Six Credit Score Myths

Let’s face it. Credit scores are bugbears. Due to their opaque nature, credit scores are often misinterpreted and misunderstood.

I didn’t know just to what extent until I began working on P10, and I had more conversations with people around me on personal finances.

Very often, in the course of a conversation, people offered suggestions or made statements based on deep convictions. My problem was many of them were not based on facts.

“I have been promised a pay raise. Phew, at least now my credit score will go up!” said a visibly relieved cousin.

“My credit score? Nothing to write home about but at least my wife has a strong credit score,” explained a friend.

No, your income does not affect your credit score.

Nope, your spouse’s credit score does not affect yours.

And these are not even the most common things that people told me.

The conversations were eye-openers, and led me to this post.

Here, I list six of the most common ones, and I give you the truth.

“Don’t check your credit score frequently. It lowers your credit score”

The short answer? No, it doesn’t. Monitoring your credit score helps you build your credit score the right way.

Now, for the long answer, and this is important. Checking your credit score falls under a ‘soft inquiry’, aka ‘soft pull’, which happens when you pull up your credit history for a quick check. That doesn’t have an impact on your score.

A ‘hard inquiry’ or ‘hard pull’ typically occurs when you apply for a loan, and the lender does an in-depth examination of your credit report. More importantly, the action is recorded on your credit report. The more hard checks you have, the more lenders suspect your finances are shaky.

“Multiple loans damage your credit score”

No, they don’t. Your credit score is dependent on your ability to repay loans and not on the number of loans that you have. Keep track of your loans, pay them off on time, and you are golden.

“I don’t have to worry about credit scores until I am older”

This from a 24-year-old who was entering his first job. You are eligible for credit when you turn 18 and have a minimum monthly income of Rs 20,000-25,000 depending on the lender. It’s simple. If you have credit, you have a credit history. Start tracking as soon as you do.

“Clearing all my credit card dues will erase the damage done by late payments”

A missed payment cannot be corrected. Being late on your payments affects your credit score, and it cannot be undone by paying the remainder of your dues. Your credit report looks at your recent payment history and prompts you to continue paying on time, and gradually you can see your credit score improving.

“Comparing loan amounts from multiple lenders is not good for my credit score”

You should totally shop around for loan estimates before you decide on one. It’s the wise thing to do. What you shouldn’t do is apply for multiple loans and risk being rejected. Multiple loan applications place you in the risky category and can harm your credit score.

“Using a debit card can help build my credit score too”

Debit cards and credit histories are not related at all. To build and work on your credit history, you need a line of credit. A credit card or a loan is what you need to make changes to your credit score.

Getting the hang of it? Now, it’s your turn to do some myth-busting. Go spread the truth, you newly wise ones.

Now that you know the facts about credit scores, it might be a good idea to see where you stand. Check your credit score for free on P10 now by downloading the app. That’s free too.