When it comes to getting a loan approved in India, your credit score plays a pivotal role. Yet, despite the growing awareness around financial health, credit score myths in India continue to cloud borrowers’ judgment in 2025. Many applicants unknowingly believe in outdated or incorrect ideas that can hinder their chances of approval. This article breaks down those myths, clarifies what lenders truly consider, and shares actionable loan approval tips for a smoother financial journey.
Myth 1: A High Income Guarantees Loan Approval
Reality: Income and credit score are two different factors.
Even if you earn a hefty salary, lenders still examine your credit score to determine how reliably you’ve handled credit in the past. A person earning ₹1 lakh a month with a poor repayment history may be seen as a higher risk than someone earning ₹30,000 with a spotless credit record. Income shows your ability to pay; credit score shows your intent and track record.
Myth 2: Checking Your Credit Score Frequently Will Lower It
Reality: Soft inquiries have no negative impact.
Many believe that viewing their own credit report too often will hurt their score. This is false. When you check your credit report through official channels like CIBIL, it’s considered a soft inquiry, which does not impact your score. Only hard inquiries made by lenders during a credit application can potentially affect your score — and even then, the effect is minor unless there are too many in a short time.
Myth 3: Closing Old Credit Cards Will Improve Your Score
Reality: This can actually harm your credit score.
Old credit cards contribute to your credit history’s length, which is a positive factor. Shutting them down can shrink your credit age and reduce the total available credit, potentially increasing your credit utilization ratio — both of which may negatively affect your score. Instead, keep old cards active with minimal use to build a stronger credit profile.
Myth 4: One Late Payment Doesn’t Matter
Reality: A single missed due date can dent your score.
Even a single late payment gets recorded in your credit history and stays there for years. It sends a red flag to lenders about your repayment habits. Timely repayment is one of the most heavily weighted components of your credit score, making this one of the most damaging credit score myths in India today.
Myth 5: All Lenders Have the Same Credit Score Criteria
Reality: Different lenders, different risk appetites.
While credit bureaus provide your score, lenders interpret it differently. Some banks may approve a loan with a score of 700, while others might require 750+. This is why you might face rejection from one lender but approval from another. Comparing loan offers before applying can help you avoid unnecessary hard inquiries.
Myth 6: No Credit Means a Good Credit Score
Reality: No credit history often equals no credit score.
Many first-time borrowers assume that having no loans or credit cards makes them ideal applicants. In reality, having no credit footprint makes it hard for lenders to assess your risk. Building a credit history — even with a secured credit card or small personal loan — is essential to establish creditworthiness.
Myth 7: Your Credit Score Is the Only Factor in Loan Approval
Reality: It’s important, but not everything.
Lenders look at multiple parameters: income, employment type, existing EMIs, loan-to-income ratio, and even location. While your credit score gives them a snapshot of your financial behavior, the full picture involves far more. This makes it crucial to focus on holistic financial planning.
Loan Approval Tips to Boost Your Chances in 2025
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Maintain a Credit Score Above 750: It signals low risk to lenders.
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Limit Credit Card Utilization: Keep it under 30% of the limit.
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Avoid Multiple Loan Applications Simultaneously: It triggers multiple hard inquiries.
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Pay EMIs and Bills on Time: Set reminders or automate payments.
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Diversify Credit Mix: A mix of secured and unsecured loans helps.
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Review Your Credit Report Regularly: Spot and dispute errors early.
Frequently Asked Questions (FAQs)
Q1. What is considered a good credit score in India in 2025?
A score above 750 is considered excellent. It typically increases your chances of getting better loan offers and lower interest rates.
Q2. How long does it take to improve a bad credit score?
It varies based on the severity of the issues, but consistent effort over 6 to 12 months — timely payments, low credit utilization — can significantly boost your score.
Q3. Will settling a loan negatively affect my credit score?
Yes. A “settled” status implies you didn’t pay the full amount, which can hurt your creditworthiness. It’s better to pay in full or negotiate a structured repayment plan.
Q4. Can I get a loan with a low credit score?
It’s possible, but usually at higher interest rates or with stricter terms. Consider secured loans or improve your score before applying.
Q5. How often should I check my credit report?
At least twice a year. It helps you spot fraud, track changes, and stay loan-ready.
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