Credit Score Myths vs. Facts

Zeeshan and Ghani, old college buddies, finally reunited after years of being apart. They reserved a corner of a café in Delhi, reminiscing the good old days. As they sipped their favourite beverage, the conversation took an unanticipated turn when the topic concerning credit scores came up. 

Ghani, always the more financially conscious of the two, couldn’t help but bring it up. “Zeeshan, you won’t believe how crucial Experian credit score, CIBIL credit score and Equifax credit score are in today’s world. They can make or break your financial future.”

Zeeshan, looking slightly puzzled, responded, “Really? I have heard a few things regarding credit scores, but it is very confusing. 

With a knowing smile, Ghani began to unravel the mysteries of credit scores, sharing some common myths and their associated facts.

A high income guarantees a high credit score

Fact: Ghani clarified that income and credit score are not directly related. Your credit score primarily depends on how responsibly you manage your debts and financial obligations, regardless of your earnings.

Checking my credit score will lower it

Fact: Ghani explained that checking your own credit score, known as a soft inquiry, has no impact on your credit score whatsoever. In fact, it’s a responsible financial practice to regularly monitor your credit score to stay informed about your financial health.

Also Check: Equifax Credit Score

Closing old credit accounts will boost my score

Fact: Zeeshan learned that closing old credit accounts might actually harm your credit score. Your credit history length matters and older accounts may have a positive effect on your score. Thus, it is often recommended to keep them open in the case of a strong standing. 

My Equifax score is good, so my Experian score will even be the same

Fact: Ghani explained that Experian and Equifax are different credit bureaus with distinct scoring models. Thus, it is normal for scores to differ a bit between these bureaus as they might have distinct info regarding your past credit behaviour. 

Credit cards are not required to form a score

Fact: Ghani stated that though credit cards are a very common instrument, other credit forms such as mortgages or loans even contribute to creating your past credit record. A diverse mix of credit can positively impact your score. 

Settling debts for less than I owe won’t affect my score

Fact: Zeeshan learned that settling debts for less than the full amount can have a negative impact on your credit report. It might be reported as a partial payment, which can be viewed as a negative item on your report and potentially affect your credit score.

I’m too young to have a credit score

Fact: Ghani assured Zeeshan that building credit could begin as soon as he turned 18. This can be attained by availing a credit card. 

My score does not matter if I do not plan to borrow any funds in the future

Fact: Ghani made it clear that credit scores have broader implications than just borrowing money. Landlords, employers, and insurance companies may check your credit score when making decisions. A good credit score can benefit you in various aspects of life beyond borrowing.

Closing a credit card immediately erases its history

Fact: Zeeshan learned that even after closing a credit card account, its history still contributes to your credit report. Details like the account’s payment history, credit limit, and other factors are still considered when calculating your credit score. Therefore, closing a credit card doesn’t erase its history.

Applying for multiple credit cards at once is harmless

Fact: Ghani warned Zeeshan that making multiple credit card applications in a short period can lead to multiple hard inquiries on your credit report. These inquiries can signal to lenders that you are seeking credit urgently, potentially lowering your credit score.

Paying off a debt removes it from my credit report instantly

Fact: Ghani explained that it might take some time for paid-off debts to reflect positively on your credit report. Your credit report typically shows your payment history, and consistency in making on-time payments is key to improving your credit score over time.

I can’t improve my credit score if I have a bankruptcy

Fact: Ghani assured Zeeshan that while bankruptcy is a significant negative mark on your credit report, it’s not the end of the road. With responsible financial behaviour, such as making timely payments and managing credit wisely, you can gradually rebuild your credit score over time.

I can’t dispute errors on my credit report

Fact: Ghani clarified that you have the legal right to dispute any inaccuracies on your credit report. It’s essential to review your credit report regularly and take action to correct any errors promptly.

My credit score is affected by my spouse’s score

Fact: Zeeshan learned that while your spouse’s credit score doesn’t directly impact yours, it can indirectly affect your ability to get joint loans or credit cards. Lenders often consider both applicants’ credit scores when making lending decisions for joint accounts.

It is not possible to have a perfect score

Fact: Zeeshan was pleasantly surprised to learn that while achieving a perfect credit score is challenging, maintaining an excellent score is entirely possible with responsible financial management. This means consistently managing credit, making payments on time, and maintaining a good credit history.

Carrying a small balance on my credit card helps my score

Fact: Ghani explained that carrying a balance on your credit card doesn’t necessarily improve your credit score. In fact, it is better to pay your credit card balance in full each month, as consistent on-time payments are more important for your credit score.

Credit scores are only based on my credit card usage

Fact: Ghani emphasised that credit scores consider various factors, not just credit card usage. Your payment history, credit utilisation, types of credit accounts, length of credit history, and recent credit inquiries all play a role in determining your credit score.

Once my score is low, it’s impossible to recover

Fact: Ghani shared inspiring stories of individuals who had successfully rebounded from low credit scores by diligently managing their finances. He emphasised that recovery is indeed possible with time and effort, and taking proactive steps to improve your credit can make a significant difference in the long run.

My credit score can never change quickly

Fact: Zeeshan discovered that positive changes in credit scores can indeed happen more quickly than he thought. For instance, paying off a high credit card balance or resolving a delinquency can result in rapid improvement in your credit score.

As Zeeshan and Ghani continued their enlightening conversation, they realised that credit scores weren’t as mysterious as they once seemed. With each myth debunked and fact clarified, Zeeshan felt more confident about managing his financial future, knowing that he could make informed decisions to achieve his goals and dreams.