10 Common Myths About Credit Scores You Should Know About

The credit score is one of the most integral factors you need to consider while applying for a personal loan or any other type of loan requirement. Therefore, it is important to perform a CIBIL score check before you think of applying for any type of loan. 

A credit score serves as a 3-digit number that reveals your creditworthiness. The higher your credit score, the better it is for the borrower to get access to the desired loan amount. A credit or CIBIL score is based on your credit history - the number and types of credit accounts, repayment history, and total debt. When you perform a CIBIL score check, it helps lenders understand your potential to repay the loan amount on time.

Due to improper financial awareness amongst individuals, there are several myths about credit scores that keep circulating in the modern market. Therefore, it is crucial for you to be clear about any misconception related to credit scores.

What are Common Myths About Credit Scores?

1. Checking the CIBIL Score will Reduce It

This is quite a common misconception that people tend to have about CIBIL or credit scores. People are usually concerned and observed inquiring ‘will checking my CIBIL score affect the credit score?” 

There is no means by which checking your credit score will lower it. As a matter of fact, when you perform constant CIBIL score checks, it only helps you track the overall progress while taking relevant action to improve the credit score as needed.

2. Your Income Affects the Credit Score

This is yet another myth revolving around the concept of credit scores. However, it is completely false. There is no way through which your income can affect your credit score. Some of the common factors that tend to impact your score are length of credit history, repayment history, credit mix, credit utilization rate, and others.

3. Maintaining a Balance on the Credit Card will Boost the Score

This is also not true. When you carry a balance on the credit card, it will only lower your credit score in the long run. Moreover, you might also end up losing a significant amount of money as you will have to pay higher interest rates. 

It is recommended that the credit card bill be paid off every month on time to ensure a reduced credit utilization rate. This practice will make sure that you have a decent credit score throughout.

4. A Good Credit Score Implies You are Rich

This is co-related to the income-specific myth discussed above. There is no relation between your income and your credit score. A credit score is used only to measure your credit risk. For instance, if you have a low income but have paid your bills on time, you will be able to maintain a good credit score.

5. Student Loans will Not Affect Your Score

This is also not true. All types of loans, whether you are applying for a car loan, mortgage, or student loan, will affect your CIBIL score. Therefore, it is advised to pay off all your debts on time if you wish to maintain a decent credit score. 

6. Paying Off Debt will Increase Your Credit Score

Well, this might not be entirely false, but it will depend on certain factors. When you are paying your credit card or any other loan amount, it tends to increase your credit score. When you foreclose a credit line, it is perceived as responsible credit behavior. Therefore, it helps improve your CIBIL score. 

However, if you end up paying the installment debt like a loan or a mortgage, there is no way by which your credit score will increase. However, this does not imply that you should not pay off such debts. When you have access to ample funds, you should always pay your debts.

7. Using Debit Cards will Boost Your Credit Score

Debit cards are not known to provide any credit. Therefore, these are not present in your CIBIL report. As such, when you use debit cards for any payment, it is not going to help your credit score in any way.

8. Credit Score is Merged with the Spouse on Marriage

This is completely false. Your marital status will never affect your CIBIL score. Even if you must have applied for a joint loan, the credit score of the individual partner is considered by the lenders. At the same time, multiple loan applications might make your credit appear hungry to lenders and will lower your CIBIL score. 

9. Low Credit Score = Loan Rejection

Indeed, a low credit score can affect your loan application process. However, it will not always guarantee rejection. Lenders consider your credit score as one of the multiple factors while approving a loan. There are several other factors that are taken into account by lenders while approving your loan.

10. Closing a Credit Card will Improve the Credit Score

This is yet another false assumption. When you close a credit card, it will eventually reduce your credit score. However, if your credit fee imposes an annual fee and if you keep losing money by retaining the card, you can consider closing it. 

Conclusion 

Understanding the truth behind common credit score myths is essential for maintaining a healthy financial future. By debunking these misconceptions, you can make informed decisions about your credit and take proactive steps to improve your score. Remember, building a strong credit history takes time and effort, but it's a worthwhile investment that can open doors to various financial opportunities.