ATM :: CIBIL Scores: Common Myths and Misconceptions

Arun Ramamurthy | Oct 27, 2015, 09.55 AM | Source:
A good credit score by CIBIL is necessary to gains loans on favorable interest rates. Here’s what those scores reflect and how they can be improved.


The CIBIL score is a 3 digit number which denotes how credit healthy a person is.

This score ranges from 300 to 900. More than 40 crore people in India have a credit score.

There are several misconceptions surrounding the CIBIL score. Some of these are a result of an acute lack of awareness while others are carefully cultivated myths based on a limited understanding of the subject.

With the concept of a score now gaining recognition and usage increasing, there are some myths and misconceptions surrounding it. Here, we give you the lowdown on what separates myth from fact. Read on!

CIBIL is the only credit bureau
There are four credit bureaus in the country today, namely CIBIL, Equifax, Experian and CRIF High Mark that are licensed to operate by the Reserve Bank of India. However, with CIBIL being the oldest of the four, the term CIBIL score/ report is used interchangeably with a credit score/ report. All bureaus provide individual reports.

Help! My loan was declined by the bureau
Credit bureaus do not make the lending decision; it is the lenders who obtain and review credit reports provided by bureaus. In this sense, the bureau only generates information basis data received from financial institutions. Hence, if your application for a loan or card is declined, you need to check with the lender as to the reason.

I’m blacklisted by a credit bureau!
It is important to know that bureaus or credit information companies do not create or maintain blacklists. If your application for a loan is turned down, it could be because of your previous repayment history and how much you already owe by way of existing loans.

Restoring a poor score is impossible
Having a low or a bad score may not have an immediate quick-fix solution. It is advisable to take the assistance of professional credit health management companies should you wish to better your score. However, this does not mean that over time with financial discipline and judicious planning it cannot be restored. Pay your outstanding in time; any delayed or late payments will negatively impact your score.

  • Factors that do NOT generally Impact your Credit Score
  • Income level
  • Education level
  • Religion, race, nationality
  • Gender or marital status
  • Age
  • Employment or occupation history
  • Inquiry made by you to obtain your own credit report
  • Location of residence or length of stay at one place
  • Wealth levels
  • Closing outstanding accounts enhances your score

The best way to maintain a good score is by paying off any outstanding card or loan dues in a timely manner, on or before the due date.

Let us assume you have an auto loan outstanding of Rs. 2.50 lakhs. With an additional inflow of funds by way of a bonus from work, you choose to foreclose the loan. While this will indeed make you more solvent, remember that it may possibly have a negative impact on your score. How so? This is because old ‘good’ debt actually enhances your score! With a longstanding timely payment record, your credit history gets a boost.

Therefore, it may be wise to continue with an old loan, providing you make payments on time.

No loan equals a good score
In fact, this could prove to be just the opposite! Having a healthy credit history is a good indicator of your creditworthiness to a lender, and will in fact enhance your score. Of course, the key to a good repayment record is timely payments and avoiding CIBIL defaults , so do keep that in mind!

A good score guarantees fresh credit
It is important to note that a good score can help you get a new line of credit (be it a loan or card) at competitive interest rates and terms. However, it in no way is a guarantee or confirmation that a loan will indeed be extended to you. This is because while the score is a very important piece of information for a lender, it is not the sole deciding parameter on which a decision of whether to approve a loan is taken. Factors such as your income, repayment capacity and existing debt are also taken into account.

Hence, your score definitely needs to be healthy for the best deals, but getting a loan is not carved in stone as an outcome of the score.

Multiple enquiries do not affect your score
In actuality, applying for multiple new lines of credit can make your score take a nosedive, and fast! This is because each prospective lender will make an enquiry against your report, and each such ‘hit’ brings down your score. What this indicates is credit-hungry behaviour, and the possibility of your being insolvent – which in turn will make lenders stay away, even when you genuinely do require a loan!

I’ve checked my own report and my score went down
While as mentioned above multiple enquiries affect your score, this does not apply to your own requests for a report. Each bureau offers you a copy of your report at a nominal fee, and you are free to obtain reports from any or all of them. In fact, it is a good practice to keep track of your score at regular intervals, to ensure that your report is an accurate record of your credit health.

Knowing the facts behind scores, a good practice would be to obtain a copy of your report at periodic intervals and staying credit healthy. It would also help you to take appropriate measures and rebuild your score, should it need attention.

Written by Arun Ramamurthy , author of Unlock the Power of Your Credit Score : India’s first book on Credit Scores

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