You will often come across a situation when elders will try to advise you about your finances. However wrong financial knowledge can do more harm than good especially the ones related to credit score. If you do not know about the accuracy of some information do not pass it as true. Few statements that you may commonly hear are myths about credit score and credit reports. Let’s try to burst some of these myths:
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A credit report consists of a detailed summary of your credit history, repayment history, bill payment details, account transactions and much more. The financial institutions consult the credit reports before approving credit applications. On the other hand, credit score is a numerical representation of this data. Since credit reports encompass important information credit sore is not the only thing you should check on your credit report. While going through your credit report check information carefully and track if there is any error or faults.
See Also: Credit Score India
People often believe that the level of income affects credit score. It is a popular belief that credit cards are meant for individuals with high income. But you will be surprised to know that credit score does not get affected by income. When the credit report is prepared income is not even considered a parameter. The only way income can affect your credit score is when you fail to make timely payments of dues. In this case, non-payment of dues may result from various reasons and income cannot be solely blamed.
Most people do not check their credit report on the pretext that it might ruin their credit score. This is a big myth about credit score. No person is penalised or prohibited for checking their credit scores. There are two types of credit enquiries that help users know their credit status namely hard enquiries and soft enquiries. Soft enquiries can be conducted through the websites of aggregators who provide a free credit score. You can also conduct a soft enquiry on your net banking account which may be subjected to some minimal charges. Soft enquiries does not affect on your credit score at all. However, hard enquiries made by banks can lead to a negative impact on your credit score.
See Also: Free Credit Score
Credit scores are calculated by credit rating agencies by considering various factors like repayments history, credit utilization ratio, past loans, unpaid dues or loan defaults. While factors like timely repayment of loan or credit utilization ratio below 40% of the credit limit help you to boost your credit score, certain other factors like unpaid dues, or defaults on loans hurt your credit health badly. But if you have never availed a loan or used a credit card then you are a person with no credit history. A person with no credit has the same chances of getting new credit as a person with a bad credit score.
Since credit utilization ratio plays a key role in the calculation of credit scores closing your old credit cards may negatively impact your credit score. Most of the credit rating companies keep a track of the age of your credit accounts and the transactions carried out in these accounts. The longer the credit history of these accounts the better it is for you.
The reason is credit rating agencies also consider the total number of credit cards and compare it with the credit limit. Now if you close these accounts your credit limit decrease but your expenses remain the same. With low credit limit, you may end up overspending on your credit card that may consequently decrease your credit score.
Many people believe that clearing old debts will improve their credit report as soon as it is repaid. This is a myth and you must be aware your credit history of unpaid dues will remain in your credit report for as long as 7 years. So if you have ever made a late payment of credit card dues or loan repayments then it cannot be removed instantly and will continue to stay despite the clearance of debt.
If you have an average credit score then you may face some loan rejection or have difficulty in applying for a loan but that does not mean you cannot have access to credit. People with low credit score have the option to avail secure credit by providing collateral. You can use various types of collateral such as FD certificate, asset, and property documents for getting a loan despite bad credit score as the collateral acts as the guarantee for the loan.
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