark, Equifax and Experian to give credit scores. All banks and financial institutions must share credit transactions with the four authorized credit bureaus.

After knowing what credit score is, the question arises ‘what is a good credit score?’ Credit score has a range of 300-900, with 900 being the best. A credit score of 700 and above is generally considered good and individuals with this score can avail loans with ease. Cibil is the most popular credit bureau in India. Individuals with no credit history will have Cibil score of -1. Cibil score for individuals who have insufficient credit history will be 0.

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SEE ALSO: 4 Common Myths On Cibil Score

10 Credit Score Myths

Benefit of having good credit score:

Good Credit Score implies proven track record of managing debt, responsibly. Below mentioned are the benefits of having a good Credit Score:

  • Swift processing of loan applicationGood Credit Score means you are financially disciplined. This makes lenders process your credit application swiftly, as you have a proven track record of repayment.
  • Low interest rates: Lenders are open to negotiate on the rate of interest. This is because you have a wide range of lenders to choose from, all thanks to your good credit score.
  • Waiver on processing fee: You are likely to get a waiver on processing and other administrative fee as perks and benefits.
  • Better loan balance transfer opportunities: Banks and financial institutions would accept your request for top-up loans instantly, with minimum documentation. You can transfer your loan balance between lenders easily.

SEE ALSO: How Can You Improve Your Credit Score By Availing Personal Loans?

10 credit score myth

1. Use the debit card don't use the credit card

Using a debit card has no consequence on your credit score. Money spent on a debit card is the money that you have deposited in your savings/current account. Using credit card is what impacts credit score, as the money spent using credit card is a form of debt. How credit card impacts credit score is solely in your hands, and wise use of credit card boosts credit score.

2. Debt is debt

Gone are the days when people thought it’s not good to have debts. These days almost all the houses are bought by availing home loans in urban areas. With rising costs, people avail loans to fulfill dreams of buying a house or a car. Yes, too much debt is not good, but with judicious and wise use of debt, you can fulfill all requirements.

SEE ALSO: What Is Credit Rating?

3. Better job better income

Better job and better income does not have any impact on credit score. Credit score is impacted only when you have availed loans. Better job and better income only improve eligibility criteria vis-à-vis loans. Better job and better income prospects help repay loans comfortably on time, which helps credit score improve.

4. Do not accept a credit limit increase

Higher the credit limit, higher is the credit score. Although you don’t need higher limits, you can accept them to improve credit score. Make timely repayments with higher credit limits.

5. Spouse have a joint credit score

Your spouse’s credit score does not have any impact on your credit score. There will be an impact only if you both have availed a joint loan.

6. Your credit score measures your value as a person

Credit score depicts how disciplined you are when it comes to managing finances. Individuals making timely repayments are considered well disciplined. If you are financially disciplined, then you will have a good credit score. So, yes credit score measures your value as a person.

7. You getting "Good" and "Bad" credit score from Credit Bureaus

No, the credit bureaus just display credit scores and they don’t rate it. Rating is given by lenders which are not disclosed to you.

8. There is only single credit score

No, you can have multiple credit scores. Credit bureaus employ different techniques to calculate credit score and hence individuals have multiple credit scores.

9. Checking my credit report will lower my credit score.

No, this is a wrong conception. Checking your own credit score is called soft enquiry. Soft enquiries have no impact on credit score. So, go ahead and check your credit score as often as you want.
10. Improve my credit score by closing the credit cards I'm not using

No, this is again a wrong conception. Closing your old credit cards won’t improve credit score. In fact, starting to use old credit cards with timely repayment improves your credit score. This is because you would have a credit account with long history. 

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