If there’s something that has grown equally with the favorability of Credit Cards, it’s nothing but the myths about Credit Scores that are generally believed in. Although it’s an important factor for applying for any loan or availing of any long-term credit, it has nothing to do with these 8 baseless myths that people tend to believe in.
Let’s burst those myths but first, know about Credit Scores in detail.
What is a Credit Score?
Credit Score stands for the 3-digit number that portrays the creditworthiness of the holder. The higher the score, the better the holder’s credit history and ability to repay the loan. It works as an assurer for the lender which portrays the past performance of the borrower and further assures the repayment of the loan provided. Moreover, it can help you to avail yourself high amounts of loans at cheaper interest rates and can also get you to choose the tenure for loan repayment. Since it affects the creditworthiness of the person, it’s important to build a strong credit score without believing in any of these myths.
Myths revolving around credit score
Here are some half-truths and plain myths around Credit Scores that we’ve busted for you.
- Regular checking of credit score will lower it:
Not at all. Credit Score has nothing to do with the frequency of checking it. And this misconception makes people refrain from checking it regularly which makes them forget about it. Instead, a regular check must be kept upon your credit score to know if there remains any debt that needs to be paid that is affecting the Credit Score. And if so, then it must be immediately paid off. Often, people forget about the Credit Score due to this myth, and then it keeps lowering due to ignorance.
- Income impacts the credit score:
Absolutely not. Your earning capability does not affect your credit score at all but your credit repayment history, duration of credit, credit utilization rate, etc impact your credit score. Thus, all of these factors should be considered while applying for any long-term mortgage or debt.
- Debt payments increase your credit score:
A half-truth. If the debt is any long-term mortgage or loan, paying it off doesn’t impact your credit score. But if the debt is the credit card bill or related debt, paying off regularly is viewed as responsible credit behavior which enhances your Credit Score significantly.
- Student loans do not impact credit scores:
Again plain false. Be it any loan, home loan, car loan, or student loan, Credit Score is related to all of them. Hence, if you’re planning higher education on an education loan, know that you have to repay it timely to maintain your decent Credit Score.
- Credit score can be merged with your spouse:
Nope, Credit Score is least related to your marital status. It can’t be merged if applied for a joint loan too. For that, the personal credit scores of both individuals are taken into consideration. In the same way, applying for multiple loans can make you look desperate and credit hungry which will reduce your Credit Score.
- A low credit score can lead to loan rejection:
Although a low Credit Score can impact your loan approval, it doesn’t always guarantee loan rejection. It’s only amongst one of the many factors that are taken into consideration while assessing the loan request and various other factors also affect the loan approval.
- Debit Cards can help to build up a credit score:
Plain misconception. Using a debit card for payments does not count for availing any credit and hence does not impact your credit history. Swiping a debit card is as good as paying through cash, with your own money. This way, it has nothing to do with your Credit Card or Credit Score.
- Closing an old card will improve the credit score:
No, not. In fact, closing an old card will shorten your credit history which will adversely impact your Credit Score. Rather, an old card will prove that you had a long credit history which will help to improve your Credit Score. But still, if your old card has any annual maintenance fees and you are required to pay it without using it then, you must cancel that card if you’re sure about not using it again.
Over and above this, many other misconceptions revolve around credit scores such as – a good credit score means that you’re rich and wealthy, it’s the only factor that matters while borrowing any loan, and much more. All of these misconceptions are the result of a lack of awareness and poor financial illiteracy that makes one belief in them.
But now that you know about all these myths, remember them while applying for your credit card or paying off any loan. These small but significant matters will help you in a great way in building a strong Credit Score and a robust financial health.