Many people have many misconceptions about credit cards and credit scores. These myths generally make you feel that you are right, but they have a negative impact on your financial security. There are many people who do not even try to know more about the credit score due to many misconceptions such as higher salary people will have a higher credit score. It is important to know the right information about credit score for a better financial future. Let's take a look at some of these common myths.
Your income is the basis - Your credit score is determined by the details on your credit report, and your income is not included in this report. As a result, if your credit behaviour is poor, even if you have a salary of Rs 15 lakh, you will have a low credit score. Conversely, someone with a low income will have a higher credit score if they maintain a good credit history, such as paying bills on time and sticking to a balanced credit utilization. This highlights that income level doesn't directly affect your credit score; responsible credit management is the foundation.
Having a balance on your credit card can boost your credit score - if you keep a balance amount on your credit card, it's the amount you still have to repay, and in the long run, it can cause your credit score to deteriorate. Interest continues to be paid and so the money is lost. This balance influences your credit card utilization rate, which can lower your credit score, so make sure you clear your monthly dues promptly.
Don't worry about your student loans - it's not just your credit card payments that impact your credit score - timely payments on all bills, including utilities, student loans, mortgages, and medical bills, are critical. To avoid missing payments, consider setting up autopay mandates and checking to see if your student loan company is offering a discount on your interest rate if you enroll, as this will help improve your financial situation.
You can't improve your credit score - A credit score reflects your financial history, but a low score isn't forever. You can improve your score over time by developing good credit habits - following discipline and strategies can help you build a good score, which allows you to resist the bad reflection of past negative transactions. Typically, transactions will remain on your report for about three years, while details such as bankruptcy and payment defaults can last up to 10 years. However, you can improve your score by consistently managing your credit responsibly and demonstrating good financial behavior.
Closing old accounts can improve your score - Closing an old credit card or bank account can shorten your credit and financial history, which can have a negative impact on your credit score. A long credit history gives lenders a clearer picture of your credit behavior, so remember that closing an account can save on annual fees and reduce the risk of fraud; it can also lower your score. Of course, accounts that have been open for a long time and have high credit limits but a low balance can positively impact your credit score.
Applying for a new credit card will reflect poorly on your credit score - If you are planning to apply for a new credit card, for better benefits, you need not fear its impact on your current credit score. But you should also avoid taking out new cards on a regular basis because, every time you apply, you'll make an inquiry on your credit report, and multiple inquiries in a short period of time will indicate financial difficulties and lead to a lower score. Therefore, it is advisable to apply to a reputable service provider instead of applying for multiple possible cards.
