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Due to their general ignorance of credit reports and credit scores in general, many consumers continue to believe a number of myths about credit scores, despite the fact that they are becoming increasingly important. Many of these myth believers are unaware of importance of CIBIL score and how to increase CIBIL score. It can be harmful to your financial well-being to believe common myths like getting your credit report will lower your credit score, only people applying for credit cards or loans should check their credit score, cancelling old credit cards will raise your credit score, and not applying for loans will show that you are not a high credit risk.

So, it is now more crucial than ever to debunk these misconceptions and develop logical financial practices, such as keeping your credit utilisation ratio under 30%, paying your loans and credit card bills on time, and keeping a balanced credit mix. So stay away from these myths as this will help you keep a healthy credit score.

Getting a copy of your credit report could result in a decrease in your score.

The lender will request a copy of your credit report from one or more credit bureaus as soon as you apply for a loan or credit card. They will use this information to assess your creditworthiness by figuring out where your score falls on the higher or lower end of the CIBIL score range.

An examination of a credit report carried out by a lender is referred to as a “hard inquiry.” Every hard inquiry that appears on your report lowers your credit score by a few points. Soft inquiries are requests for your credit report that you voluntarily make on your own through online financial portals or direct credit agency websites. Your credit score won’t be impacted by the requests you make. It is therefore best to try using online financial portals to find out your credit score, obtain a free credit report, and decide which credit card and loan offers are best for you based on your income, credit score, and other qualifying factors.

Only those who are applying for loans and credit cards ought to know how to increase CIBIL score

Because your score is based on data from your credit report and is subject to CIBIL score range, any errors or omissions could potentially lower it. By routinely checking your credit report, you can prevent fraud and other errors of this kind from going unnoticed and having a negative effect on your credit score.

Regular reviews of your credit report can give you an estimated credit score and assist you in finding and fixing any errors as soon as possible.

Every one of the four major credit bureaus ought to provide you with a free credit report on a yearly basis. As an alternative, you can get free credit reports and monthly updates on your credit history and score (which is between 300 and 900) by visiting online financial portals.

Your credit score will rise if you close old credit cards.

Most credit card users mistakenly believe that removing old credit cards from their credit report will raise their credit score. However, in addition to the previously listed negative effects, doing so could have two additional negative effects on your credit score. Primarily, frequent use of credit cards results in a reduction of your overall credit limit, thereby elevating your credit usage ratio (CUR).

Credit reporting agencies have the right to take a few points off your credit score if the credit utilisation rate (CUR) is higher than thirty percent. Because lenders may interpret this as evidence of a credit hunger, it may increase the likelihood that your credit score will be on the lower end of the CIBIL score range. Reducing the average age of your credit history is the second advantage of cancelling old credit cards. A decrease in average age could negatively affect your credit score, which could negatively affect both your credit score and your chances of being approved for credit in the future. This is because your credit score is calculated using the average length or age of your credit history. 

Greater creditworthiness is indicated by the absence of a credit history.

The notion that having no credit history—that is, no credit card or loan history—indicates greater creditworthiness is another widespread fallacy regarding credit scores. It is actually impossible to establish credit history with no credit at all, which leads to a low or nonexistent credit score. Without a credit history, lenders find it challenging to assess your creditworthiness because they are unable to forecast your credit repayment habits.

Because of this, lenders frequently label these first-time credit applicants as high-risk, potentially decreasing their chances of ever receiving credit or a loan. In contrast to applicants with higher credit scores, applications from borrowers with low, no, or unknown credit scores are typically rejected outright or have their interest rate increased. The majority of these applicants are rejected as they are not aware of credit score and/or do not understand how to increase CIBIL score.

Credit scores are unaffected by one’s capacity to guarantee or co-sign loans.

If you cosign a loan or serve as guarantor, you are accountable for the timely repayment of the associated debt jointly and severally. Similar to this, since it will be noted in your credit report, if the primary borrower defaults on the loan or shows inconsistent repayment behaviour, it may have a negative effect on both your credit score and their credit score. Make sure the EMIs are paid on time by keeping a watch on the loan payments on the account you co-signed or guaranteed. If you make on-time payments on your credit cards, other loans, and guaranteed accounts, your credit score will stay at the higher end of the CIBIL score range.

So, now that you know all these myths, make sure you turn a blind eye towards them. Understand them all and stay away from such misconceptions.