Misconceptions About Credit Scores:

Credit scores play a crucial role in financial health. They determine eligibility for loans and credit cards. However, many people, including bankers, still believe certain myths about credit scores that can mislead borrowers. Here’s a look at five common credit score myths in India and the truth behind them.

Misconceptions About Credit Scores:

1. Checking Your Credit Score Lowers It

One of the biggest myths is that checking your credit score frequently will harm it. In reality, when you check your own score, it’s classified as a “soft inquiry,” which does not affect your credit score at all. Regularly checking your score is a good way to stay on top of your financial health. It helps you spot any errors and correct them, ensuring your credit profile stays strong.

2. Higher Income Means a Higher Credit Score

Many believe that earning a higher salary directly improves your credit score. However, income is not a factor in calculating your credit score. What matters are your credit habits, such as paying bills on time, maintaining low credit utilization, and avoiding multiple loan applications within a short period. Credit scores reflect financial behavior, not income levels.

3. Closing a Credit Card Erases Past Debt History

Another misconception is that closing a credit card will remove any negative history tied to it. This is not true. Settled accounts, whether closed or open, remain in your credit report for several years. If you miss payments or default on loans, it will still show up even after you settle the debt, affecting your credit score for a long time.

4. Never Borrowing Means a Perfect Credit Score

Some people think that avoiding loans altogether will help them maintain a perfect credit score. However, this is a myth. If you don’t have a credit history, you won’t have a credit score at all. Lenders need to see your borrowing behavior to evaluate your creditworthiness. Without borrowing, it will be difficult for you to build a credit profile.

5. All Credit Score Companies Are the Same

Many borrowers are unaware that India has multiple credit bureaus, and each uses different algorithms to calculate scores. The major bureaus CIBIL, Experian, CRIF High Mark and Equifax may report slightly different scores. Therefore, it’s important to check your credit report from various agencies to get a complete picture of your credit standing.

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