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Myths Debunked About CIBIL Score for a Personal Loan
Posted on Tuesday, August 3rd, 2021 | By IndusInd Bank
The saying “Half knowledge is more dangerous than ignorance”, is especially true when it comes to your credit score and how it relates to your loan approval. Your credit or CIBIL score defines your creditworthiness and, in turn, decides whether your bank will approve or reject your personal loan application. To have a smooth borrowing experience, it’s important you hold all the right information about the CIBIL score and stay away from myths.
In this article, we’ve compiled and debunked some common credit score-related myths. Let’s take a look.
Myth #1: You Can Never Improve a Bad Credit Score
A credit score represents your financial past and not your future. A bad credit score doesn’t last forever, provided you follow best practices.
For a good credit rating, pay all your credit card bills and EMIs on time. Additionally, paying your utility bills on time can also help you boost your CIBIL rating.
Myth #2: Your Credit Score depends On Your Annual Income
Your CIBIL score has nothing to do with your annual income. A person with an annual income of Rs. 4 Lakhs can have a credit score above 800. Similarly, a person with an annual income of above Rs. 10 lakhs can score below 700. The rating solely depends on your credit usage and how consistently you repay your dues.
Myth #3: If You Make Multiple Enquiries, Your Credit Score Will Go Down
This depends on the type of enquiry you’re making. When you apply for a personal loan, the bank runs a hard enquiry on your CIBIL score. If you have multiple hard enquiries to your name, your credit score will go down.
On the other hand, if you’re checking your credit score using an online portal, it counts as a soft enquiry. Making multiple soft enquiries doesn’t affect your CIBIL rating.
Myth #4: Your Debit Card Can Help You Build Your Score
The transactions you’ve made using your debit card don’t affect your credit score. A debit card is a tool to access your savings account and you’re not borrowing any credit when you use it. Hence, CIBIL won’t add this transaction to your credit history. Only using a credit card or a loan can help you open your credit history and, in turn, improve your credit score.
Myth #5: Closing Your Credit Card Can Help You Improve Your Score
You can build your credit score by closing your loan. Unfortunately, the same doesn’t apply to credit cards. You may think it’s a safe move to cancel your credit card if you don’t use it much. However, this can negatively affect your credit score.
Credit rating agencies check your capacity to handle multiple lines of credit. If you close one line of credit, it may look as though you can’t manage your dues. Instead, use it to make nominal transactions from time to time. In any case, closing the account won’t impact your credit rating positively.
Myth #6: Low Credit Score Leads to Application rejection
Many borrowers assume that low credit ratings can result in the rejection of their personal loan application. While your credit score is one of the crucial factors taken into account by banks, it’s not the only one. Other factors like your income and repayment capability take precedence over your CIBIL rating.
However, one important thing to remember is that banks will charge you a relatively higher personal loan interest rate if you have a lower credit score.
In Summary
In a nutshell, research well before applying for a personal loan. Don’t let misconceptions keep you away from a good deal. Also, make sure to check the credit policy of the lender.
Looking for a personal loan? Well, IndusInd Bank can be your perfect loan partner. We offer competitive personal loan interest rates, minimal documentation requirements, and an easy 4-step online application process.
Finance your next purchase with IndusInd Bank by applying here.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
