Credit Score

8 Credit Score Myths That Most Borrowers Believe

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Your credit score indicates your creditworthiness. This means financial institutions can assess this score to determine the risk involved in lending to you. However, there are several myths associated with credit score, believing which can hinder you from following the correct practices when applying for a loant. Therefore, if you want to know about them, keep reading this article.

What Are the Top 8 Credit Score Myths and Truths Behind Them?

Mentioned below are the top myths about credit score and the facts behind them which you should be aware of:

  • Your income influences your credit score

Your monthly income decides your eligibility to apply for a loan and has no direct influence on your credit score. Lenders assess your monthly income to determine your financial capacity to repay the loan amount and do not use it to measure the risk involved when lending credit.

Ideally, factors like repayment history, total outstanding dues, etc., impact this score. Therefore, make sure you maintain disciplined financial behaviour, such as paying your dues on time, to prevent lowering your optimal CIBIL score range of 750 or above.

  • Every inquiry negatively impacts your credit score

There are two types of credit score inquiries – hard and soft inquiries. Hard inquiries lower your credit score. These inquiries happen when you allow a financial institution to assess your credit. On the other hand, soft inquiries happen when you do not authorise a financial institution for a credit pull, or you perform a free check yourself. For instance, if you apply for a pre-approved loan offer, there is a high chance that a financial institution will make a soft inquiry. These inquiries do not negatively impact your credit score.

  • Credit card balance boosts credit score

Balance in your credit card does not improve your credit score. Instead, it may lower it if interest accumulates over the years. Moreover, you will also waste your money by paying interest on the balance, mainly when you fail to pay your monthly bills on time.

Moreover, a high credit card balance means a high credit utilisation ratio. This will directly lower your credit score. Therefore, clearing off your outstanding balances on your credit card is advisable to save money and boost your credit score.

  • One credit score for each person

You may have multiple credit scores because several credit scoring models are used in the market. Moreover, it may differ depending on the credit bureau that provides a score. Lending institutions also assess various credit scores provided by multiple agencies to determine your financial behaviour as estimated using numerous calculation methods.

  • Debit cards help in increasing credit scores

If you have applied for a debit card to increase your CIBIL score, you may be disappointed after hearing the truth behind this myth. Credit aspects are not associated with debit cards. Thus, no matter how often you use a debit card, it will not affect your credit score.

  • No need to worry about credit score until you are older

This is a myth, as the minimum age to apply for a loan starts from 18 years. This is when you should start thinking about your credit score. Experts suggest young applicants should begin developing credit scores as early as possible. This is because the duration of your credit history impacts the score.

  • Credit report does not consider debt repayment

A credit report considers your financial behaviour. Thus, it will reflect every due owed or cleared off during the verification time. So, if you fail to repay your loan on time, your credit score will be negatively affected. On the other hand, timely repayment of debt will improve it.

  • Low credit score does not change

A credit rating agency considers your financial past when calculating your credit score. However, this does not imply that currently, if you have a low credit score, it will remain the same throughout your life. You can improve it by following disciplined financial practices, such as timely repayment of dues and avoiding applying for multiple loans at once.

Checking your credit score from time to time is also a great practice for monitoring your progress in improving it. Several online marketplaces allow you to check your CIBIL score and download a report for free.

So, these are the common myths you should not believe about a credit score. Having clarity on these myths will ensure that you adopt the correct approach while dealing with your credit score.

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