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Misconceptions about credit scores can block loan approvals. Learn five common myths and smart tips to improve your credit score and secure loans with ease
Misconceptions about credit scores can hinder loan approvals. (News18)
Many people assume that a good salary or prompt loan repayments guarantee loan approval. However, misunderstandings about credit scores often lead to loan refusals. Here are five common myths about credit scores that may be standing in your way:
Myth 1: A high salary equals a good credit score.
In reality, a high income alone does not guarantee a good credit score. Credit bureaux also assess your credit history, credit mix, payment behaviour, and credit utilisation ratio.
Myth 2: Checking your own credit score lowers it.
When you check your score personally, this is considered a soft enquiry and does not impact your score. It is hard enquiries, such as those made frequently by lenders, that may slightly reduce your score.
Myth 3: Closing old credit cards is beneficial.
Closing older credit cards can actually shorten your credit history and increase your credit utilisation ratio, which may lower your score.
Myth 4: Repaying your loan early will improve your score.
While repaying loans is positive, consistently making regular and timely payments is far more important for maintaining a good score.
Myth 5: Having no credit history means you are responsible.
Without a credit history, lenders cannot assess your reliability in repaying debts, which may work against you when applying for loans.
How To Boost Your Credit Score?
- Always pay EMIs and credit card bills on time.
- Keep your credit utilisation below 30%.
- Maintain your older credit accounts.
- Avoid applying for multiple loans simultaneously.
- Regularly check your credit report and correct any errors.
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