- Credit score myths are forcing errors from individuals and harming themselves
- If you don’t want to face such hassles, read this post that dispels such misconceptions
A credit score carries immense value for people wanting to apply for a loan or credit card. A good score of 750 and above makes the approval of loans or credit cards more of a formality. Whereas, scores below 650 or so make it tough for you to get approval. All these are true. But people carry some credit score myths too.
Many believe they can’t get a loan or credit card if they don’t have a credit history. That is not true! Similarly, there are other myths that people carry with them and end up either committing an error or losing out on the opportunity. To ensure you don’t find yourself at either of these ends, we have busted some common credit score myths that many carry with them, in this post. So, read on!
Myth 1 – Loans/Credit Cards Not for Those Who Don’t Have a Credit History
They say, “Half Knowledge is Dangerous”, and rightly so! Before sanctioning a loan or credit card, lenders check your credit history and see how efficiently you have handled debts. But that does not mean you can’t get a sanction if you don’t have a credit history. Home loans, for example, don’t require credit history or credit score for approval. It’s a secured loan that you get by having the home mortgaged. Similarly, there are other secured loans such as gold loan, loan against shares, loan against mutual funds, loan against fixed deposits that you can get without any credit history. What a good credit history can do though is lower your interest rates.
And not only secured loans, but you can also get personal loans and credit cards, which are unsecured in nature. Yes, the approval will be contingent on fulfilling certain conditions. These conditions include having a salary account with the lender for long, working in a reputed company for quite a few years, etc. Plus, there are consumer durable loans where credit score norms are not that stringent.
Myth 2 – Closing an Old Credit Card Can Increase the Credit Score
Handling multiple credit cards can be a tricky task. To reduce the burden, many cancel their old credit cards. But what’s worrying is that they believe it can help increase their credit score as they will be able to pay bills on time now. This credit score myth can undo all hard work you may have done paying dues on your old cards for a long time. Let’s check how. Closing an old credit card account can reduce the length of credit history, which is vital for a good credit score. Plus, the credit utilization ratio will go up with the same. The credit utilization ratio is ascertained by adding all the outstanding balances and dividing the resultant sum by the number of credit cards. So, when you close a credit card, the number of credit cards will come down, which will increase the utilization ratio and decrease the score in the process. If you want to close the credit card, close the new one having a lower limit.
Myth 3 – Credit Score Updates Every Month
Many believe credit scores update every month and that is not true at all. This credit score myth can unnecessarily cause anxiety in you. Actually, lenders report about your loan or credit card payment within 30-45 days. Further, the bureau takes a month or so to update your credit score. So, it takes around 2 months or so for a new credit score to get updated. In case you are paying your loan EMI late by a few days, it will not decrease your credit score. But ensure you pay on time. Because good credit habits are very hard to inculcate and maintain.
Myth 4 – Credit Score Will Decrease If I Pull My Credit Report
This credit score myth is also quite common among people. Most believe checking their credit report will bring down their credit score. When you pull your credit report, it becomes a soft credit enquiry and doesn’t affect the credit score. The score comes down when you apply for multiple credits frequently. This is because the lenders pull your credit report frequently and that is called hard credit enquiry. It can decrease the score.
Myth 5 – Closure of Loan or Credit Card Will Disappear from the Credit Report the Moment it happens
This credit score myth, if you are carrying, can surprise you, be it pleasantly or the other way round. Closing a loan or credit card account does mean your liability is over. But your credit report will have the repayment details of all these credit accounts till the time they are supposed to. Normally, such details remain in the credit report for around 7-10 years from the time of closure.