A CIBIL score or credit score plays a very important role while applying any kind of loan may be Home, vehicle or personal. It 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 is one of the important tools that lenders or banks keep in mind while deciding if they should lend money to a borrower or not.
However, it has been a decade since Credit score came into existence, still many myths and misconceptions among individuals continue to exist. So read this blog, to know 5 common myths and misconceptions surrounding credit score that can hurt loan borrowers:
Myth 1: Regular checking of credit score can have a negative effect
It is a common myth among many individuals that regular checking of credit score may lead to bad 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 no hurt it in any manner.
Myth 2: Demographic factors affect credit score
A credit score is built up through many factors, for example, EMI payments, credit cards etc. However, many believe that even demographic factors also 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 play any role in credit scoring models.
Myth 3: Being a co-applicant or guarantor does not affect CIBIL score
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.
On the other hand, a guarantor basically signs off the risk exposure on the primary borrower. It means that in case of default, the guarantor has to pay all the dues. Failure to do so will impact the individual’s credit score too.
Myth 4: No Credit card means a good credit score
Many people think that if they will not owe any credit card then, 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 a loan request.
On the other hand, if an individual uses a credit card to buy a product or service it will only have a positive impact on the credit score, but it must be paid on time.
Myth 5: Negative accounts get deleted automatically
Many loan borrowers think that late payments or negative accounts immediately get deleted from their credit reports if they pay them continuously. But that’s not so as these payments may appear as paid but will stay on the credit report for seven years since the date of first default.
So, keep these above points in mind and maintain a healthy credit score in order to avoid any loan rejection.