Your CIBIL score is one of the most critical factors when applying for a home loan, personal loan, or any other form of credit. However, there are many misconceptions surrounding CIBIL scores that can lead to confusion and poor financial decisions. In this article, we’ll debunk the most common CIBIL myths and provide clarity on how your credit score truly works.
What is a CIBIL Score?
The CIBIL score is a three-digit number ranging from 300 to 900 that represents your creditworthiness. It is calculated by TransUnion CIBIL, one of India’s leading credit bureaus, based on your credit history, repayment behavior, and credit utilization. A higher score (750 or above) increases your chances of loan approval and better interest rates.
Top 10 CIBIL Myths Debunked
Myth 1: Checking Your CIBIL Score Lowers It
Fact: Checking your own CIBIL score is considered a soft inquiry and does not affect your score. In fact, regularly monitoring your score helps you stay aware of your credit health and take corrective actions if needed.
Myth 2: A High Income Guarantees a High CIBIL Score
Fact: Your income level has no direct impact on your CIBIL score. The score is based on your credit behavior, such as timely repayments, credit utilization, and credit mix. Even with a high income, poor credit habits can result in a low score.
Myth 3: Closing Old Credit Cards Improves Your Score
Fact: Closing old credit cards can actually harm your score. Older accounts contribute to your credit history length, which is a factor in calculating your score. Instead of closing them, use them occasionally and pay the bills on time.
Myth 4: A Low CIBIL Score Means No Loans
Fact: While a low score (below 650) can make loan approval difficult, it doesn’t mean you’ll never get a loan. Some lenders offer loans to individuals with low scores, albeit at higher interest rates. You can also work on improving your score before applying.
Myth 5: Paying Off Debts Erases Negative History
Fact: Paying off debts is a positive step, but it doesn’t erase past defaults or late payments from your credit report. Negative records can stay on your report for up to 7 years, although their impact lessens over time with consistent good behavior.
Myth 6: You Only Have One CIBIL Score
Fact: You have multiple credit scores, as there are four credit bureaus in India: CIBIL, Experian, Equifax, and CRIF High Mark. While CIBIL is the most widely used, lenders may check scores from other bureaus as well.
Myth 7: Not Having a Credit Card Improves Your Score
Fact: Having no credit history can be as problematic as having a bad one. Lenders need data to assess your creditworthiness. A credit card, when used responsibly, can help build a positive credit history.
Myth 8: A Single Late Payment Won’t Affect Your Score
Fact: Even one missed or late payment can negatively impact your CIBIL score. Timely repayments are crucial for maintaining a good score, so always pay your EMIs and credit card bills on time.
Myth 9: Your CIBIL Score is Permanent
Fact: Your CIBIL score is dynamic and changes based on your credit behavior. By adopting good financial habits, such as paying bills on time and reducing credit utilization, you can improve your score over time.
Myth 10: Only Loans and Credit Cards Affect Your Score
Fact: Other factors, such as utility bill payments, mobile phone bills, and even rent payments, can impact your credit score if reported to credit bureaus. Ensure all financial obligations are met on time.
Tips to Improve Your CIBIL Score
- Pay Bills on Time: Timely payments are the most significant factor in maintaining a good score.
- Keep Credit Utilization Low: Aim to use less than 30% of your credit limit.
- Maintain a Healthy Credit Mix: A balance of secured (e.g., home loans) and unsecured (e.g., credit cards) loans can positively impact your score.
- Avoid Multiple Loan Applications: Each application results in a hard inquiry, which can lower your score.
- Monitor Your Credit Report: Regularly check your CIBIL report for errors and dispute inaccuracies.
Why Understanding CIBIL Myths Matters
Misconceptions about CIBIL scores can lead to poor financial decisions, such as avoiding credit cards or closing old accounts unnecessarily. By debunking these CIBIL myths, you can take proactive steps to build and maintain a strong credit profile, ensuring better loan terms and financial stability.
Conclusion
Your CIBIL score is a powerful tool that reflects your financial health. By understanding the facts and debunking common CIBIL myths, you can make informed decisions to improve your creditworthiness. Whether you’re planning to apply for a home loan, personal loan, or credit card, a good CIBIL score will always work in your favor.
Start monitoring your credit score today, adopt healthy financial habits, and take control of your financial future!
