5 Popular CIBIL Myths You Should Know About

A CIBIL score is important if you are planning to get a loan or a credit card. It represents your financial and credit health. Your CIBIL score is a result of your financial behaviour and hence you need to maintain a certain financial discipline. A CIBIL score is can range anywhere between 300-900, 900 being the highest. Generally, banks and non-banking finance companies (NBFC) consider a CIBIL score of 700 and above as ideal. In recent times, lenders have started giving preferential pricing and special discounts to individuals who have a CIBIL score of 700 and above. It is calculated on the basis of an individual’s credit history and repayment behaviour. A high CIBIL score makes you eligible for lower interest rates and offers quicker approval.

There are a lot of things said and written about importance of maintaining a good CIBIL score. At the same time there are several myths about CIBIL score that you should be aware about. Let’s take a look at them.

If you have low CIBIL score you will not get a credit card

Generally lenders prefer individuals with a high CIBIL score as they are less likely to become a defaulter. However, each lender has a different policy when it comes to offering credit. There is a good chance that your loan application will be rejected by one lender but it might be approved by another one. It must be noted that even if you get a loan, you might have to pay higher interest rates if you have a low CIBIL score.

No credit history means good CIBIL score

A majority of Indians have been taught that you should avoid living off credit. There are several people who still stay away from credit cards thinking they will still have a good CIBIL score. When you don’t use credit or borrow anything, you will not get a credit history and hence credit bureaus like CIBIL cannot compute your credit score. It is better to start using a credit card and make small transactions. You have to make sure to use the credit carefully and make all the repayments on time. Your repayment history accounts for 35% of your CIBIL score and hence it is extremely important to pay all your EMIs and utility bills on time. Making timely payments helps you maintain a high CIBIL score.

There are other credit bureaus that keep maintain your credit records

CIBIL is one of first credit bureaus in the country. In addition to CIBIL, there are 3 other credit bureaus in India - Equifax, Experian Credit Information Company and High Mark Credit Information Services. All these credit bureaus in India are licensed by the Reserve Bank of India (RBI) and are governed by the Credit Information Companies Regulation Act, 2005. These credit bureaus comply public data, credit transactions and payment histories of individuals. In 2017, RBI made it mandatory for credit bureaus to offer one free credit score and credit report to an individual in a calendar year. Each of these credit bureaus have a different method of calculating credit scores .

Checking your CIBIL score will bring it down

This is one of the most common myths related to CIBIL score. Checking your own CIBIL score in a year is a great financial practice that ideally everyone should follow. However, most of the people think that checking their CIBIL score will have a negative impact on it. This is not true. When you check your own CIBIL score, it is known as a soft enquiry. A soft enquire does not have a negative impact on your credit score. On the other hand, when your bank or lender initiates a check, it is considered as a hard check. Unlike a soft enquiry, a hard enquiry affects your credit score negatively. When a bank does not approve your loan application, it is better to wait before immediately checking with other banks as this will initiate more hard enquiries.

Closing a credit card will help your CIBIL score

You may have 2 or 3 credit cards and maybe you have stopped using one of it. You should not close that credit card as it could have a great repayment track record and decent credit history. One of the factors that has an impact on your CIBIL score is length of the credit. In addition, your credit utilisation ratio also plays an important role if you want to maintain a high CIBIL score. Therefore, it is better to held on to a old credit card as the good credit behaviour and the age of the credit history will boost your CIBIL score.

These are some of the common myths around CIBIL score. Timely payment of bills, low credit utilization ratio, increasing credit limit, monitoring CIBIL score and checking credit report frequently, and having a good balance of secured and unsecured loans are some of the simple ways that will help you improve your CIBIL score.