Unveiling Lesser-Known Aspects of CIBIL Scores
Understanding one’s CIBIL score is paramount for anyone involved in the financial landscape. While most are familiar with the basics, several nuances and lesser-known facts deserve attention. This article delves deep into these aspects, enabling you to navigate the financial realm better.
1. The Diverse Algorithms of Credit Companies
Although many know the slight variations in credit scores among different credit companies, only some understand why. The “range of credit score” varies because each credit company, including CIBIL and Equifax, employs a proprietary algorithm to calculate scores. The reporting timelines from various lenders to these companies also differ, leading to these minor disparities.
2. The Soft vs. Hard Enquiry Myth
There’s a prevailing misconception about checking one’s CIBIL score. When individuals use a “free CIBIL score check app” or similar platforms, it constitutes a soft enquiry, which doesn’t impact the score. Conversely, hard enquiries initiated by lenders can slightly dent the score.
3. CIBIL’s Limited Editing Rights
Contrary to some beliefs, CIBIL does not possess the authority to edit or modify details in a report unilaterally. Changes can only be implemented post-authorisation from the relevant credit institution, ensuring the sanctity of data.
4. Past Credit and Its Impact
Closing an old, unused credit card might seem wise, but it can inadvertently affect the CIBIL score. Credit history age plays a pivotal role in score determination. Terminating older cards can truncate this history, potentially reducing scores.
5. Complimentary Annual Credit Reports
The Reserve Bank of India (RBI) mandated in 2017 that all credit companies provide consumers with one free credit report annually. Using a “free CIBIL score check app” can offer insights into the CIBIL score, empowering individuals with comprehensive credit knowledge.
6. Low Score Doesn’t Mean No Loans
A less than perfect CIBIL score isn’t necessarily a dead end. While a score above 750 is deemed favourable, banks and NBFCs often have varying cut-offs for different credit products. A lower score might limit negotiation leverage but only sometimes blocks credit access.
7. Score vs. Rank – Distinct Yet Vital
CIBIL score and CIBIL rank serve different purposes. While the score pertains to individuals, the rank concerns companies. A CIBIL rank between 1 and 10 evaluates a company’s creditworthiness, with a position closer to 1 being the most favourable.
8. Savings and CIBIL – Unrelated Domains
Many mistakenly believe that savings accounts impact CIBIL scores. In reality, CIBIL scores exclusively reflect credit behaviour, remaining unaffected by savings, fixed deposits, or current accounts.
9. Distinguishing Between CIBIL Score and Report
The terminologies’ CIBIL Score’ and ‘CIBIL Report’ are often used interchangeably but denote different things. While the score is a three-digit number reflecting creditworthiness, the report is a detailed document encapsulating the score, repayment history, active loans, and more.
10. The ‘No Credit History’ Misconception
A prevalent misconception is equating the absence of credit history with an excellent CIBIL score. In reality, a lack of credit history translates to a score of NA/NH. Establishing a credit history requires time and discipline, such as responsibly using a secured credit card.
Understanding the subtleties of CIBIL scores can make a significant difference when seeking credit. Regularly monitoring your score, primarily through platforms that calculate your CIBIL score accurately, and being informed about these lesser-known aspects ensures you’re always a step ahead in your financial journey.
