Applying for a bank loan? Know top 5 credit score myths that bank won't inform you about
While applying for any kind of bank loan, your credit score or cibil score plays a major role in approval or rejection of loan application.
While applying for any kind of bank loan, your credit score or cibil score plays a major role in approval or rejection of loan application. Loan applicants believe that approval or rejection of their loan application depends upon their credit score and hence they remain vigilant as to how they can enhance their credit scorecard performance. Some times loan applicants themselves try to find out their credit score online as there are various platforms that now enable one to do the credit score check on their own. However, there are some myths related to credit score that a loan applicant must know as banks don't reveal them unless someone specifically asks for them.
Speaking on the myths in regard to credit score Partha Sengupta, Chief Risk Officer at Satin Creditcare Network said, "There’s a lot of conflicting information and even well-intentioned advice that can turn out to be wrong, so it’s no surprise that credit score myths are aplenty. There are two parts to this story- Credit score and Credit report. A credit score is a three-digit number based on the information acquired from the credit report of a person. A report includes detailed information about how the person has used credit in the past, including how much debt a person has and how he/she has cleared the payment for it. Establishing a good credit score will help one to not just save money but also make their financial life much easier."
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Asked about the top 5 credit score myths, Partha listed out the following:
Myth 1] I’m not planning to get a new loan or credit card anytime soon, so whatever is happening with my credit report or credit score doesn’t matter.
Truth: Even if a new loan or credit card isn’t on the immediate horizon for you, your credit report and credit score are still important. Insurance companies, utility companies, landlords and potential employers can all request your credit report. Therefore, it’s wise to continually monitor your credit profile and make smart financial decisions. You should also keep an eye on your credit report to detect and remedy identity theft and reporting errors.
Myth 2] Using cash or debit cards for everything is the best way to boost my credit score.
Truth: Your credit score is helped by a strong history of on-time payments and responsible management of debt. Because cash and debit card transactions aren’t reported to the credit bureaus, they won’t help your credit score. Using some cash can help you stick to a budget and develop better financial habits—but to build a strong credit score, you’ll also need to establish a positive record that demonstrates you can handle debt and make on-time payments
Myth 3] Closing unused credit card accounts will improve your score
Truth: It is just the opposite. If you’re really not using the cards, then they help you establish a whopping amount of unused credit. Which means they’re a credit score asset that you want to preserve. So place unused cards in a safe place where they can’t get stolen, but keep the accounts active.
Myth 4] You can improve your score by closing credit card accounts you don’t use.
Truth: The number of credit cards you keep open with zero balances doesn’t negatively impact your credit score, but your total credit utilization ratio (your available credit compared to how much you owe) makes up nearly a third of your overall score. Therefore, keeping accounts open that you’re not using can actually have a positive impact, because it keeps your credit utilization ratio lower.
Myth 5] My income, bank accounts and investments impact my credit score
Truth: No information about your income, bank accounts or investments is reported to credit bureaus, so they don’t show up on your credit report and won’t impact your credit score. (However, items like unpaid bank fees sent to collections will show up.)
"In the times that we live in today, one cannot undervalue the importance of a good credit score or a positive credit report. It’s important to note that lenders often consider multiple pieces of information about you when deciding how much you can borrow and under what terms," concluded Partha Sengupta of Satin Creditcare Network.
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