They say "a little knowledge is a dangerous thing", and they are right. Partial knowledge about anything can do more harm than good and it's applicable to credit score myths too.
Your score plays an important role in your finances. A good score can help you get attractive home loan interest rates, make credit card approvals easier, and some more. Thus, you must stay informed regarding what's good for your score and what's not.
To help you out, the following are the 6 credit score myths that you just can’t afford to believe:
While it's true that credit score improvement is a long process, it's definitely not extremely tough or nearly impossible as many people believe. In fact, you can make a tremendous improvement over the course of just a few months. The key is to be patient and take all the right steps.
Checking your credit report does not damage your score. In fact, the very act is rather encouraged by the majority of credit experts. This is because with this you can monitor your score and take appropriate measures when needed. You can also avoid the possibility of a loan for low CIBIL score to a great extent. However, there is one way your score can get hurt. It's when a bank or NBFC checks your credit report. So, you must not apply for a loan or a credit card more than 2-3 times a month as multiple credit report checks can cause a lot of damage.
It's natural to think that avoiding credit cards can eliminate the risk of the score damage. However, that's not true. You must use your credit cards every now and then, even if for small purchases to maintain a healthy score. This is because a lack of credit activity won't contribute to your score growth and can hamper it instead.
This myth is opposite to the one discussed above, but just like that one, it's far from the truth. You cannot expect to boost your credit score and start receiving incredible home loan interest rates offers by maxing out your credit cards. High credit card usage doesn't contribute to a high CIBIL score. In fact, it only leads to further damage.
Ideally, you should spend less than 30% of the limit allocated to your credit card. So, if your credit card limit is Rs. 1 lakh, then you should use it for purchases worth less than Rs. 30,000 a month.
There are four major credit card agencies in India- CIBIL, Equifax, Experian, and High Mark, and while your credit score is likely to be different in each one’s credit report, your creditworthiness will be almost the same. This is because all these credit rating agencies reward good credit behavior with a high score and vice versa. So, you don't need to compare a credit report from agency to another. You need just one to get an understanding of your credit health.
It's tough to get a loan for a low CIBIL score. However, it's not impossible. If you look hard enough then you can actually get a home loan, personal loan, etc. even with a poor CIBIL score. However, usually, there are certain drawbacks with such loans. For instance, you may not get a good interest rate with the loan. The terms and conditions may also not be of your liking. Thus, it's best to first improve your score and then apply for loans.
So, these were some of the biggest myths that have been floating around and misguiding the people since a long time. By being wary of these you can build a good score and get attractive loans easily.