There is a lot of myth and misinformation about credit scores that discourage borrowers from checking theirs. Many people are not even aware of the credit score concept. In today’s world, where credit cards and loans rule the lending market, every individual is responsible for their credit score. We thought we should debunk the myths surrounding credit score and bring the truth to our readers. Let’s go!
- Checking Your Credit Score Decreases It
Checking your own credit score is considered a soft check and does not affect your credit score in any way. You can check your credit score any number of times without affecting it. It is only when prospective lenders check your credit score, it is called a ‘hard check’, and will affect your credit score. So if you don’t want to hurt your credit score, refrain from applying for too much credit simultaneously.
- Defaults And Late Payments Stay Forever
They stay for a maximum of 7 years only. Yes, a credit score is a record of your payment history and is supposed to contain payment defaults or late payments. However, they drop these line items after a period of 7 years. Bankruptcy stays for 10 years. Still, to achieve a stellar credit score, do the minimum of paying your bills on time and don’t default on them even once.
- Your Salary Affects Credit Score
Your income has no bearing on your credit score. It is how you manage your debt that matters. Debts can be credit cards or loans. Credit score list all your debts and your repayment towards them. So an individual with an annual income of Rs.5 lakhs can have a score over 750 and one with an annual income of Rs.25 lakhs can have a score less than 650.
- Debit Card Helps Your Credit Score
Your credit score is built on your credit and debit cards don’t use credit. So they have no impact on your credit score.
- Spouses Can Merge Their Credit Score
No, that is not how it works. Credit score if for an individual and the debts in his/her name only. You cannot merge your credit score with another individual’s, be it your spouse, parent or sibling.
- Closing A Credit Card Will Improve Your Score
Actually, it doesn’t. You might find it hard to manage multiple cards and think of closing down unused ones. But doing so will only reduce the overall credit available for you. This will in turn increase the credit utilization ratio and hurt your credit score. Instead, use all the cards in regular intervals to keep them active. You can use a simple excel sheet to track the transactions on each card and their due dates. This way, you can maintain a low credit utilization ratio which is a very good market to achieve a high credit score.
- Disputing Information On Your Credit Report Will Improve Your Credit Score
You can dispute any information you see on your credit report and the bureau is liable to verify it. However, not all disputes will improve your score. Only the incorrect ones, when corrected, will have an impact on your credit score.
- Paying Off Debts Will Remove The Line Item From Your Credit Report
Any line item on your credit report is there to stay for years. What more? They keep having an impact on your credit score and credibility. Your credit score is not just a list of your current debts; it includes your repayment history for the past few years. So debts will stay on your report for at least 7 years before they are updated with the latest records.
- All Credit Scores Are The Same
There are 4 different credit bureaus in India and each one has their own algorithm to calculate your credit score. Banks are not affiliated with all 4 credit bureaus. Your credit score depends on which credit bureau the bank uses and what data they have of you. So don’t be surprised if your credit score is different with another credit bureau.
- Credit Bureaus Can Change Your Credit Score
Nope, they don’t do that. Credit bureaus only collect and assimilate your credit data. They use an algorithm that calculates your credit score. They do not alter or update your credit information in any way.
- You Can Pay Money To Fix Your Credit Score
Many individuals have misunderstood the concept of ‘Credit Repair Services’. These services cannot magically erase defaults or bad payments records from your credit report and make it look great. They help you manage your debt and offer you financial management services to improve your credit score. This is a continuous process and may take anywhere between 4-6 months to see some considerable change.
More and more Indians are realizing the importance of credit score in getting the best loans. They are learning how to check your credit score, how to read your credit report and ways to improve your credit score gradually. Debunking the myths about credit score is the first step towards it. Managing debt is tricky and needs fiscal discipline.
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