Many people believe myths about credit scores, like checking your own score lowers it or closing old cards improves it. In reality, credit scores are based on factors like payment history, credit utilisation, and account age, and with the right habits, they can be improved over time.
10 Common Credit Score Myths Debunked
Your credit score is more than just a number, as it reflects your credit habits and overall financial health. It plays a vital role in determining your eligibility for loans, credit cards, and even rental agreements. However, despite its importance, there are many credit score myths and facts floating around that often confuse people.
In this blog, we’re setting the record straight. If you’re trying to build or improve credit scores, understanding what’s true (and what isn’t) is the first step. Let’s debunk these credit score myths.
1. Myth: Checking the credit score lowers
Truth: This is one of the biggest myths. When you check credit scores for yourself, it’s considered a soft inquiry, which does not impact it.
When lenders conduct hard inquiries by checking your report during a loan or credit card application, it may affect your score slightly. So go ahead and check credit scores as often as needed to stay informed.
2. Myth: Closing a credit card will improve your credit score
Truth: Not always. In fact, closing an old credit card can hurt your score. One of the factors in your credit score is credit history length. When you close an account, especially an older one, you shorten that history.
Also, closing a card reduces your available credit limit, which can increase your credit utilisation ratio, another factor that may negatively impact your score. So, before closing any account, understand the effect on your credit score.
3. Myth: You need to carry a balance to build credit
Truth: Having a balance isn’t required to build credit, and it may cost you money in the form of interest.
What truly matters is making on-time payments. Paying off your balance in full each month is one of the smartest habits to adopt when you want to improve credit score and maintain financial discipline.
4. Myth: All credit inquiries hurt your credit score
Truth: Only hard inquiries have the potential to reduce your credit score slightly, and even then, the impact is often minor and temporary.
Soft inquiries, like checking your credit yourself, employer checks, or pre-approved offers, do not affect your score. So, if you’re wondering does checking credit score lower it, rest assured, it doesn’t.
5. Myth: Income is part of your credit score
Truth: Your income is not included in your credit score calculation. The credit report includes information like your repayment history, credit utilisation, length of credit history, types of credit, and new inquiries.
While income is considered during the loan approval process, it doesn’t directly affect your credit score.
6. Myth: One late payment won’t affect your score
Truth: Even a single missed or late payment can negatively impact your credit score. Your payment history contributes significantly to your score, so being consistent with EMIs and credit card payments is key.
To avoid this, set up auto-debits or reminders and keep track of due dates to improve credit scores over time.
7. Myth: You only have one credit score
Truth: Different credit bureaus may generate different scores for you based on their scoring models. So, if you check your credit score on various platforms (like CRIF, CIBIL, or Experian), you may notice variations.
All scores reflect the same fundamental credit health, so don’t worry about small differences.
8. Myth: Debit card activity affects credit score
Truth: Debit card transactions have no influence on your credit report or score. Since you’re using your own money and not borrowing, your bank’s debit card activity won’t help (or hurt) your credit score.
To build or improve credit score, it’s necessary to use and manage credit products such as credit cards, loans, or EMIs responsibly.
9. Myth: Paying off a loan immediately boosts your score significantly
Truth: While paying off debt is a good move, the boost to your credit score may not be instant or dramatic. In fact, closing a loan can sometimes cause a slight temporary dip in your score due to reduced credit mix or credit history length.
Still, paying off debt is healthy in the long term and contributes positively to your credit report.
10. Myth: Credit scores are permanent and unchangeable
Truth: Your credit score is dynamic. It changes based on your financial behaviour. Missed payments, high utilisation, new loans, and inquiries can bring it down, while consistent on-time payments and low balances can help you improve credit score steadily.
So, if your score is currently low, don’t worry. It can be rebuilt with responsible credit habits over time.
Final Thoughts
There are many misconceptions surrounding credit scores. Believing in credit score myths can hold you back from taking the right steps to build a healthy financial future.
Here’s what you can do:
- Check credit score regularly from trusted sources like official credit bureaus.
- Don’t fear inquiries, but avoid applying for too much credit too quickly.
- Don’t close old cards just to “clean up” your report.
- Focus on long-term good behaviour like timely payments, low balances, and a responsible credit mix.
Understanding the facts behind the credit score myths will not only protect your financial reputation but also help you make smarter money decisions. Now that you know better, go ahead and take control of your credit health.
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