Common Credit Score Myths and the Truth Behind Them

A credit score is one of the most important factors in a person's financial life. It influences loan sanctions, rate of interest, and credit card approval. Despite its importance, there is a considerable amount of misinformation circulating about how credit scores actually work. While some of these myths are harmless, others can cause people to make decisions that can genuinely damage their financial standing.

Table of Content

• Myth 1: Checking Your Own Credit Score
• Myth 2: Your Annual Income Determines Your Credit Score
• Myth 3: Closing a Credit Card will Improve the Credit Score
• Myth 4: Paying Off All Debts Boosts Your Credit Score
• Myth 5: Your Spouse’s Credit Score Affects Yours
• Myth 6: You Only Have One Credit Score
• Myth 7: Co-signing Has No Effect on Your Credit
• Myth 8: A Low Credit Score Means Automatic Loan Rejection

Myth 1: Checking Your Own Credit Score

It is a common misconception that checking your credit score will harm your credit score. This is not true. When you check your credit score, it does not harm your credit score in any way. The only time your credit score may be affected is when a bank checks your credit score for a loan application. This is known as a hard inquiry and may bring down your credit score if multiple hard inquiries take place within a short span of time. It is recommended that you check your credit score frequently so that you can keep track of your progress and rectify any errors that may have crept into your credit report.

Myth 2: Your Annual Income Determines Your Credit Score

It is a common myth that a person’s annual income and credit score are related in some manner, which is not true. Your credit score is calculated based on the credit report and does not take into account the annual income at all. This means that a person with a low credit score may have a high annual income and vice versa. What affects your credit score is your ability to clear your dues and your credit utilisation pattern and understanding how much credit score is good helps set a clear target.

Myth 3: Closing a Credit Card will Improve the Credit Score

Many people believe that closing their unused credit cards will help their finances. But doing so can have the opposite effect. Your credit utilisation ratio increases when you close a credit card because your credit limit decreases, and your credit score decreases when your credit utilisation ratio rises. So, it is advisable to keep the credit cards active, except for cases where the card costs high fees or the card creates actual security threats.

Suggested Read: Different Credit Score Ranges and What They Mean

Myth 4: Paying Off All Debts Boosts Your Credit Score

Paying off debt provides financial benefits, but its effect on your credit score will take time to show because it needs to be measured through a complex process. Credit scores are calculated using multiple factors, such as payment history, credit utilisation, account age, and credit mix, not just the presence or absence of debt. Paying off a loan closes an account, which can actually reduce the diversity of your credit portfolio. The score may gradually improve but most people believe that their score will rise immediately after they pay their bills.

Myth 5: Your Spouse’s Credit Score Affects Yours

Marriage does not combine the credit histories. A person’s credit score remains unaffected by their marriage status. The credit score of a person results from their payment history assessment, and even having a joint bank account cannot merge your credit score with your spouse. The credit scores of both partners are evaluated separately when they apply for a shared loan because their payment history for the loan affects both partners’ credit scores.

Myth 6: You Only Have One Credit Score

People face confusion when they see different credit scores on various platforms but it is normal. Different lenders submit financial records to different credit bureaus, and since lenders are not required to report to all bureaus, your report may differ with each one. CIBIL, Experian Equifax, and CRIF High Mark are the credit bureaus that operate in India and they maintain their own records. So, there are minor differences between them. 

Suggested Read: Why Credit Score Is The Only Number You Should Be Concerned With

Myth 7: Co-signing Has No Effect on Your Credit

The act of co-signing a loan for someone else is not a passive gesture. When you co-sign a loan, the loan details will appear on your credit report as they appear for the primary borrower. The default of the primary borrower will result in a credit score penalty for you. Your overall debt obligation increases, which will affect your ability to obtain loans in the future. The process of co-signing requires the same level of caution as any personal loan obligation.

Myth 8: A Low Credit Score Means Automatic Loan Rejection

A low credit score makes borrowing harder, but it does not always result in outright rejection. The credit score is one of the important factors considered by lenders, but there are others too, such as age, income, and nature of work, that can help you secure a loan. There are many lenders which may offer you a loan despite low credit score. Knowing how much credit score is good before applying will help you approach the right lender.

Understanding about credit score myths is important to make sound financial decisions. To have the best CIBIL score range make timely repayments, use credit responsibly, and regular monitoring the credit report.

Once you have a good credit or CIBIL score in place, the next step is to ensure that you get the right lending partner. Muthoot Finance is India’s No. 1 Most Trusted Financial Services brand*, offering personal loans, gold loans, and business loans with easy repayment schedules and minimal documentation. Their structured EMIs and a customer-friendly approach ensures that responsible credit behaviour and stability go hand in hand.