Credit score: Whether you are applying for a car loan, a home loan, personal loan or even for a credit card, commercial banks tend to check your credit worthiness. This is measured by a three-digit number between 300 to 900 known as a credit score. There are numerous factors which influence your credit score. These include your payment history, overall credit mix and credit utilisation ratio (CUR) and not on other avoidable factors such as whether you hold a credit card or not.
There are a number of misconceptions which GenZ and youngsters hold about the credit score. Here, we try to bust these beliefs.
These are some common misconceptions which deserve to be busted:
I. Credit scores refer to how much debt you have: While debt holds significance, the rate of credit utilisation, the payment history, and account age are more important.
II. Discontinuing old accounts strengthens your credit score: On the contrary, it can hurt your score by shortening your average credit history and raising your credit utilisation ratio.
III. Missing one payment does not matter: This is untrue. One missed payment can adversely hamper your score, particularly if you are starting out. Payment history is a key factor (nearly 35 per cent of score).
IV. You only need one credit card: While one card is fine to start with, having a mix of credit types and a long credit history can help boost your score in the long run.
V. Debit cards also help in score: Debit card activity is not reported to the likes of credit CRIF High Mark. It’s only credit products such as credit cards and loans which affect your score.
VI. Checking your own score hurts it: This is known as soft inquiry and it has no impact on your score. It’s only hard inquiries which can impact it, albeit slightly.
Disclaimer: Mint has a tie-up with fintechs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
