Your credit score is a key consideration for almost all your financial decisions, from qualifying for premium credit cards and loans to renting a new house and more. Lenders use this score to determine the credit risks and how likely borrowers will pay the loan amount.
They assess several factors to calculate the credit score, including the amount of debt a borrower already has and their payment history. In simple terms, it tells where you stand, opening the right doors for you and providing access to the best loans and credit cards.
However, with credit cards becoming ubiquitous, there is a significant widespread of misinformation and misconception associated with credit scores. For example, a recent survey revealed that around 50% of respondents believe that age affects their credit scores. This is an entirely false notion because demographics have no role in the credit scoring model.
Today, we are separating a few credit score myths from facts to help you improve your financial knowledge and health.
- Checking the Credit Report Frequently Will Lower My Credit Score
When you apply for a new credit card or loan, the lender runs a quick credit check to gauge your creditworthiness. It is called a ‘hard inquiry.’ If done frequently, it can affect your score. However, if you check your own credit report from a legit source, it won’t hurt your score. This is commonly known as ‘soft inquiry.’ In fact, it is a smart move to monitor your credit history every 2 to 3 months, especially if you are planning to apply for a loan soon. It allows you to track and improve your credit score while detecting any errors in the report.
- Carrying a Larger Credit Card Balance Will Boost My Credit Score
Carrying a large credit balance every month doesn’t boost your credit score. If anything, it only hurts the score, making it even more expensive for you to pay interest. Needless to say, you are hardly minting money or raising your credit score by paying interest on your balance when you can settle your credit cards bill in full every month. The truth is the higher your credit card balance, the higher your utilization rate, which ultimately affects your credit score.
- My Credit Score Will Improve with an Increase in My Income
This is one of those credit score myths that make sense as higher-income reflects higher loan repayment capacity and impacts your loan eligibility. However, as surprising as it sounds, income is not even on your credit report, let alone contributing to the credit score. The 5 components that determine your credit score are payment history, the amount owed, new credit, length of credit history, and credit mix.
- Using a Debit Card Will Build My Credit Score
Banks consider debit cards as cash, and just because you can efficiently manage your cash, it doesn’t imply that you can repay the borrowed money on time. A debit card is a tool to assess savings account balance but doesn’t cover the concept of credit. It neither ends up on your credit report nor builds your credit score.
- Paying Off Debts Will Remove the Transaction from My Credit Report
You have paid off your debt, and it feels excellent to bid farewell to monthly installments. Right? But this loan isn’t going anywhere so soon; it will stay in your credit report for years, directly affecting your credit score. If you repaid your loan responsibly and in good standing, then it will work in your favor, raise your credit score, and reassure potential lenders. On the other hand, any missed payment or outstanding balance may raise questions about your finance handling capabilities and weigh down your credit score.
- Getting Married Will Merge My Credit Score with My Spouse
There is no such thing as a merged credit score. Irrespective of your marital status, your credit history is yours alone. Your credit score is determined based on your financial behavior. Even a joint account with your spouse changes nothing as your credit score remains yours alone and never merged with your partner.
- I Will Need a Credit Card to Build a Credit
Technically, you don’t necessarily need a credit card to build your score. Being an authorized user on somebody else’s credit card is also acceptable. Yes, the primary cardholder will be responsible for all the payments, but credit bureaus consider the activities and scores of both the primary cardholder and the authorized user. Make sure that you are linked to someone with strong credit habits else it can bring your scores down.
- Closing a Credit Card Will Improve My Credit Score
On the contrary, closing a credit card can knock your credit score down as agencies consider this a negative move. Having a mix of credit cards shows your ability to handle multiple credit lines. So, if your card has no annual fee and you have a credible loan payment record, it is advised to keep it active.
Now that we have debunked common credit score myths, it’s time for you to focus on the right ways toimproveCIBIL scores. Start by checking your credit report for any discrepancies. If you come across any errors, report them immediately. Prioritize loans with high-interest rates and pay your debts. And yes, do not forget to pay your bills on time,
A finance enthusiast, Mihika Ghosh, works as a Digital Content Creator at Fit.Credit, an all-in-one app that helps you check your credit score for free, stores your financial documents, and gives you timely payment reminders. She creates content that educates people on improving their credit scores and other investment and finance-related topics. When she is not working, she loves to travel and read to keep up with all things finance and economics.