Credit Score Myths: Busting Common Misconceptions

An individual's credit score is important. It helps lenders decide the creditworthiness of a borrower as well as the terms and conditions to be extended to a loan applicant. An individual's credit score can range from 300 to 900 and to be eligible for a home loan in India, an individual must have a credit score exceeding 750. In this article, we bust some common credit score myths. So, read on. 

Common Credit Score Myths 

1. You Cannot Change Your Credit Score 

This is one of the most common credit score myths. People assume that an individual's credit score is permanent and cannot be improved. This is entirely wrong. It is quite possible to improve one's credit score. However, the task requires time and effort. Maintaining a clean repayment history, a low credit utilization ratio and not being excessively dependent on credit will certainly help you build a strong credit score and avail yourself of a loan easily. So will maintaining old credit cards and loan accounts. 

2. Checking Your Credit Score Often Will Cause it to Go Down 

Here, we must highlight the difference between a soft enquiry and a hard enquiry. When a loan applicant or a credit user checks their credit score, the enquiry is called a soft enquiry. However, when a lender enquires about a loan applicant, the enquiry is known as a hard enquiry. Soft enquiries do not affect a person's credit score but hard enquiries do. So, loan borrowers can check their credit score as many times as they like without worrying too much. Checking their credit score won't affect their credit rating. However, if they apply for too many loans or credit cards at the same time, different lenders will enquire about their credit score, which in turn, will affect their credit score negatively. 

3. If You Have a Low Credit Score, There is No Way You Can Get Approved for a Loan 

A low credit score indicates low creditworthiness and repayment capacity. Therefore, individuals with a low credit score find it hard to get approved for a loan. However, a low CIBIL score does not necessarily mean zero chances of loan approval. If your credit score is between 700 and 750, you will still get approved for a loan. However, your negotiating power concerning the loan terms and conditions won't be too high. If your CIBIL score range is good, you can get approved for a loan by adding a co-borrower with excellent creditworthiness or buying insurance. However, if your credit score is below 599, getting approved for a loan will become quite challenging.

4. Marrying a Credit User Will Make Your Credit Scores to Merge Together 

A lot of people also assume that marrying someone who uses credit and has a credit score will cause their credit score to merge with that of their spouse. This is false. Credit scores belong to individuals and marriage has no impact on a person's credit score whatsoever. It is only when two people apply for a loan together, do lenders consider their combined repayment capacity and credit scores to decide the final loan amount as well as the terms and conditions of the loan.

There are many myths about credit scores. It is important to bust these myths so that people have clarity about what impacts their credit score and what doesn't. Having clarity around this will help borrowers build a strong credit score and maintain it as well.