1. MYTH- CIBIL maintains list of only defaulters. Having your name in CIBIL is bad

FACT- If you have ever taken a loan or credit card from any bank or financial institution then your information is most likely with CIBIL. So your name will be with CIBIL even if you are paying all your obligations on time. RBI has mandated Banks & financial institutions to submit monthly repayment data pertaining to those customers who have taken a loan or credit card with them to a Credit Bureau. CIBIL collects and maintains these records of such individual’s payment across institutions. This data is then used by financial institutions to sanction loans and credit cards. How the Credit Information Report (CIR) is interpreted by the respective bank or financial institution depends on their respective credit policy. CIBIL does not classify an individual as a defaulter.

2. MYTH- If you check your own credit report, your credit score will go down

FACT: Whenever your credit report is accessed by Banks, this reflects as an enquiry on your credit report. An enquiry indicates that you are seeking new credit. However, when you check your own credit report directly for CIBIL this enquiry will not reflect in the credit report and has absolutely no impact on your credit score. It is a good practice to review your credit report periodically. Log on to www.cibil.com to get started.

3. MYTH- It is better to use cash than credit cards or loans

FACT- It is better to use credit (loan or credit card) than cash when you have never availed any credit till date and want to build a credit history. Having a credit history enables a lender to assess your credit-repayment capabilities by determining whether you have managed your credit responsibly. Your credit history enables the bank to assess your ability to service any additional debt that you may require. If you dont have any Loan or credit card and solely rely on cash or a debit card then the bank does not have any reference to check your payment track record and will solely rely on other factors such as income and demographics to evaluate your loan application. Having a good credit history will help in faster loan disbursals and maybe even better terms.

However, it is advisable to use cash if you have a tendency to overspend on your credit card. Credit Cards charge very high interest rates. If you cannot pay down your entire credit card spend each month you will be charged 24% to 36% p.a. on the unpaid balance. This causes the amount due to grow in to a large amount very quickly and any default on repayments may lead to an inability to secure loans for other purposes (car and home purchases) in the future. Alternatively, if you have good financial discipline, credit cards help you build credit history and allow you to take advantage of reward programs such as fuel cash back, air miles and a host of other giveaways.

4. MYTH- CIBIL is an organization meant ONLY to help Banks & financial institutions

FACT- The objective of CIBIL is not only to help Banks and financial institutions make financially sound lending decision but also empower consumers by enabling them to become more credit disciplined which can help them with faster loan approvals and sometimes better terms on their loans. In a nutshell, we help you understand how a lender evaluates your loan application so that you can apply only when your chances of an approval are high and hence, avoid the unnecessary embarrassment of a loan rejection.

5. MYTH- CIBIL has the authority to make corrections in my credit report directly

FACT- CIBIL is not authorized to make any changes in your report directly. Any change that needs to be carried out has to be initiated/ approved by the respective bank & financial institution. Only then can CIBIL make any changes to your Credit Information Report (CIR). However, CIBIL can help facilitate this process.

6. MYTH- A low CIBIL TransUnion score means I will never get a loan or credit card

FACT- There is a lender for every borrower. Having a low credit score may close doors to some banks but there are lenders who are willing to extend credit to such individuals. However, the interest rates and charges may be higher as the perceived risk associated with a low credit score is higher.

7. MYTH- My assets, income, investments; all have an impact on my Credit score

FACT – The Credit Information Report (CIR) contains details pertaining only to loans and credit cards. It does not take in to account the balance in your savings or current account, investments or assets such as mutual funds, shares. Hence, these numbers dont impact your credit score.

8. MYTH- A bounced cheque will lead to a lower credit score of the cheque issuer

FACT – Since your savings or checking account details are not a part of the credit report, a bounced cheque does not impact your credit score. However, if you have missed an EMI or credit card payment it will have an impact on your credit score.

Source: ET Wealth 23rd Sep 2013