Debunking 5 widely-held myths around credit scores (2024)

On the contrary, the score went south. One would wonder why is that the case? After discussing a credit consultant, he discovered that this (decline in credit score) happened because he exhausted his credit card limit, which adversely impacted his score.

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Let us understand more on these widely-held myths:

When you close a credit card, it improves your credit score: This is a myth while the reality is that when you close a credit card account, it can actually harm your credit score if it’s one of your oldest accounts or if it reduces your overall available credit limit. This happens when you increase your credit utilisation ratio, which may lower your score.

Checking the score hurts your credit: Although it is believed that when you check your own credit score, it hurts your score but it is considered a ‘soft inquiry’ and does not affect your credit score.

On the other hand, when lenders check your credit as part of a credit application then it can certainly have a minor negative impact on your score.

Impact of income: Against the perception, your income is not directly factored into your credit score. It is a different matter that the lenders do consider your income when determining your creditworthiness, it doesn't directly influence your credit score.

Joint accounts merge credit histories: In a joint bank account, both the account holders are responsible for the debt, however, their credit histories remain separate. Positive payment behaviour on a joint account can benefit credit scores of both parties, whereas negative behaviour can harm both scores as well.

Impact of closed account: Closing a credit bank doesn't remove it from your credit report all of a sudden. Closed accounts can remain on your report for a number of years, based on the type of account and payment history.

Frequently Asked Questions:

Is payment of debt enough to maintain a good CIBIL score?

Paying off debt is indispensable to maintain a good credit score. However, it is a responsible financial management that leads to a good CIBIL score.

How does hard inquiry impact your CIBIL score?

Each new credit application results in a hard inquiry on your credit report, which can temporarily lower your credit score.

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How does keeping old accounts open help in maintaining good credit score?

Closing old accounts can shorten your credit history, which may lower your score. So, one might as well keep them open.

What is the case with joint bank account? Do credit histories get merged as well?

In a joint bank account, both the account holders are responsible for the debt, however, their credit histories remain separate.

Would closing a credit card improve credit score?

This is a myth whereas the reality is that when you close a credit card account, it can actually harm your credit score if it’s one of your oldest accounts or if it reduces your overall available credit limit.

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Published: 15 Mar 2024, 10:36 AM IST