5 popular credit score myths debunked

Myths often spread unease and fear. Often the truth is just below the surface. In case of credit scores and credit reports, it is important to grasp the right facts so that you do not unintentionally hurt your CIBIL credit score.

Credit scores are still a relatively new concept in India. There is a fair amount of half-baked knowledge and myths propagated that makes people wary about how credit bureaus function and credit rating takes place. Here we debunk 5 popular myths in hope to create some clarity about Cibil credit scores.

Myth 1: Checking my own credit report will hurt my score

Truth

Nothing can be more far from truth than this myth. Cibil does not penalise you for pulling your own credit report. Reviewing your own credit report results in what we call a "soft enquiry" -- and has absolutely no impact on CIBIL score. However, when a lender pulls out a report to review your loan application, a "hard enquiry" is made on your CIBIL Report and hard enquiries can impact your CIBIL score.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Myth 2: A higher income leads to a higher credit score

Truth

It is your credit behaviour not your income which impacts your CIBIL credit score. People with high income may indulge in irresponsible credit behaviour leading to a low credit score. It is also the length of your credit history which strengthens your credit score.

Myth 3: Carrying over a credit card balance helps increase your credit score

Truth

Carrying over a credit card balance with a minimum payment only increases your interest burden. It does not help your credit score in anyway. While regular credit card usage is needed to add to your credit history, it is far more sensible to repay the credit card bill on time.

Myth 4: Your spouse and you share a credit score

Truth

Marriage is all about sharing and caring, but you and your spouse do not have the same credit score. The credit agencies assess each person individually and your credit mistakes are not passed on to your spouse. In case of joint loans or add-on credit cards, the borrowers CIBIL score gets affected should there be any delay in repayment.

Myth 5: I am not in the market for a loan so I don't care about my credit score

Truth

This was true may be two years ago in India but not so anymore.

In the western economy, credit scores are used by telecom companies, insurance companies, employers, landlords and others. We have started seeing similar trends in India where both telecom and insurance companies are using your CIBIL score to set credit limit or figure out insurance premiums.

Moreover, we have also seen various banks pulling a credit report before offering an employment. A leading private bank in India has a cut off of CIBIL Score of 750 for employment for all senior level employees.