Credit scores are a significant part of your financial life, yet numerous myths and misconceptions surround them. In this article, we will debunk common credit score myths, providing clarity on what truly affects your creditworthiness and how to navigate the world of credit scores. Discover why regular monitoring of your credit report is essential, how your credit score affects your loan eligibility, and what you can do to boost your credit health
If you want to strengthen your credit history and enhance your financial future, explore the various loans and deposits from Shriram Finance. Our wide range of loans and deposits includes business loans, personal loans, commercial vehicle loans, used car loans, two-wheeler loans, working capital loans, gold loans, fixed deposits and recurring deposits. If you want to avail of a business loan, apply here.
Understanding Credit Score – Common Myths
Besides understanding your credit scores, you must comprehend myths about credit scores for your financial well-being. One common misconception is that checking your scores regularly can hurt it. In reality, it is known as a soft inquiry and has no impact. Another myth is that your income influences your scores.
You should know that your credit scores are calculated based on your credit history, payment history, credit utilisation, etc. Closing old accounts to boost your score is another credit score misconception. The fact remains that this activity can lower your scores by reducing your credit history length.
Lastly, believing that you have only one credit score is incorrect. You must know that there are various scoring models to calculate scores and different credit bureaus may use different models. Being aware of various credit score myths and facts can help you make informed financial decisions.
Will Checking my credit score regularly lower it?
A common myth is that checking your credit score regularly will lower it. However, the truth is that checking your credit scores is considered a soft inquiry. It does not impact your score. Only hard inquiries, like applying for credit can affect your scores.
My Income Affects My Credit Score
If you hold common credit score myths, including the misconception that your income directly impacts your credit score, let us debunk this credit report myth and explore the real factors at play:
Income Is Not a Factor: Your income is not listed on your credit report, nor does it affect your credit score. Credit scores are primarily influenced by your credit history, not your earnings.
Credit History Matters Most: Responsible credit use, like making timely payments and maintaining a low credit card balance, greatly impacts your credit score.
Credit Utilisation Is Crucial: The ratio of your credit card balances to your credit limits (credit utilisation) can significantly affect your credit scores. High credit utilisation can hurt your scores, regardless of your income.
Other Factors: The length of your credit history, types of credit accounts, and recent credit inquiries also play roles in building credit scores.
Focus on Good Credit Habits: To build and maintain good credit scores, prioritise responsible credit use, pay bills on time, and check your credit reports for accuracy rather than worrying about your income.
Credit Score is the Sole Determinant of Securing a Loan/Credit Card
Avoid falling for common credit score myths. While credit card myths play a significant role, they are not the only factor in obtaining loans or credit cards.
Multiple Credit Cards Are not Always Harmful: Contrary to myths, having multiple credit cards can improve your scores if managed responsibly. They can increase your credit limit and reduce credit utilisation.
Payment Due Dates Matter: Timely payments are crucial, and missing due dates can negatively impact your credit score.
Building Credit Takes Time: Some believe a high credit score can be achieved quickly, but building a strong credit history requires time and responsible credit use.
Credit Utilisation Counts: Maintaining a low credit utilisation ratio (credit card balance vs. credit limit) is essential, as it directly affects your credit scores.
Credit History Matters: A longer credit history generally leads to better scores, dispelling the credit card myths that your scores are solely determined by recent activities.
Closing old accounts can help improve credit scores
One of the common credit score myths revolves around the idea that closing old credit accounts can be a strategic move to boost your credit scores. Let us debunk this misconception by delving into the details.
Length of Credit History Matters: Closing old accounts can harm your credit scores. The length of your credit history is crucial, and older accounts positively impact it.
Credit History Importance: Your credit history showcases your responsible credit use over time. Closing old accounts erases this valuable history, potentially lowering your scores.
Credit Utilisation Ratio: Closing accounts may increase your credit utilisation ratio, negatively affecting your credit score. It is better to keep old accounts open with low or zero balances.
Check Your Credit Reports: Regularly checking your credit reports is essential to dispel common credit myths. Ensure accuracy and address errors promptly for a healthy credit profile.
Myths about Credit Scores: Understanding the truth behind credit score myths and facts empowers you to make informed financial decisions and maintain good credit scores.
Debit cards can help build a credit score
Let us explore the misconception that using debit cards can help build a credit score.
Understanding the Myth: It is a common misconception that using a debit card can positively impact your credit scores. Debit cards are not reported to credit bureaus, so they do not affect your credit scores directly.
Building Credit: To build credit, you need credit accounts like credit cards or loans that are reported to credit bureaus.
Responsible Credit Use: Properly managing multiple credit cards, paying bills on time and keeping credit utilisation low, can help build good credit scores.
Checking Your Credit Scores: Regularly checking your credit reports is crucial for detecting errors and ensuring a healthy credit history.
What helps to improve your credit score?
To enhance your credit score, consider these actions:
Responsible Credit Card Use: Having and responsibly using multiple credit cards can positively impact your credit score. Make on-time payments, keep balances low, and avoid opening too many new accounts.
Regularly Checking Your Credit Reports: Monitoring your credit reports for errors or discrepancies and promptly correcting them can help maintain a healthy credit score.
Building Credit History: Opening and maintaining credit accounts over time helps establish a positive credit history.
Managing Credit Utilisation: Keep your credit card balances below their limits to improve your credit utilisation ratio.
Making Timely Payments: Consistently paying bills and debts on time is one of the most critical factors in maintaining a good credit score.
Key Highlights
- Common myths about credit scores often lead to misconceptions about what affects your creditworthiness. Regularly monitoring your credit reports helps maintain a healthy credit history.
- Checking your credit scores has no negative impact on it.
- Credit scores consider factors beyond just your income.
- Responsible credit card use and timely payments are key to improving credit scores.
Conclusion
In conclusion, understanding your credit score is pivotal to your financial well-being. Dispelling common myths surrounding credit scores is crucial for informed financial decisions. Remember, checking it does not affect your credit scores, and closing old accounts may only sometimes be beneficial.
Furthermore, partnering with trusted institutions like Shriram Finance for personal loans can be a good decision to improve your scores. So, take control of your credit score, educate yourself, and consider the possibilities of a healthier financial profile. Start your journey toward financial empowerment with a personal loan today and click here to apply.
