28-Jun-2017 written by : FSI-Team
Your credit score is no longer just an indicator of your financial health. Today, it's also become an important factor in recruitment processes, personal happiness, and even more. Fortunately, more and more people are realizing the importance it. However, there are still several myths floating around and misguiding the people. Some of the most common are as follows:
The problem with this myth is that it's only half true, which probably explains why it's so popular. Checking your own credit report does not affect your score whatsoever. However, if a bank or some other financial institution applies for your credit report to check your score then it does have a negative impact on your profile.
Checking your own score from time to time is highly recommended as it can help prevent identity theft and other acts that can affect your credit worthiness. Besides, you can get easily your free credit report online.
It's especially a good idea to check your report before applying for a loan because if you have a bad credit score, then you can improve it first. This way the number of inquiries on your report will be less and so will be the damage.
Many people with half-knowledge try to misguide others by saying that getting a loan is impossible if you don't have any credit history. However, if it were really true then the majority of young professionals, who never needed a loan and thus didn't have a credit history at all, won't ever get a loan.
While it's true that having a credit history is really helpful in getting a loan as it shows how well you can handle debt, you don't necessarily need it to qualify. Most lenders understand why young applicants may not have a credit history. That being said, you can easily create good credit history by obtaining a credit card and using it responsibly for a few months.
There is no denying the fact that your score is built on the basis of your credit usage. So, if you have a low CIBIL score then using a credit card is the best way to improve it fast. However, the way you use a credit card is also important. So, if you are spending excessively and making late payments, then instead of improving your score, it can, in fact, reduce it even further.
A credit report is a file containing your personal information, debt history, bank accounts, and most importantly- credit score. However, there are many credit bureaus in India viz. CIBIL, Equifax, High Mark, and Experian, and while these all provide credit reports of individuals and businesses, it's possible for your score to vary from one agency to another.
In fact, they all follow entirely different scoring ranges and different calculation methods. So, a free CIBIL report will contain a score ranging from 300 to 900, Equifax 1 to 999, and High Mark 300 to 850.
The age of your credit history is one of the most important factors in the calculation of your score. The higher is the age- or in other words, the longer is your credit history, the higher would be the score. So, while it's natural to think that closing old credit card accounts will reduce clutter and help you focus on your finances, it can actually reduce your credit score.
If you have old credit card accounts that you have used responsibly, and timely paid the bills of, then it's possible they are the reason why you don't have to deal with a low CIBIL score. So, if you really need to close an account it's better to close a new one instead.
If you want to ensure a healthy credit report then check it every once in a while. Take appropriate measures if you notice your score dropping. Finding and rectifying mistakes in your credit report can also improve your credit score. If need be, bring in a professional. There's no shame in that.