In today’s fast-paced lifestyle, you must have read in various magazines or heard about credit scores. Like it or not, credit score reports play a vital role in your financial life, especially when applying for a personal loan. A credit score is a three-digit number, and it defines the creditworthiness of an individual. Traditionally, banks and financial institutions check the credit score before approving a loan application. So, being a borrower, it’s highly essential to understand your credit valuation so that your loan gets instant approval while ensuring a favorable interest rate. An unhealthy credit score might lead your loan application towards rejection. Therefore, it’s advisable to check your credit report daily and ensure it remains perfect.
But there are a lot of misconceptions or myths surrounding credit scores that can hurt badly. Since this number is vital, let us help you understand what a credit score report is and how it works. Are you someone who believes in the myths and worried about checking the credit score, then this article is for you. We have listed the top 7 myths that will clear out all your misunderstandings and make your financial journey smooth and hassle-free. Read on!
What is a Credit Score?
A credit score is a number that determines the creditworthiness of a consumer that depends on their credit or transaction history. It gives a complete brief of borrowing habits, payment patterns, and the capability of paying off a loan to the lender. And based on all these, a lender decides whether you are eligible for a loan amount or not. The score ranges between 300 to 900. You can have the fastest loan approval if you have a 750+ credit score. There are multiple benefits of maintaining a good credit score report like a higher credit limit, the highest approval rate, a low interest rate on your loan or credit, and many more. And having a credit score between 300-400 means you have a lower chance of getting the loan approved and higher interest rates. That is the reason, you should always maintain the score by following a budget, controlling debt, and repaying credits on time.
Misconceptions About Credit Score Report
Myth 1: Checking Credit Score Will Bring Down Its Value
There is a big myth that checking free credit score reports will unfavorably affect their score and keep them away from looking into it. But that’s not true at all. There are two types of inquiries available for your credit score – soft and hard. Soft inquiries do not hurt your score as it involves instant personal inquest about credit score. While hard inquiries may hurt your score especially when you have a low credit score. So, if you are holding a bad credit score, then think twice before you apply for a loan because it may deduct a few more points and reject the loan application as well.
Myth 2: A Bad Credit Score Lasts Forever
Having a bad credit score doesn’t mean that it will stay with you forever. Over time, you can improve and build a good credit history. Following a few good practices will adieu to the low credit score and enhance it in the best manner. Usually, payment defaults are the main reason for having low scores. However, there is still a chance for improvement.
Myth 3: Credit Score Depends on Assets or Annual Income
A credit score doesn’t depend on your income at all. Well, you may have a good credit score with an income of 4 Lakh while with an income of 10 Lakh, you may not have a good score. So, it doesn’t matter how much you are earning when it comes to a credit score but managing the income in the right way does. Even if you never have applied for a quick personal loan, you might not have a score at all. But lenders always prefer a clean credit history.
Myth 4: Paying Off Debts Will Delete Transaction From Report
Don’t fall into this misconception that paying off a debt will delete the transaction history from the credit history. The truth is timely paying off impacts a huge on your credit score. It will show that you have effectively managed all your debts and will create a good impression on the lender. But if you miss any repayments, lenders will get to know that you don’t have finance control and may reject your loan application. So, be careful in repaying and all these.
Myth 5: Credit Score is the Only Key Element To Decide Your Personal Loan Approval
There is no doubt that credit score is an essential factor to approve your personal loan, however, it is not the only deciding factor. Depending on the lender, the approval process may vary on several aspects like income, stability, and many more. So, check the eligibility criteria before you apply for a loan.
Myth 6: An Agency Can Increase Your Credit Score
This is untrue. You will find many agencies that will convince you to improve your credit score overnight. But listening to them means you will end up spending more money. An agency can help you find errors in the report. So, if you don’t have time or proper knowledge about the errors, a credit agency can help you by doing the needful.
Myth 7: Takes Some Time To Enhance Your Credit Score
You might think that it may take a long time to boost your credit score. But that’s not the reality because the score gets updated every 30 days and shows your transaction activity in the report as well. So, in these 30 days make sure to repay your existing loan or credits to enhance your credit score.
Don’t believe in myths. If you have any doubt regarding your credit score, feel free to get in touch with the financial advisers. They will assist you with the right solution. Here are a few more tips that you can follow to maintain a healthy credit score –
- Pay your existing bills or debt on time
- If you have old credit cards, don’t close them
- Don’t apply for new credit or multiple loans in a short period
- Make sure you do a credit score check daily and report any errors to increase the score
Credit score plays a massive role in determining your creditworthiness. So, keep an eye on the score to maintain great financial health!