Your credit score in your credit report is a crucial detail. This detail is used by most lenders to decide what type of loan you may avail and whether you can repay the outstanding dues on time. You can form a good credit history by repaying your dues responsibly on time and abiding by the rules of maintaining a good credit score. Also, ensure tocheck free CIBIL score periodically to understand if you are following good credit practices. Maintaining a healthy score allows lenders to approve your loan instantly. For instance, SBI on its SBI CIBIL score check makes a better decision of whether to lend you. However, there are even a few popular misconceptions that can negatively affect your credit score if you think about them instead of questioning them. Being aware of the truth as to what hinders your score from heading forward can assist you to take smart moves in the correct direction to increase that number again. Below mentioned are some of the common credit score misconceptions you must be aware of.
You require a good score to be approved for the loan –
Many financial institutions even will not consider you for a loan if you hold a low score. Why would they provide you with a loan when they do not know whether you will repay the same back? There are certain things you can do for raising your score. Firstly, you can avail secured credit card to form a strong credit history. Next, once you have built a good history, you can avail a regular credit card to get much better credit access. A better choice is to take up a mortgage. If you want to purchase a vehicle or home in the future, a mortgage is a better choice as compared to credit cards. If you hold a low score, ensure to go for a mortgage consultant to assess your credit application.
Your past credit record is a crucial parameter –
Your score takes into account your credit utilisation, payment history and credit amount you presently hold. While the credit amount you hold is crucial, it slightly weighs your credit score down if you hold various open accounts with no or little credit. It is crucial to keep your CUR (credit utilisation ratio) low so that you have adequate available credit to meet bigger buys like home and 4-wheeler. Thus, keeping your account open with a small amount of credit is important. This would assist to keep your CUR low, which would further enhance your score.
Repaying even half the bill on time will not impact your score –
While repaying your dues on time is a smart move, it does not have any kind of bearing on your score. Each time you make the payment, it is mentioned in your report but does not impact your number every time. Repaying on time does not impact your score as long as you are not overextending yourself. It is even necessary to note that the kind of lender you are availing the loan from will have a bit of influence too. A mortgage loan provider might review how late you may tend to repay your bills and based on this may turn down your application.
If you hold an old account, then you are out of luck –
Most credit rating and scoring agencies take your account age into consideration, but it is not the sole parameter that decides your score. Also, it is important to note how much you owe and the amount of credit you have. If you hold an account, which is old, you may be penalised for this. Also, this will impact your score because it shows you have already been given the loan approval, so it is necessary to repay the account at the earliest. If you hold a huge balance, you might face a tough time availing new loan approval or even qualifying for suitable rates on a loan.
Only because you do not hold a credit card does not infer your credit score is low –
If you do not hold a credit card does not infer your score is low. There are various parameters that must be factored in when computing your score and the fact that you do not hold a credit card is not going to impact it adversely. The four important credit bureaus – CIBIL, Experian, Equifax and CRIF Highmark each have an online calculator that you can make use of to compute your score. These are good resources for tracking your progress and remaining on top of your finances.
Only high-balance accounts decide your credit score –
Just like your past credit record and credit amount that you presently hold, your credit utilisation too helps decide your credit score. It is something all four credit bureaus factor in. So, even if you hold a low score, if you hold a low credit utilisation ratio, you might be able to get a better deal. If you presently hold a low score and you can ameliorate the credit utilisation amount, you might be able to enhance your credit score by a few points or even avail a good deal on a loan.
Ending note –
While it is necessary to disclose new accounts, it is even crucial to assess your credit report and ensure that it remains accurate. Ensure the right details are mentioned in your credit report – the right addresses, date of birth and other details. Credit bureaus may make errors, and mistakes and remove details from your credit report that you must have. If you view that your report holds any inaccurate info, you must correct the same at the earliest. This is crucial because the bureaus are responsible for reporting the info.
Your score in your credit report is an important number that assists you to decide how much interest you may be levied on loans. Being aware of the credit score-linked misconceptions can offer you a good understanding of the factors that are most crucial and permit you to make good decisions for your future stability.