4 Pieces of Credit Misinformation You Need To Know
Many Indians think that living on credit or credit cards is not a good thing. However, contrary to this popular belief, if you use your credit card the right way, then you can actually benefit from it incredibly -not hurt your credit scores. There are many blog posts that inform you about the importance of maintaining your CIBIL scores, that is you must keep them above 750 out of 900. Nevertheless, most of these articles confuse the customers instead of giving them some useful information.
Due to this, many people just continue with their regular tasks and manage their finances as they used to, in turn badly hurting their CIBIL scores. Therefore, to make things easy for customers and credit card holders, we have cleared the 4 common myths, just lies that lurk in the minds of consumers. Clearing their minds of these myths will eventually help them to make better financial decisions and thus improve their credit scores.
Lie #1: Closing a credit card does not impact your CIBIL score.
Many people close their old credit cards thinking that if they are not using it, then why to keep them. However, this is a wrong practice. Moreover, it ultimately hurts your credit score. How? Let us explain this through an example. Suppose you have three credit cards. Among these, the oldest one has a perfect history, without any outstanding balance as you have paid it within the payment cycle. But then, you are diligent about your credit scores and you decide to close that credit card.
However, in reality this can actually hurt your CIBIL score instead of doing any good to it. There are two reasons why you should not close you old credit card. Firstly, one of the things that affect your credit score is your credit length. This means that if you keep your old card in which you have had a good credit history, it will indicate that you use your credit responsibly. Secondly, it will help you to keep your credit utilization rate low, which also influences your credit score.
Lie #2: Checking your CIBIL score can impact it negatively.
This is very much untrue. Checking your CIBIL scores is not a bad thing. In fact, keeping a tab on your credit score and checking it once every year is good for your finances. It is similar to performing a health check (It’s just that in this case it is a health check of your finances).
If you check your CIBIL scores yourself, then it would be considered as a ‘soft inquiry,’ which will not affect your credit scores in any way. However, if you apply for a credit card or a loan and the card issuer or lender checks your CIBIL scores, then it would be considered as a ‘hard enquiry’ and will show in the Enquiry Section of your credit report, thus hurting your scores.
Lie #3: Only one credit bureau maintains your credit records.
This is false. Apart from CIBIL, three other credit bureaus keep a record of your credit scores in India, including Equifax Credit Information Services Pvt. Ltd, CRIF High Mark Credit Information Services Pvt. Ltd, and Experian Credit Information Co. of India Pvt. Ltd. This means that when you apply for a credit card or take a loan, the lender can check your credit score from CIBIL as well as any one of these credit bureaus.
Lie #4: No credit means a good credit score.
Many Indians assume that if they do not take loans or use credit cards, then they are actually maintaining a good CIBIL score, as they have never been on credit. However, this is not true. In reality, people who do not use credit cards or take loans come at the same level as people who have a bad credit score. Since they have never had a credit history, no credit bureau will be able to score them.
Thus, when they try to take a loan, they l find it hard to do so. So, instead of not using credit cards at all, it is advisable to use credit sensibly, with timely repayments, in turn displaying a good financial behavior and keeping your CIBIL scores above 750.
Now, you know that what you believed regarding CIBIL scores was actually not true. So, learn from these realities of credit scores and improve your CIBIL scores.