Stay Away From These Common Misbeliefs around the Credit Score
Myths around credit scores are a big reason many people still have zero or low credit scores.
Instead of blindly believing hearsays, it’s better to get clear about credit score, right? This will help to build and improve it.
So let’s bust some common myths about credit score and credit reports.
Only those who are applying for a loan or credit card are required to monitor their credit score.
The information that is included in your Experian credit report is used by credit bureaus to determine your credit score. This information is provided by creditors and companies that issue credit cards. Your cibil score for a personal loan may be negatively impacted by the presence of any erroneous information in it, whether that information was provided by the lender or was simply the result of a clerical error(s) on the part of the credit agency. Be sure to monitor your credit report on a regular basis so that inaccuracies like this, as well as any possible fraudulent activity, are not allowed to go unnoticed and cause damage to your credit score. To do so would make the prompt identification and correction of such problems at the earliest possible point, which would prevent further damage from occurring.
Checking your credit report can lower your cibil score.
If you apply for a loan or credit card directly with a financial institution, that institution will pull your Experian credit report from a credit bureau in order to determine whether or not you are creditworthy. These kinds of requests for credit reports made by lenders are known as “hard enquiries,” and each hard enquiry results in a point or two is subtracted from your credit score.
The queries for your credit report that you make on your own, either directly to the credit agencies or through online financial marketplaces, are referred to as “soft inquiries,” and they often have no effect on your cibil score for personal loan in any manner.
The credit score reported by each bureau is the same.
There are currently four credit bureaus operating in the country of India. These bureaus are known as TransUnion CIBIL, Experian credit report, CRIF High Mark, and Equifax. There is a common misunderstanding that all credit bureaus will list the same credit score. In reality, each of these credit bureaus has its own scoring methodology and will update the consumer’s credit report at a different period than the others. The end result of this is that consumers’ cibil score for personal loan can fluctuate between the several bureaus, even if the requests for their respective credit reports were all sent in on the same day.
The absence of credit history is indicative of greater creditworthiness.
The idea that avoiding loans and credit cards, which inhibits the construction of credit history, results in higher creditworthiness is another misconception revolving around credit scores that can be harmful to your financial health.
On the other hand, If you do not have a credit history, lenders will not have any information regarding your past credit payback history for loans and/or credit cards; as a result, it will be more difficult for them to determine whether or not you are creditworthy and how you will behave regarding repayment. If a borrower does not have a credit history or only has a limited credit history, lenders have a tendency to label them as high-risk borrowers. This may have a negative impact on their chances of being approved for a loan or credit and may even result in lenders charging them higher interest rates on loans compared to the rates charged to applicants who have a good cibil score for personal loan.
The responsible use of credit cards is the most effective strategy for constructing a solid credit history and score. So, consider applying for a secured credit card in the event that you are unable to meet the requirements for a traditional credit card. The only difference is that these are issued against your fixed deposits rather than their conventional equivalents, but otherwise, they provide the same benefits (FD). This makes secured credit cards a risk-free product for the lender, which enables them to apply eligibility criteria that are less stringent. Given that the lender can liquidate your FD in order to recover the outstanding dues in the event of any default, this makes secured credit cards an attractive product for consumers.
Old debt is removed from the credit report.
There is a widespread consumer tendency to believe the myth that paying out an old debt that has been shown as delinquent will remove the item from one’s Experian credit report. In actuality, however, closed credit card and loan accounts will continue to be reported on your credit report for around four to five years after they have been paid off. Therefore, you should constantly make an effort to avoid any kind of defaults or delays in the repayment of your existing loan and/or credit card debt. Even after the account has been closed, any default on payments or payments made late will remain on your credit record for a very long period.
There is no influence of loan guaranteed or co-signing on credit score.
When you co-sign a loan or become a guarantor for someone else’s loan, you take on equal responsibility for the loan’s prompt repayment. Any missed payments or delays in the repayment of the loan on the part of the primary borrower and any co-borrowers will have a negative influence on the cibil score for the personal loan of the guarantor as well. Therefore, if you have co-signed any loans or guaranteed any loans, it is imperative that you maintain a tight eye on the activities associated with the repayment of such loans. Loan guarantors have another option: they can retrieve a copy of their Experian credit report at regular intervals. This is important since any delay or default in the loan repayments will show up on the guarantors’ credit reports as well.