With an increase in the demand for loans and credit cards in India, most lenders have turned to credit scores as the most reliable metric to assess a potential borrower’s creditworthiness.
Similarly, there has been an increased credit-consciousness noted among borrowers in India.
- As per a 2019 report, there was 58% growth of self-monitoring credit-consciousness noted among Indians between 2016 and 2018.
- The same report pegged the average score recorded among such borrowers at 740.
Despite growing awareness about CIBIL scores among credit borrowers, there are still a few prevalent misconceptions that can lead to unsound financial decisions among borrowers.
Following is an elaboration of six such common fallacies about credit scores.
- Borrowers with a CIBIL score below 750 will be ineligible to avail of loans
While experts recommend maintaining a CIBIL score between 750 and 900 to ensure hassle-free credit disbursals; it does not eliminate the chances of loan availability for others.
Firstly, borrowers always stand a chance to improve CIBIL score by taking care of a few nuances. Few of the things you can do to improve your personal credit score include –
- Making timely repayments
- Keeping credit utilisation ratio between 30 and 50%
- Abstaining from frequent credit application
- Maintaining a balanced credit mix
Furthermore, potential borrowers can avail of an advance with a score lower than 750 against a higher rate of interest or by applying with a co-signer.
2. Making frequent checks can hurt the score
A borrower’s score remains unaffected if he/she makes periodic checks of his/her credit report. It is, in fact, a good practice to stay aware of one’s CIBIL report and make routine checks. It is one of the best tips to take out personal loans with increased chances of approval.
3. An individual has access to their full CIBIL report
It is one of the most common myths prevailing around reports of credit history. While an individual can check their credit score before applying for a personal loan or such other advance, they do not have access to the entirety of such reports. Credit rating agencies like CIBIL provide a much more detailed version of these reports to financial lenders.
Borrowers can only access an abridged version of the report and check free CIBIL score without hassle.
4. An individual’s eligibility to avail of advances rests solely on his/her CIBIL score
While a healthy CIBIL score is a criteria that borrowers have to satisfy, especially with unsecured advances such as personal loans, it is not the sole determinant that deems them eligible for the same.
For instance, borrowers also have to satisfy criteria pertaining to their age, income, and employment status, to become eligible for a personal loan or any such advance.
Nonetheless, financial institutions such as Bajaj Finserv have put forth minimal eligibility requirements for individuals looking to get the advance.
Furthermore, they also provide pre-approved offers that can streamline the process of getting such advances. These offers are available on a variety of financial products such as personal loans and business loans. To check your pre-approved offer, you will need to furnish your name and contact number.
5. Making new credit applications can hurt your CIBIL score
It is one of the myths around credit score, which often deters individuals from availing of a loan. Applying for new loans certainly does not hurt one’s CIBIL score unless he/she applies with different lenders over a short period of time or applies immediately after rejection.
The latter approach can result in multiple hard inquiries on the report and make the borrower seem desperate for credits, thus adversely impacting his/her CIBIL score.
6. Record of late payment of an outstanding debt is removed over time
Outstanding unpaid debt or late payments can remain in one’s credit history for several years. Thus, paying off an unpaid debt does not remove the entry from one’s credit history. It can also have a lasting impact on their credit scores for several years, making it difficult for them to avail credits.
These are six of the most prevalent myths around CIBIL scores. Individuals must be aware of the full implications of their scores before applying for a credit. To further boost your chances of hassle-free approval, they can utilise other smart means such as availing of a balanced credit mix and maintaining an ideal credit utilisation ratio.