Thursday, 8 March 2018

5 Credit Score Myths


“So Today, I am very happy. I and my wife and our 2 children are moving to the most awaited moment our lives. Its been 15 years of wait, and finally, the day has arrived. We are moving to our own Duplex house of our dreams. This was not just my dream, but it was our dream. The dream which we saw ever since we are together. The smile on everyone’s face is mesmerizing, the one which I will cherish all my life!” - Venkat B.

Venkat is 35year old Telugu actor from Andhra Pradesh. Started from a small desk job, following his passion, and few investments he has reached a level today where he is a proud owner of a 5BHK pent house with the lavish interior. Home Loans was one thing which helped him achieve his goal. However, In this process of selecting the best suitable home loan for him and getting a house, there were many things which changed the way he normally thought. And there were many myths which broke!

The first thing which banks see when you put an inquiry to take a loan is to check the credit score. There are 4 bureaus which help you in getting your score. A credit score is a 3-digit number which shows your credit repayment responsibilities. The score ranges from 300-900. A score which is 750 plus is considered a good score. But how to check the score? RBI has passed a rule, according to which all the credit bureau have to give one free credit report which offers a free credit score to every individual. Now how this score is made also has many myths and misconception about it. Let’s go through major 5 myths of credit score.

1. 1 Late payment won’t make any difference
               
                It’s true that only one late payment won’t make any difference. But it’s about the habit one cultivates. Once if you made a late payment, and nothing happened. It would tempt you to do the same thing over and over again, which definitely would make a huge difference to your score.

2. I can use all the credit available in credit card till the time I am paying the amount on time.

                It is very important to know the concept of credit utilization ratio. This means that how much can one use from the amount or the maximum limit they have. It’s generally 30%-40% of the total limit. That means if you have a credit card with 1 lakh limit, you should use 30,000-40,000 in order to maintain the good cibil score. So if you have the misconception of using the credit card upto the maximum limit, please do not do that,

3. Closing the older accounts will help me in getting score better

                There is a concept called as “length of credit history or account age” which is one of the most important aspects in the making of credit score and has 15% importance in making of one’s score. So it is directly proportional to your score. Older the account, better is it’s effect on your score. So, even if you have made some errors in payments in past, please solve them and let the account stay. Closing it/them would cost you a lot!

4. My income affects my credit score.

                Your score is determined by various factors which mainly are around your credit repayment behavior.  Your income has nothing to do with how much you earn. There can be a possibility that the person earning 25lakhs per annum has the credit score below 600 if he/she must not have handled the payments properly and a person earning 3-4lakhs have their score beyond 750. It all depends on how one manages their credit and the repayments.

5. With a bad score, I can not ever get loan

                A Bad score does not come with the situation of not getting any loans or credit cards at all. If that is the case, how will one increase their score? With a bad score, it becomes difficult to get a loan but not impossible. You can get a loan but with higher interest rates. Banks might not seem too be interested in giving a loan to such people as it becomes a dead asset to them and the risk is too high, however, NBFCs like Credit Sudhaar Finance would help such people in giving loan and also help in making their score better.

Even Venkat had these myths, which got resolved when he fetched his free credit score and took help from credit advisory for the same and helped getting a perfect house for himself.

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