Credit scores are important and thus factors that impact credit score calculation understandably attract a lot of attention. However there may be times when we may assume something to be vital to our credit rating computation but that aspect may have no bearing whatsoever on the final score.
Such assumptions may hinder your financial or other activity and will also draw attention away from factors which actually are important. Here is list of 10 things that do not impact your credit score.
Individual’s Income: Credit ratings are all about how one treats their debt; it is in no way affected by one’s income levels. A higher income does mean a better score and the vice versa is also not true. Even if you have modest means but pay all your dues on time and follow other basic guidelines to stay credit healthy your score will be good.
Educational background: This aspect also has no bearing on the calculation as it does not define the way a person treats his/her debt. Your level of education or its lack will in no way have a bearing on the final score.
Marital Status: Often people may feel that getting married means that the score of both partners will combine or will be linked. This is not the case; the scores of both individuals remain separate. Even in the case of women when name change occurs they need to inform the concerned parties and the credit history is carried forward in the new name.
Checking One’s Credit Report: When a prospective lender accesses the CIR of an applicant it is termed as a hard enquiry and will affect the score calculation; it is listed in the enquiries section. However if an individual checks his/her score himself /herself then it will not lower the score. On the contrary it is recommended that you do a CIBIL score check for free regularly to assess and track your credit health and take remedial action (if any) required.
Debit Card Activity: Credit card billing and payments are reported in the CIR. Debit cards are linked directly to the user’s savings bank account and the amount is immediately debited from the linked account. Thus using a debit card does not allow the user to have access to temporary credit as in the case of credit card usage. Owing to this fact any activity on debit cards will not be reported in the CIR.
Normal Banking Activity: Banks offer loans and a host of other banking services. However the savings bank account transactions and loan account transactions are not linked to each other in any way. Banking activity related to fixed deposits, saving bank account debits/credits, paying of interest on deposits in no way has a bearing CIBIL score calculation.
Number of Credit Cards: Credit card usage in the form of credit utilization ratio and the repayment history impact the score calculation directly. However number of credit cards does not impact the calculation. Having multiple cards neither enhances the score nor reduces it. A single card used responsibly and dues paid on time is as good as five cards used in a similar way. The crux is to pay all dues on time and keep the overall credit utilization below 30%.
Tax Records: While it is important that one is honest and regular in paying their taxes whether it is the income tax or any other tax, their payment or repayment will in no way have any effect on the credit rating.If one were to apply for a loan the bank may ask the applicant to submit tax records for last few years but that is not related to the computation of an individual’s rating, even though it may have an effect on your loan application being accepted or rejected.
Being Unemployed: Again as we discussed in above aspect lenders will seek applicant’s tax records and as well proof of income. Often the amount of loan or the credit limit that is sanctioned is related to the income level of an individual. Having said that this aspect is not taken into account when making the score calculation.
Payment of other bills/rent: In many economies which are more credit driven an individual’s utility and rent payment records are also a part of the credit report. Prospective home owners and utility service providers may access the reports before accepting a customer or tenant in such situation; however this does not happen so far in our country.
Hopefully the above clarification can help you focus on the important aspects that impact CIBIL score calculation. The above factors may be important due to various reasons but are not directly related to CIBIL Rating.