A credit score is vital information. Unfortunately, many people’s focus may not turn to credit scores until they decide to take a loan. When they start digging for information on credit scores, they are often misguided into believing something which is not true.
Credit score myths are out there, and they have the potential to ruin your credit score.
What is a credit score?
A credit score is a number that summarizes your creditworthiness based on your credit history. The credit score gives potential lenders an idea of your borrowing and repaying habits, depending on which they approve or reject your loan application.
Top 7 Credit Score Misconceptions and Facts
1. You need to make a lot of money to have a good credit score.
How much you earn doesn’t affect your score as income is not a part of your credit report.However, income is one of the eligibility criteria for applying for a loan as potential lenders check your repayment capability before they approve the loan.
2. Regularly checking your credit score harms your creditscore.
Checking your credit score is considered as a soft enquiry, and it doesn’t have any impact on your credit score. This means you can check your credit score as many times you want without causing any harm to your score.
3. Applying for a new credit card/loan has no impact on your credit score.
When lenders receive a new credit card/loan application, they pull up the credit report to evaluate the creditworthiness of the applicant. This enquiry is considered as a hard enquiry, and it has an impact on the credit score. If there are too many hard enquiries within a short period of time, it can hurt the credit score.
4. Closing your old credit cards is beneficial for your credit score.
No. when you close any of your credit cards, you decrease your total available credit limit. A decreased credit limit will increase your credit utilization ratio. And a high credit utilization ratio is not good for your credit score.
5. Carrying balances on your credit cards boost your credit score.
Carrying a balance is not good for your credit score. It adversely affects you in many ways.
- Increases credit utilization ratio
- Interest piles up and finance charges add up to your balance
- Increased risk of falling into a debt trap
6. With a bad score, you’ll never get a loan.
It’s difficult to get a loan with a poor credit score, but it’s not impossible. The lenders may look at other factors, such as income, employment, repayment capacity, etc. and approve the loan. Thisdoesn’t necessarily mean that you’ll get the loan at themost preferred terms. Your interest rate may be high, or you may have to pledge collateral.
7. Each person has one credit score.
There are different credit bureaus, and each one of them has its own scoring model. This means each individual has a different credit score from each of these credit bureaus.
Hopefully, this list might have been successful in debunking some of the credit score myths. If you want to improve your credit score, follow these tips:
- Always pay your bills on time
- Try to pay off your debt
- Aim to maintain your credit utilization ratio at 30%
- Check your credit score regularly, and report inaccurate information or errors
- Don’t close old credit cards
- Don’t apply for new credit too often