A CIBIL score or credit score is a three-digit number ranging from 300 to 900. It reflects how well or improperly a person has dispensed his/her loans or credit cards in the past. It plays a very important role while applying any kind of loan may be home, vehicle or personal. It is one of the important tools that lenders or banks keep in mind while passing any loan application form.
However, misconceptions about credit score among individuals continue to exist. Scroll down and read this blog, to know 5 common myths and misconceptions surrounding credit score:
Myth 1: Demographic factors affect credit score
A credit score depends upon many factors, such as EMI payments, credit cards etc. However, many believe that even demographic factors too play a role in maintaining a good credit score. But it is a common myth as frequent address change; type of accommodation, size of property etc. does not affect an individual’s credit score.
Myth 2: Frequent credit score check can have a negative effect
It is a misconception among many individuals that regular checking of credit score may lead to a negative impact on their score. Due to this people don’t take initiative to check it. But that’s not so, as a simple inquiry of CIBIL score will not hurt it.
Myth 3: Being a co-borrower or guarantor does not affect credit score
A guarantor is a person who guarantees to pay for someone else’s debt if he or she should default on a loan obligation. A guarantor acts as a co-signer in which they pledge if the original borrower cannot perform their obligations then he/she give their own assets or services to fulfill the bank debts.
On the other hand, people think that being a co-applicant does not hamper their credit score. However, in case of any default, every loan borrower’s score get effected may be first, second or third one.
Myth 4: Bad accounts get deleted once the dues are paid
Many loan borrowers think that late payments or bad accounts immediately get deleted from the credit reports if one pay them continuously after being late. But that’s not so as these payments may appear as paid but will stay on the credit report for seven years since the first day of default.
Myth 5: No Credit card/cash payments means a good credit score
Individuals think that if they will not owe any credit card, it will not affect their credit score. However, they forget that a credit score is an expression of one’s credit behaviour over a period of time. In such cases, the credit scores are bound to be low and this can negatively impact the approval of your loan.
Using a cred card to buy a product or service will only have a positive impact on the credit score, but it must be paid on time.
So, in order to avoid any loan rejection, keep these above points in mind and maintain a healthy credit score.