Five common credit score myths

Regularly checking your credit score and correcting any errors in your report can improve your creditworthiness.

As a borrower, you may have many questions about your credit score. Even though it is a widely discussed topic, many people still have doubts about how credit scores work and their influence on financial decisions. In this article, we explore the significance of credit scores and clarify some common misconceptions, helping you understand the facts to make informed financial decisions.

Understanding the importance of credit scores

Credit scores play a vital role for both lenders and borrowers, influencing the availability and affordability of financial products like loans and credit cards. Having a good grasp of credit scores can help you make informed financial decisions and secure favourable credit terms. However, various myths surround the topic that might lead to confusion. Let’s debunk some of the common myths about credit scores:

Decoding credit score myths

Checking your credit report can hurt your credit score

Looking at your credit report is classified as a soft inquiry, meaning it does not affect your credit score at all.

Income affects your credit score

Your income or salary is not part of the credit score report, hence does not directly impact your credit score. However, it is important to repay the credit on time.

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Applying for multiple credit accounts improves your credit score

Each time you apply for a new credit account, the lender pulls out your credit report, which is a hard inquiry and can lower your score. Additionally, it may also cause lenders to be cautious about your risk profile.

Closing old accounts improves your credit score

Older accounts contribute to your credit history, demonstrating your creditworthiness to lenders. Keeping these accounts open can actually benefit your credit score.

Also explore: Free credit report and regular credit score updates on the Moneycontrol app and website

You cannot get a loan with a low credit score  

Your ability to secure a loan is dependent on several factors and credit score is one of them. You might still be able to obtain a loan with a low credit score, but it may come with a higher interest rate.

By debunking credit score myths, we gain a clearer understanding of how credit scores really work and help us make smarter financial decisions. For instance, regularly checking your credit score and correcting any errors in your report can improve your creditworthiness. Understanding aspects helps us develop better financial habits and strategies, leading to improved financial health and stability. This knowledge empowers us to manage our finances more effectively and avoid common pitfalls related to credit scores.

Dispelling credit score myths is crucial for financial empowerment as misconceptions can lead to mistakes that impact our financial paths. By clarifying these myths, we gain a better understanding of credit, helping us take control of our future.

The writer is Managing Director at CRIF High Mark.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.