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Journalism of Courage
A credit score is a vital measure of your creditworthiness, reflecting how well you manage your finances. Lenders use it to assess your repayment behaviour and financial reliability. A score of 750 or above is generally considered good, unlocking access to the best loans and credit cards at attractive rates. A low score, however, can lead to high interest rates or outright rejection, limiting your options. Despite its importance, credit scores are often misunderstood. Here are seven common myths that can mislead borrowers.
Many avoid checking their credit score, fearing it will drop. A recent study, covering over 1,000 respondents across Tier I–III cities, found that 45 per cent had never checked their score, and 75 per cent of them understood the concept but rarely engaged with it. Checking your own score is a soft inquiry and does not affect it; only a hard inquiry by a lender can lower it. You can safely monitor your credit but avoid multiple loan applications at once.
Many people believe that taking multiple loans is the only way to build a credit score. In reality, a loan can help, but you don’t need multiple loans to improve your score. In fact, applying for too many loans at once can actually hurt it. If your credit score is low or non-existent, getting a credit card is often a better starting point. Use it responsibly and pay your bills on time, and your score will gradually improve. Over time, this can also make you eligible for a better card with a higher credit limit.
It’s a common assumption that closing an old credit card will improve your score, but it can actually have the opposite effect. When you close a card, your total credit limit decreases, which pushes up your credit utilisation. For example, if you have two credit cards with limits of ₹1 lakh each, your combined limit is ₹2 lakh. Spending ₹70,000 a month across both cards keeps your utilisation at 35 per cent. If you close one card, your total limit drops to Rs 1 lakh. That same Rs 70,000 spend now raises your utilisation to 70 per cent, making you appear more credit-hungry and potentially hurting your credit history.
A credit score is not built overnight. If it drops due to reasons like late payments or multiple hard inquiries, you can still improve it. But, doing so requires consistent financial discipline. Simple steps, such as paying your credit card balance in full instead of just the minimum, can go a long way in rebuilding your score.
Another common myth is that avoiding loans automatically means a high credit score. That’s not the case. If you’ve never borrowed, your score is either zero or simply doesn’t exist. This can create problems when you apply for a loan, as lenders have no record of your repayment behaviour. With no score to assess, your application may be rejected.
Earning a high salary does not guarantee a good credit score. What matters is how responsibly you manage borrowed money. Even with a large income, missed credit card or loan payments can lower your score. On the other hand, someone with a modest income
can maintain a strong score by paying on time and managing credit wisely. Lenders focus on your repayment discipline, credit utilisation, and borrowing history — not your salary.
It’s a common belief that using a prepaid card can help you build your credit score. Prepaid cards work just like wallets. You load money onto them and spend only what you have. Since you’re not borrowing any money, there’s no repayment record for the credit bureau to track. On the other hand, credit scores are built on your borrowing and repayment behaviour. That means only credit cards, loans, or other forms of borrowed money impact your score. Your credit score is a snapshot of how you manage credit. Many myths and misconceptions can cloud your understanding of it. Knowing the facts helps you make smarter choices and safeguard your financial health.
The writer is CEO, BankBazaar.com
