If the concepts are not understood properly, they may result into some myths. It is quite essential to know the truths before making any decision about something. Likewise, you may find some of the myths about credit scores too. Following are 8 myths about credit scores that you may come across & get to know the facts:
(1) Credit Score of 750 or more guarantees your loan approval
A person may think that having a Credit Score of 750+ guarantees his loan approval which is absolutely wrong. It is true that the lenders seek your Credit Score as it is readily available and shows your credit worthiness but they still consider other items such as your income, the company you work for, etc. Hence, having a Credit Score of 750 or more only does not guarantee your loan approval easily but it is certainly an influential factor in determining your loan eligibility and an important parameter in the loan approval process of the lenders.
(2) Availing no loan or credit card ensures the best Credit Score
It is assumed by many people that if they have not taken any loan and are not using any credit card, their credit scores are the best and the highest. This is absolutely wrong. In such a scenario, the Credit Bureaus will not get any data related to credit information about the people who do not have any debt and are unable to calculate their credit scores. Credit Score shows a person's capability to service any debt taken by him. In absence of the credit score the creditors may consider you a high risk creditor.
It is always better to have some debt or credit card and manage them properly by paying all the dues in time so that you can have a good credit score.
(3) Checking your Credit Score impacts your Credit Score negatively
There are two types of score checks one is "Hard Inquiry" and the other one is "Soft Inquiry". When a person or a creditor checks his credit score from any of the credit bureaus in order to know his own credit worthiness, it is called "Soft Inquiry". As it is used to review a certain part of any credit report, it does not impact his credit score adversely.
In case you apply for a loan from any bank and the bank requires your entire credit report from the credit bureau, it is called as a "Hard Inquiry". If there are multiple high inquiry of your credit score taking place then it may cause a small or temporary drop in your credit score.
(4) Surrendering Multiple Credit Cards will improve Credit Score
Sometimes it may come into your mind that if you have got multiple credit cards then it may hamper your credit score. At that time you may also feel that if you surrender majority of them then your credit score will improve which is wrong. As surrendering your credit cards will reduce your credit limit which ultimately increase your credit utilization ratio. As credit utilization ratio is a major factor in calculation of your Credit Score and surrendering too many cards at once can drastically change your credit utilization ratio, which can cause your credit score to drop.
(5) Regular and high income affects Credit Score Positively
Your income has no effect on your credit score no matter it is regular or high. Your income is not a part of your credit report and is not shown in your report. Income is not considered as a factor in the calculation of your credit score. As far as your income is concerned, it mainly affects your ability to pay your credit card bills or loan repayment in timely manner.
(6) Credit Score does not change for 6 months
Credit Score never remain fixed and can get changed on a daily or weekly basis as per your credit information received by the credit bureaus. Credit Bureaus keep receiving your credit related data from different banks, creditors and lenders from where you have taken any credit. Based on your credit servicing, these creditors send the data to the credit bureaus. So your Credit Score can never remain fixed for a certain period and it goes on changing from time to time. So it is always advisible to check atleast the free Credit Score or free CIBIL Score from time to time.
(7) Never Accept a Credit Limit Increase
When your bank offers to give you a credit limit increase, your credit score will not be hampered and you can accept the offer. Even if you are not usig the enhanced credit limit, a credit limit increase is not harmful. Increase in credit limit will result into decrease in utilization ratio and will help go your credit score up.
(8) One can never get a loan with a bad Credit Score
A person may assume that he can never avail a loan with a bad credit score which is not correct at all. Apart from Credit Score, lenders consider many factors before approving the loan to any applicant. These factors are income, credit history, current debt assumed by the applicant, whether the application has coapplicant, etc.
It is true that Credit Score is an important factor in the loan approval process and one can get loan very easily if he has a good credit score but it does not mean that a person with a bad credit score can not get a loan. People with bad or low credit score can get a loan, however, the loan will certainly have higher interest rate and require some collateral against it. Further, one may not bargain on the terms and conditions decided by the lenders.