It is a tricky task to figure out cibil score means, how it works, and insufficient knowledge of concepts might lead to myths. Misunderstandings and misinterpretations are common in the financial world which aids more in conflicting information and tends to derail your financial future. We seek to spread awareness about the myths and impart knowledge on how to improve your credit score. With that into perspective here are some common myths:
Checking credit report reduces my credit score
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Monitoring your credit report is very important as it keeps on changing every single day. The myth is the fear which keeps you at bay in doing the same. Several hard inquiries by lenders may hamper your score but you can check your own cibil score anytime as a soft inquiry and it won’t hurt your score at all.
Closing credit card and other credit accounts will improve cibil score
This is a misconception that having lots of credit cards put forward a negative impact and closing them will help improve credit score. Credit utilization is an important aspect that creditors look forward to. A high credit utilization ratio is not recommended and closing a credit card would make things worse until you pay off the balance and stash away the cards keeping them unused. Not using credit card also do not help build up cibil score either.
One person means one credit score
There is numerous credit score reporting agencies and each score can vary with respect to other ones. Every creditor or lender reviews different credit score developed by different companies and their methods differ in the means of generating the cibil scores too.
Higher income means good a credit score
It doesn’t matter if you are rich or you earn more as your income plays no part in the credit scoring formula and does not affect the credit score. Income only decides your ability to pay your bills as your income is never reported even with the credit reporting agencies. Cibil score only portrays your payment history and behavior. Thus having a stable job and adequate income is what the lenders pay emphasis on but it has nothing to do whatsoever in strengthening your credit report or credit score.
A married couple has one credit score
One is responsible for his/her own cibil score and payment behavior. In the case of a married couple, if a debt is on one name and the payments are late, the patterns are reflected solely on his/her credit report. However, in the case of joint debt, the notification goes to both. Married couples have joint accounts, mortgages, loans etc. but these may appear on your credit reports. It’s a misconception that couples are considered as one person and assigned one cibil score.
Opening a credit card hampers your credit score
Opening a credit card drops your score by a little margin and if you have a score high enough then a few decrements is not a big deal. An initial drop in the score gets healed quickly on using the card responsibly.
Carrying a balance on your card helps to build the credit score
It is flat out wrong and somehow the myth has been floating around in the public domain for a long time. If your concern is how to improve my credit score then carrying high balance across several months and pending bills consequently will definitely damage your cibil score making you look irresponsible to the lenders. Regular minimum bill payment will help build up your cibil score.
Apart from understanding your credit report and score it is extremely important to be financially responsible and aware of the myths that may cloud your decision. These were some of the several myths and misconceptions that we presented to you in order to help you in the matters of how to improve your credit score as they often tend to be a little intricate and confusing.