Credit Score Myths: What Really Affects Your Score?

Your credit score is a financial tool that has the potential to secure your financial future with the right knowledge. However, there are some myths revolving around it. Believing these myths can lead you towards poor financial decisions that negatively impact your credit worthiness. In this blog, we will debunk some common myths that affect credit scores.

Myth 1: Checking Credit Scores Lowers Credit Score

Fact: Checking your own credit score does not affect your CIBIL Score.

In credit, there are two types of inquiries: soft and hard. A soft inquiry means you are just checking your score or credit report. It has no effect on your CIBIL score. A hard inquiry occurs when lenders review your credit for a loan or credit card approval. Multiple hard inquiries within a short period may negatively impact your CIBIL Score.

Myth 2: Income impacts credit score

Fact: Your income does not impact your credit score.

Your credit score comprises factors such as payment history, credit utilization, length of credit history and your credit mix. It is not affected by your salary. A good salary helps you manage your credit better by allowing you to pay off debts on time and maintain a lower credit utilisation ratio.

Myth 3: A good credit score suggests you are rich

Fact: A high credit score suggests a responsible financial attitude.

People with average incomes can also demonstrate responsible behaviour by paying on time and keeping their credit utilisation low. The same goes for people earning high salaries. If they do not make timely payments, their CIBIL score can be damaged.

Myth 4: A perfect credit score does not matter

Fact: While a perfect score is not necessary, a high score offers you good benefits.

Most lenders consider a score above 700 the best. The higher your score, the better the interest rate and loan terms you can secure. A good CIBIL score leads you to financial comfort.

Myth 5: Having more credit cards lowers your credit score

Fact: Multiple credit cards do not hurt your score if managed well.

Holding multiple credit cards can increase your available credit. Hence, it helps to lower your credit utilization ratio. However, applying for too many new credits within a short period can result in multiple hard inquiries, which can temporarily impact your score.

Myth 6: Student Loans do not affect credit score

Fact: Student loans impact your credit score like every loan.

When you pay your student loan on time, it can boost your credit score, and if you miss a payment, it can damage your credit score. Your student loans contribute to your credit history and credit mix.

Myth 7: Debit Cards help build a good credit score

Fact: Debit card usage does not impact your credit score.

Only credit cards have an impact on your CIBIL score Debit cards withdraw funds directly from your account; hence, they do not contribute to your score in your credit report.

Myth 8: Paying off your credits immediately boosts your score

Fact: Paying off your credit boosts your credit health, but the impact on your score may take time to reflect.

If you pay off your debts, the information may not appear on your credit report immediately. Credit details are usually shared periodically by lenders, and it takes some time for the transaction to reflect in the credit report. 

Conclusion

Understanding factors that affect your CIBIL score can help you create better strategies to boost your score. Avoid following these myths, and whenever you find yourself stuck, do consider researching it or consulting a professional. Also, monitoring your credit score regularly allows you to work on it and improve your prospects of getting favourable terms on a personal loan and other credit products in the future.

Frequently Asked Questions

1. What actually affects your credit score?

   Usually, a missed EMI, instalment, or repayment significantly affects your credit score. The longer you delay repaying, the more damage it does to your score. A missed credit card repayment and a missed EMI on a loan can affect your credit score.

   
   

2. What are some common myths about credit scores?

   Two of the most common myths are that checking your own credit score can lower it and that you have one universal credit score. Both are myths. In reality, you can check your own credit score as many times as you like. It does not affect the score. And you don’t have just one number. There are different bureaus, each of which has a credit score for you.

   
   

3. Why did my credit score go down even if I didn’t do anything wrong?

   A credit score drops only when the data on your credit report changes. Even if you paid your bills on time, hidden shifts like a higher reported credit card balance, an old account closing automatically, a sudden drop in a credit limit, or a reporting error can lower your score.

   
   

4. How long does it take to raise your credit score from 400 to 800?

   Increasing your credit score can take anywhere from 6 months to 2 years. Depending on your negative marks on the report, it can take longer or even be shorter.