For the uninitiated, a credit score is a 3-digit number that is representative of your creditworthiness. This score is calculated using a mathematical algorithm by credit information companies also known as credit bureaus. In India, the standard score range that has been set is from 300 to 900 where any score above 700 is considered to be good. This score is referred by lenders before granting a loan to a borrower or credit card to an applicant.
Your income is directly correlated with your credit score
Your monthly income can only determine your loan eligibility and the amount you can avail of, it cannot explicitly decide your credit score. Salary and income details are used for measuring or determining a borrower’s capacity to repay or make bill payments and not the potential credit risk involved. Even though your income may not be related to your credit score, it may potentially have an impact on your spending habits and credit needs.
Your credit score is indicative of your wealth
Whether you are a decently high earner or your income barely meets your needs, as long as you are paying your dues on time, there is no reason you won’t have a good credit score. There is, however, a higher possibility that a high earning individual will be able to maintain a good credit ratio and will be able to repay loans in a timely manner as compared to the ones with a tighter income.
One person can have only one credit score
In India itself, there are at least 4 credit bureaus – TransUnion CIBIL, Equifax, Experian, and of course, CRIF Highmark. Each credit bureau issues its own credit score since they all use a unique algorithm to calculate the score. Also, not all lenders report to all credit information agencies, some may report to some while others may report to all. As such, each person can have several different credit scores. One thing to note however is that the credit scores should not vary significantly between all bureaus.
Lenders and Individuals see the same credit report
When you go seeking a loan, a lender inquires about your credit report and score from a rating agency – this is called a hard inquiry. On the other hand, when you download your personal credit report or personal credit score, you are doing a soft inquiry. Both reports may be the same but more often, the former will be a more detailed version of the latter.
A debit card can contribute to your credit score
Debit cards do not have a credit aspect attached to them, hence they do not contribute to the credit score whatsoever – but credit cards do.
Availing moratoriums can reduce credit score
No, moratoriums are safe and they do not affect credit score. A moratorium period is basically a length of time during which a borrower gets time-off from his or her loan repayments. That is, a borrower need not start paying their instalments or interest dues during the period they are granted a moratorium. This is especially useful during COVID-19 when people were losing jobs and income was restricted.
Checking Credit Report Hurts Your Score
As discussed earlier, when you check your credit report, it falls under soft inquiry – which does not affect your credit score in the least bit. In fact, a credit check at regular intervals of time, say every 3-6 months, will give you a reality check and provide scope to work on your financial behaviour if required.
Paying Off Debts will Erase the Transaction from Credit Report
Don’t be under the false impression that once you pay off your debts, they will be erased from your credit report, at least not immediately. It will stay there for years until it finally vanishes. Negative information can stay on your report for up to seven years; bankruptcy information can stay for as long as 10 years.
Your partner’s score will merge with yours post marriage
No. Credit score is not subject to personal life and is purely individual. Marriages do not average out the credit score of two individuals.
When you are aware of the myths and misconceptions around credit score and credit report, it becomes much easier to work on improving your credit score and maintain a good credit file. Visit CRIF website to stay credit aware and stay financially ahead.