Build Better Credit History: Debunking Top 10 Credit Score Myths
Build your creditworthiness by gaining insights into the factors that actually influence your credit score
When it comes to securing a loan or applying for a credit card, your credit score plays a major role. However, despite its importance, many borrowers remain misinformed about what influences this three-digit number and how it works.
From incorrect assumptions about income impact to false perceptions about debit cards and credit reports, the myths are plenty, which could potentially affect the overall creditworthiness of borrowers.
Here’s a deep dive into 10 myths about credit scores:
1) Using A Debit Card Builds Credit Score
Your debit card might be convenient, but it does nothing for your credit history. Since debit cards provide access to your funds rather than borrowed credit, they don’t impact your credit score at all. To build a credit profile, you'll need to borrow through a credit card or a loan and repay it responsibly.
2) Checking Your Own Credit Report Lowers Your Score
This is a widely believed myth. When you check your own credit score, it's considered a “soft inquiry” and has no impact. On the other hand, multiple loan applications made simultaneously can trigger “hard inquiries” from lenders, which can hurt your credit score.
3) Income Determines Credit Score
Contrary to popular belief, how much you earn doesn’t affect your credit score. Instead, it’s your repayments, credit usage and debt management that play a crucial role in determining your credit score.
4) Zero Credit History Is A Good Thing
No credit is often worse than poor credit. With no borrowing record, lenders have no data to assess your repayment behaviour, which could put you into high-risk category.
5) CIBIL Is The Only Credit Bureau
CIBIL is just one of several credit bureaus in India. Others include Equifax, Experian and CRIF High Mark. Each uses its own metrics to decide the credit score. While the credit score ranges between 300 and 900, often a credit score above 750 is preferred by lenders. However, the categorisation of credit scores may differ based on the policy of each credit bureau.
6) Once Low, Always Low
Your credit score is not set in stone. With timely payments, reduced debt and responsible use of credit, you can improve it over time.
7) Old Accounts Should Be Closed To Improve Scores
In fact, the opposite is true. Long-standing credit accounts positively contribute to your credit history. Closing them may shorten your credit length and hurt your score.
8) Clearing Debt Erases The Record
Paying off debt doesn’t remove the transaction from your report. The history stays for years, showing future lenders your repayment habits.
9) Everyone Can Access Your Score
Your credit information isn’t public. Only you or authorised financial institutions, after obtaining your consent, can view your credit report.
10) Low Score Means No Loan
A poor credit score may make getting approved loans more challenging, but it’s not a deal breaker. Lenders also weigh other factors like your income, job stability, and existing liabilities.
Understanding your credit score can empower you to take control of your financial future. By debunking these myths, you’ll be better equipped to build a better credit history and access the credit you need when it matters most.
