7 Credit Score Myths: Busted

The knowledge we gain from word of mouth is often peppered with a lot of credit score myths, misunderstandings, and lack of clarity. It’s easy to give in to them, forget to recognize advantages, and live oblivious to the provisions offered by various services. Credit cards are not immune to this.

Sure, it’s important that you maintain a good credit score, but at the same time, it’s highly likely that you’re under a lot of assumptions regarding the factors that influence them.

Let’s debunk some of the common credit score myths regarding credit scores.

What is a credit score?

A credit score is an absolute numerical value (typically a 3-digit number) that determines the “creditworthiness” of an individual.

It’s calculated based on the data from a person’s credit files procured from various credit bureaus.

A credit score is determined based on your payment history, the length of your credit history, the amount of debt you have, and the rate of repayment of your credit, among other factors.

Having a higher credit score means that you’ve had a good credit behavior and thus makes you trustworthy in the eyes of lenders and creditors, and they won’t think twice before they process your request for credit.

Here are some credit score ranges and what they imply:

• 300-579: Poor
• 580-669: Fair
• 670-739: Good
• 740-799: Very good
• 800-850: Excellent

Credit score myths debunked

1. My income impacts my credit score.

This is a fairly common misconception that almost everyone has when it comes to credit scores.

Contrary to popular belief, your richness (your income, in other words), doesn’t affect your credit score.

Paying bills on time is what is important when it comes to credit scores, and this is only indirectly affected by your income.

So, it’s understandable why people think their income affects their credit scores, so just make sure you don’t go overboard in spending on things which can affect your bill payments, and possibly delay your payments.

However, in case of emergencies, it is easy to avail instant online loans, offered by platforms such as EarlySalary, to pay off your bills on time without affecting your credit score.

2. Debit cards affect my credit score.

Debit and Credit cards are two entirely different things, and one doesn’t affect the other.

Sorry to disappoint you if you’ve applied for a debit card, hoping to improve your credit score.

The reason people seem to have this misconception might be because, during checkout on online e-commerce platforms, there’s an option called “credit” while paying with their debit cards.

But, this just determines how the merchants are going to process the payment and have nothing to do with credit scores.

Using a debit card is more similar to paying cash than it is to purchase using a credit card.

3. Married people have a joint credit score.

No. Your credit report is unique to you throughout your life.

Married or single, you’re going to have your own credit report (which is unique to every individual).

Having joint accounts for various purposes (like mortgage, car loans, etc.) with your spouse, will affect both your credit scores equally and will reflect in both your credit reports.

But your score and your report are yours alone.

4. Checking my credit score will lower my score.

There’s something called an “inquiry” that’s noted in your credit report every time you or someone else looks at your file, and people think that inquiries lower their credit scores.

Well, yes and no. Inquiries affect your credit scores only if they’re related to credit applications that you’ve submitted because this means that you’re adding on to your debt.

Just looking up your credit report isn’t going to affect your credit scores. In fact, it is considered good practice to check credit scores regularly to assist in your credit management. It doesn’t always cost money either.

It’s easy to get a free credit score check online.

5. There’s only a single credit score for a person.

There’s no such thing as just one credit scoring formula that applies to all consumers in all situations.

There are about a thousand different credit scoring models in the market today.

This implies that an individual can have tens of hundreds of different credit scores.

To put this into perspective, just like how comparing apples and oranges is not a good idea because there are different factors at play, maintaining a single credit score for various purposes is not a good idea.

Lenders and creditors look at your credit score for various reasons and not always are the same factors given importance.

6. I can’t get loans without a credit score.

It’s very much possible to avail loans without a credit score.

It’s true that for higher amounts of loan, the credit scores in your CIBIL (Credit Information Bureau (India) Limited) report are the only way of ensuring that you’re going to repay the loan.

You can speak to your lender, however, to avail of a loan, and the interest rate is likely going to be high in that case.

There are many trustworthy platforms like EarlySalary, where you can easily avail an instant personal loan without a credit score.

7. Closing my credit card will improve my credit score.

Closing a credit card can actually hurt your score more than improve it.

If you have a credit card that’s as good as in the dustbin, it’s advised to make it active and not close it.

Managing all the credit cards you have well, can play a role in improving your credit score, so you’ll be better off if you don’t close your inactive credit card.

Closing a credit card will lower your total credit limit (which is the denominator in the ratio that determines your credit score), thereby reducing your credit score.

It is easy to get overwhelmed with the amount of false information spreading on a variety of subjects, especially in important areas, such as good practices on maintaining credit scores.