6 credit score myths debunked: Separating fact from fiction

We are all aware that a credit score is an important metric for borrowers based on which they can secure a loan. However, there are quite a few myths linked to it. For instance, some people believe that checking your credit score would lower it. Also, there is a common perception that an increase in income is likely to improve the score. Well, these are just myths. And there are more.

Here, we try to bust them by putting them in perspective.

Credit score myths: Fact from fiction

I. Checking your score would lower it: Fetching your credit report leads to a soft inquiry, which has no impact on your credit score. It is only when a bank or a lender checks it for disbursing a personal loan that it leads to a hard inquiry.

II. Increase in income equals increase in score: Credit score is computed based on your credit history and behaviour. Someone with a high income may have a poor score, and conversely, someone with a low income may have a higher score.

III. Keeping a balance on your credit card each month is good: Again, this is incorrect. It is recommended to clear all your credit card dues every month. When you keep a credit balance above 30% of your credit limit, it reflects badly on your credit score.

IV. Marriage will lead to merging of credit score: Although bizarre, some people believe that marrying leads to merging of credit score with your spouse's. The only impact of marriage on your credit score is that joint accounts and debts reflect on your credit report.

V. Debt is bad for credit score: Although debt should be taken only when it is essential but not all loans are bad. Some debts, such as student loans and mortgage, are good for building your credit score when paid on time.

VI. There is only one credit score: Although credit scores in India fall within the range of 300 to 900, different credit information companies in India (CIBIL, Experian, Equifax, and CRIF High Mark) follow their different algorithms.

So now that you are aware of these myths, you may take some constructive steps to build it over time without being bogged down by your own false perceptions.

Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.