Some Facts about Credit Score You Must Be Aware Of

Your credit score in a credit report is a crucial detail. It is used by lenders to decide what loan types you qualify for and if you can afford the same. You can easily form a good credit record by responsibly repaying your dues on time and sticking with the rules mentioned by distinct credit score agencies. However, there are even a few common misconceptions surrounding credit scores that make you perform incorrect acts. Read on to understand some of the important misconceptions linked with a credit score.

However, before this ensure that you must hit on the CIBIL score check online free option on the CIBIL’s report every year to fetch your report and know your credit standing. Doing so, helps you to take corrective steps to ameliorate your score. In the case, you are looking to check CIBIL score by PAN card, then you can also do this by visiting online lending marketplaces. 

You require an excellent score for loan application approval –

Most financial institutions do not prefer approving your loan application if your credit score is low. Why would the lenders offer you the loan deal if they are not sure about your repayment potential? There are specific factors you can consider for raising your score. Firstly, you can avail a secured credit card for forming a good credit score. However, after you avail a secured card, ensure to make the repayments on time of the outstanding balance. Once you have formed a good credit score, you can request a regular credit card and get access to credit. A better option can even be to avail a mortgage in case you are looking to purchase an auto loan or home loan in the upcoming times. If you hold a low score, ensure to check the loan offers provided by distinct lenders to arrive at a better decision. 

Your credit record is a crucial parameter –

Your score factors in your credit utilisation ratio, repayment record and the credit amount you presently have. While the credit amount you hold is crucial, it slightly lowers your credit score if you hold a lot of accounts with no or little credit. It is crucial for you to keep your CUR (credit utilisation ratio) low so that you hold adequate available credit to meet your bigger purchases. Thus, keeping multiple existing accounts with small credit amounts is a wise move. This would assist you in keeping your CUR (credit utilisation ratio) low, which assists in boosting your score. 

If you hold an old credit account, then this means you are out of luck – 

Most credit rating agencies factor in your account age but it is not the only parameter that decide your score. Also, it is crucial for you to note how much you owe and the credit you can use. If you hold old credit accounts with defaults, you may be penalised. Even if it was an act reported long back to the credit agencies. It creates a negative impact on your score as it shows that you already have received the loan approval but failed to make the repayments on time. Your score changes owing to this and the only way to enhance your credit score is by quickly repaying your outstanding dues on time. If you hold old accounts, ensure you repay the same as soon as possible. If you hold a huge balance, you might face a tough time in getting approval for a new loan or even qualifying for the best auto loan or home loan. 

But note that holding old credit accounts with defaults does not necessarily mean being out of luck as you may still be provided loan options but at a higher rate of interest and processing fees. This is done due to the involvement of higher credit risk. Lenders tend to reduce their credit risk by charging a higher rate of interest. 

Just because you do not hold a credit card does not infer a low score – 

If you do not hold a credit card, then that does not infer you hold a low credit score. There are various parameters that are factored in when computing your score and profile and the fact you do not have a credit card is not going to impact it adversely. The four important credit bureaus have their own specific calculation mechanism to compute your score. 

Checking your score periodically reduces it – 

It is the most popular mistake when credit score is concerned. When you fetch your credit report to view your credit score, it is considered as a soft credit report enquiry, which does not reduce your score in anyway. In fact, the more you are updated regarding your score, higher is your chances of availing a credit approval. 

Your income negatively impacts your credit score – 

Your credit score is computed based on the info stated in your report and your income is not stated anywhere in the credit report you fetch. Thus, you can hold a CTC (cost to company) of Rs 10 lakh and still hold a low score if your behaviour towards credit is poor. Similarly, an individual with a lower income might hold a high score if his credit repayment behaviour is good i.e., makes the repayment of the dues on time, maintains a lower credit utilisation ratio and other parameters. 

A credit score is majorly the sole factor securing you a credit card or loan – 

Yes, your score plays a crucial role in providing you with favourable credit deals and preferred credit cards, but it is not the only parameter here. There are various other important parameters like your age, income, job’s nature, etc. Your score can act as a good parameter, but it is not the only determining parameter. 

Closing your old accounts can assist ameliorate your score – 

Many believe that holding more than 2-3 credit cards may reduce your credit score. Thus, many tend to close their older credit accounts by closing their cards which may no longer be in use. This may inadvertently become wrong because closing old accounts often shorten your past credit record. Holding a longer credit past record assists lenders to understand your behaviour with credit better. However, if you think you may lose out your credit card or may not be able to judiciously use the same, consider closing the card after an in-depth analysis. 

Debit cards can assist in forming a credit score – 

Buying anything through debit cards is only for making payments in cash. Note that you are not availing anything from the lender but just using the funds that is already in your account. It does not affect your score negatively.