It is important to have a clear understanding of Credit Information Bureau of India Limited (CIBIL) score in order to manage your finances well. CIBIL score is a three-digit numeric summary of your credit history. It is a number ranging from 300 to 900. A higher CIBIL score indicates a stronger credit profile and vice versa. A higher score also indicates greater ability to repay debts such as loans and credit card payments.

There are several myths associated with the CIBIL score. Following are five myths about it.

1. CIBIL score does not affect loan approval process

Banks and Non-Banking Financial Companies (NBFCs) carry out a CIBIL check before lending personal loan, home loans, education loans, and vehicle loans, besides others. This helps them identify whether you will honor your obligations in future and repay your debts easily. You may, therefore, determine and rectify any discrepancies in your score before applying for a loan. Doing this will increase your chances of gaining a loan approval.

2. Having no credit will improve your credit score

There is a pre-conceived notion that having zero credit will improve your credit score. If you have not taken any credit in the past, lenders will not have any data to make a viable loan approval decision. This may affect your chances of obtaining a loan. It is, therefore, recommended to have some credit lines as and when you need finance to build a good credit score.

3. CIBIL score is beneficial to lenders only

This is another myth. A CIBIL score not only helps lenders in their loan approval decision, but also enables you to maintain financial discipline. You may take the necessary steps to improve your score. Make timely loan repayments or credit card payments as missed payments will have a negative impact on your score.

4. Running hard enquiries on CIBIL score is not an issue

Whenever you apply for personal loan, car loan, travel loan, or any other kind of loan, the lender runs a hard enquiry. Running numerous hard enquiries could affect your CIBIL score negatively. This generally occurs when individuals apply for loans with multiple banks and NBFCs. Soft inquiries, on the other hand, have no impact on your credit score. Soft inquiries are CIBIL score checks made by you.

5. A low score means no credit availability

There are numerous lenders who have varying credit policies. Though some may not approve loans if you have a poor credit, certain other financial institutions may approve the application. However, it is important to know that lenders levy a higher interest rate and greater charges to those with bad credit. It is advisable to have a good credit score in order to get the best terms of the deal.

A CIBIL score identifies your ability to repay debts. In order to avoid rejection of a loan when you actually need it the most, it is imperative to get a clear understanding of all aspects related to the CIBIL score. This also ensures that you take corrective measures for building a strong credit score at the right time.

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