6 credit score myths you need to stop believing to protect your money | Mint

It is important to understand and know about credit scores. So that one is financially healthy in India. Still, there are a few myths when it comes to credit scores which will end up costing you money. This write up is dedicated towards putting to rest some myths about how credit score can cost you money.

Will checking your credit score lower it?

One of the most common myths is that: Looking at your credit score will hurt your score. The truth is that an inquiry into your own credit score is a “soft inquiry” and will not negatively affect your score. Hard inquiries by lenders when you acquire new credit, however, will lower your score slightly. It is important for you to understand this clearly.

Will closing old accounts boost your credit score?

There is a myth that paying off old credit accounts is good for maintaining a credit score. Paying off accounts, however, can hurt your score. Paying off accounts lowers your overall credit limit and increases your credit utilization ratio, which hurts your score. It is wise to keep old accounts open to maintain a good credit history.

Will having multiple credit cards hurt your credit score?

Contrary to popular belief, carrying more than one credit card does not lower your score. In fact, having a few cards and managing them properly doesn’t hurt your credit score. The trick is keeping things clean and under control. Low balances, no defaults and on time payments on all accounts will keep your credit score healthy and your credit profile intact.

Will paying off debt right away raise your score?

Paying off debt is always good, but it won’t necessarily improve your credit score overnight. Credit-scoring models look at a wide variety of things, including payment history and credit utilization ratio to determine your credit score. Timely and consistent payments over a long period will do more to increase your score.

Is bankruptcy an indelible black mark on your credit report?

Bankruptcy definitely affects your credit score but it is not a lifetime penalty. It will still be on your report for decades, but its power will weaken over time gradually, as you keep showing good financial habits.

Will paying off debt remove it from your credit report?

Paying your debt does not necessarily remove it from your credit report. Your paid debts will stay for a certain amount of time, depending on the type of debt. Eventually, it is all about the credit profile of an individual. It is not just about one particular event. That is why your historical performance, consistent credit card repayment etc., are crucial in managing your debt matters here.

Therefore, these myths must be broken to succeed at financial planning. Knowledge of credit scores will enable you to make wise decisions and save money in the long run.

Keeping track of your credit report, credit profile and being smart with money will be one of many factors that will contribute to your overall well being financially.