You know your Credit Score facts but are you aware of some of the misnomers about Credit Score floating around? Let’s take a look.
By now you must be aware of the importance of having a good Credit Score. Not only does this three-digit number reveal a lot about your financial health, it also improves your chances of loan approval. When you submit an application for a loan or Credit Card to a bank, your Credit Score is what the bank considers first. However, for every Credit Score fact, there is an equal number of Credit Score fallacies abounding in the market. Let’s take a look and debunk them one by one:
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Fallacy: A Low Credit Score Will Cause Permanent Damage
While it is true that a low Credit Score will cause significant damage to your financial health, it will pose a risk to your creditworthiness at a certain point of time. It is unlikely to bear far-reaching consequences on your credit profile, unless you’re not taking necessary steps to handle your credit better. Paying your dues on time, every time and keeping your debts at manageable levels are some of the ways you can improve your Credit Score. At any rate, banks will only fetch your most recent credit report from the credit bureau to decide the fate of your application. A negative/low score in the distant past is unlikely to be taken into consideration.
Additional Reading: How Divorce Can Seriously Hurt Your Credit Score
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Fallacy: Your Credit Score Will Decide If You Will Get Credit Or Not
The importance of your Credit Score can’t certainly be ruled out when it comes to deciding the fate of your loan or Credit Card application. However, to attribute the success of your application to your Credit Score entirely will be a mistake. Lenders don’t just take into account your Credit Score while reviewing your application, they look at several other factors as well- your debt-to-income ratio, your employment history, your borrowing history etc. Banks also have their own underwriting policies and despite doing well on all these counts, they might still decide to reject your application.
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Fallacy: Your Credit Score Infringes On Your Privacy
A Credit Score is nothing but a numerical representation of your credit profile. Credit Bureaus look at the same information that banks look at while reviewing your application-your borrowing history, your outstanding debts, your credit accounts etc. Credit bureaus don’t fetch any information that puts your privacy and identity at risk.
Additional Reading: Can Credit Card Companies Reduce Your Credit Limit Without Warning?
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Fallacy: Your Credit Score Drops When You Apply For Credit
You’re not entirely mistaken if you think so. Your Credit Score does dip a little when you submit multiple Credit Card applications within a short span of time. The end result is banks make multiple requests for your credit report information that reflect in your credit report as “hard inquiries”. Hence, it’s a good idea to space out your Credit Card or loan applications and keep your applications to the minimum at a time.
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Fallacy: A College Degree Means A Higher Credit Score
Unlike what most imagine, your college degree or education has no bearing on your Credit Score. In fact, as long as you have a stable income and your debt-to-income ratio is under permissible levels, your designation or rank doesn’t have any impact on your Credit Score. The only thing that matters is how you manage your credit. If you’re acing it on that front, you don’t need to worry even if you’re a college dropout.
So were you harbouring any myths of this kind about your Credit Score? Tell us in the comments below! Now is a good time to also catch up with your Credit Score if you haven’t touched base for a long time!