Top Credit Score Myths You Must Not Fall Prey To
When it comes to credit scores, you will see there are various myths that keep your judgement as a loan applicant clouded. A score is an essential 3-digit number when you plan to place an application for a new loan or credit card. Mostly, your score may even be fetched by insurance to determine your coverage and premium amount. So, it is a must for you to review your credit score. You can fetch your credit report through Bajaj CIBIL score website, HDFC CIBIL score website and by approaching another lender’s official site.
Understanding credit score – Common misconception
Credit score at times is misunderstood, so debunked here are the most common misconceptions surrounding credit score that you must be aware of. These include –
Misconception no. 1 – Reviewing your credit score periodically will reduce it
This is a very common error when it comes to credit scores. When you fetch your report, it is considered a soft enquiry, and this does not reduce your score. So, the more updated you are about your credit score, the higher your potential of getting approval on any credit report.
Misconception no. 2 – Your income impacts your credit score
A credit score is computed based on the info stated in your report and your income isn’t stated anywhere in your report. For instance, you could have an income equaling Rs 20 lakh and still hold a low score if your credit habit is not good. Similarly, you are an individual with a considerably lower salary and might have a high score if your credit repayment background is healthy, i.e., timely repayments of bills and balanced credit card utilisation, among other parameters.
Misconception no. 3 – Credit score is the sole determinant of securing a credit card or loan
Yes, credit score plays an important role in getting favourable loan options and premium or high-end credit cards, but it is not the only parameter that are considered. There are other parameters like your nature of work, age, etc. Your score can be good, but there are not only determining parameters.
Misconception no. 4 – Closing old accounts can assist you to ameliorate credit score
Many believe that holding more than 2 credit cards can pull your score down. And thus, you tend to close your older credit accounts by closing your credit cards, probably those which you are no longer using. This may inadvertently go the wrong way because closing your old credit account will lessen your credit history. Having a long credit history assists lenders to better understand your credit record and behaviour better. However, if you think that you can lose out your credit card or will be unable to use the same judiciously, then you can consider closing your credit card post an in-depth analysis.
Also Check: HDFC CIBIL Score
Misconception no. 5 – Debit card can assist form a credit score
Buying anything through debit cards is the same as paying in the form of cash. You aren’t borrowing from any lender but just using the fund that is already in your account. This does not affect your score in any way.
Misconception no. 6 – Reviewing your credit report impacts your credit score negatively
If you check your credit report, then doing so will not negatively impact your credit score at all. If various lenders enquire about your credit details in a short time span, it can impact your credit score and endow an incorrect impression to the lender whom you are approaching. It is a great habit to keep a thorough track of your credit score and report at periodic intervals, say once every 3 to 6 months. It will endow a thorough reality check and endow you with the scope to ameliorate your financial habit if required.
A poor credit score stays forever
Your credit score represents your financial past or your past behaviour with credit. However, it does not endow that once you avail a low credit score, then it will remain with you forever. You can build a strong credit history, in turn, with a good score over time. If you build a good habit of following all healthy tips and practices, you can form a strong credit score and allow your past poor transactions to fade away. Generally, a transaction remains in your report for nearly 3 years. Details like your payment defaults and bankruptcy might stay up to a span of 10 years. However, there’s still some hope for amelioration.
Credit score highly depends on your income
Your credit score is not dependent on your income. It is possible for you as an individual to hold a credit score equaling 850 with a yearly income of just Rs 4 lakh. Likewise, it is even possible that with a yearly income of Rs 20 lakh, you may have no credit score. Your credit score computation is based on how many credit accounts you hold and how finely you manage those accounts.
Being married can merge your credit score
In reality, there’s nothing like a credit score merger. Regardless of your marital status, your credit score is dependent on your financial behaviour. So, holding a joint bank account would not change anything with respect to your score and credit history.
Placing an application for a new credit can negatively impact your score
You must be aware of the fact that placing an application for any new credit option would not impact your credit score if you do not submit multiple credit applications with distinct lenders directly in a short time span. If you apply at each financial institution, each one of them will fetch your credit report to understand your credit behaviour. Numerous such enquires may make you look desperate for financial assistance, which further lowers your credit score. Instead, you must apply for just 1-2 lenders and wait for their response. Doing so would not impact your credit score adversely.
So, you can build your credit score in the following ways –
∙ Pay your credit card dues and loan EMIs in full and on time.
∙ Turn to the auto-pay option to never miss out on your timely repayments.
∙ Do not close your previous accounts without any proper consideration
∙ Review your credit report periodically
∙ Do not apply for multiple credit options in a short time span.
∙ If you find out errors or mistakes in your credit report, then ensure to inform your credit bureau and dispute the same instantly.