Some myths about CIBIL report and score

 Maintaining a good CIBIL score is necessary now a days as lenders will not approve a loan without good CIBIL score. Good CIBIL score is 750 out of 900.

RBI made it mandatory for banks and lenders to check CIBIL score for any kind of loan approval including credit card. So there are some myths about CIBIL score too which may be hrmful if not cleared. They are as under.

1- Checking own CIBIL report:- Some people may tell you checking own CIBIL report is harmful and it effects credit score. Truth is just opposite. Checking CIBIL report has no impact on credit score. Checking CIBIL report time to time is beneficial as it tells you is there some problems in report or shows some outstanding balances of loan which you have already paid.

2- Closing a credit card does not hurt your Cibil score
Consider this. You own three cards. The oldest one among them has no outstanding balance since you have had a perfect history of having cleared your monthly outstanding well within the payment cycle. Since you are diligent and aware of how your credit behavior may impact your Cibil score, you decide to be proactive and close your credit card. What you do not know is that you are doing yourself more harm than good.

The truth:
If you have maintained a good payment history on your old card and have a zero outstanding balance on it, do not bother closing it. There are two good reasons for this. Firstly, you must consider the fact that one of the things that impacts your Cibil score is the length of your credit. So if you have held an old credit card and have displayed good credit behavior on it for years together, holding on to it will show that you are responsible with your credit. The other reason to keep your old credit card is that it keeps your utilization rate low, which is another factor that influences your Cibil score.
Consider an example. You have three credit cards with a limit of Rs 1 lakh each and spend an average of Rs 80,000 each month. With three credit cards your total limit amounts to Rs 3 lakhs. When you spend Rs 80,000 monthly, your utilization rate is roughly 27%. If you close one of the cards, your total limit comes down to Rs 2 lakhs and your utilization rate shoots up to 40%. Thus, as you can see holding on to a credit card even if it is not in use makes sense rather than closing it.

3: No credit equals to a good Cibil score
Middle class Indians have grown up with the belief  that living on credit is essentially a bad thing. Till date, there are many who avoid credit cards or loans like the plague and think that their Cibil score will be perfect as they have no use for credit!

The truth:
Such people are as much in the line of fire as those who overleverage themselves and hurt their Cibil score. The ones who do not borrow do not have a credit history and hence, no credit bureau can assign them a score. Such people will find it difficult  to get a loan when they need one. The trick therefore, is to use credit responsibly. Taking a loan or using a credit card is a good thing as long as you are making timely repayments. This is considered to be good financial behavior and  puts you in good stead with Cibil. It also  ensures that your Cibil score remains well above 750.

4: There is just one credit bureau that maintains your records
Even those who know about credit score and credit report think that there is only Cibil that is keeping their financial records.

The truth:
So for most of you this is news! There are three other credit bureaus in India apart from Cibil. These are Experian Credit Information Co. of India Pvt. Ltd, Equifax Credit Information Services Pvt. Ltd and CRIF High Mark Credit Information Services Pvt. Ltd. What this means is that when you want to take a loan or a credit card, the lender may access your credit score and credit report from any of these institutions along with Cibil. Each of these bureaus has different scoring models, so your score can vary from one bureau to the other. The good news however is that these credit scores are highly correlated. So if your credit behavior is considered good by Cibil, it will be considered good by the others as well!

Things such as a low credit utilization rate, responsible use of credit and maintaining an optimum number of active loans or credit cards have a good bearing on your Cibil score. As long as you are doing that, you will have little reason to worry when you are in real need for credit.
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About Nitin Aggarwal

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