In today’s time, a large segment of India’s population avails of different types of loans to meet their financial requirements. With the increase in lending institutions, a loan has become a comparatively hassle-free process. However, it is to be noted that while approving the loan amount, lenders check various aspects of the applicant. One of the most important aspects that lenders consider is the borrower’s CIBIL score. The higher the CIBIL score, the higher the chances of loan approval. Therefore, it is essential to have a detailed understanding and check the CIBIL score before applying for a loan. The internet is flooded with several credit score myths; hence, it becomes equally important to differentiate between the facts and legends associated with the CIBIL score.
Listed below are some of the most common CIBIL score myths:
CIBIL score does not affect the loan approval
- Your CIBIL score determines your creditworthiness and repayment capacity. If you have a high CIBIL score, financial institutions may consider you a low-risk applicant. This, in turn, increases the chances of your loan approval.
- Moreover, a good credit score will make you eligible for a higher loan amount at a reduced interest rate.
- Therefore, you should always work towards improving your credit score before applying for any loan. Clearing outstanding debts and making timely repayments can improve your credit score gradually.
CIBIL score is beneficial only to lenders
- Since your CIBIL denotes your financial status, improving your CIBIL score can make you financially more disciplined.
- This will help you manage your finances wisely and keep you away from debts.
A low score means no credit availability.
- Though availing of credit with a low CIBIL score can be challenging, it is certainly not impossible.
- Some lenders may approve your loan application despite your low CIBIL score.
- However, you might have to bear a comparatively higher interest rate on your loan due to your poor credit score. This is because the financial institution may consider you a high-risk borrower.
CIBIL scores are affected by investments
Your investments, savings, or current account do not affect your credit score. A missed EMI or credit card payment may significantly hamper your CIBIL score.
Having zero credit will improve your credit score.
Many people believe that zero credit will improve their credit score. However, this isn’t true. If you have never availed of credit, financial institutions won’t have any data to make a loan approval decision.
Now that you know common credit score myths, note them while applying for a loan. While approving your loan application, financial institutions may consider several other factors, such as age, income, financial liabilities, etc. Compare various loan offers provided to you by different financial institutions. This will allow you to avail yourself of a personal loan that best suits your needs. It is always advisable to settle for a business loan with a low-interest rate. This will reduce the overall cost of borrowing in the long run.
Lastly, do not forget to carefully read the loan agreement’s terms and conditions before signing it.