5 Most Common Myths About Credit Score

 

We all have heard that having a good credit score is essential for getting easy approval on a loan. It could play a vital role in making the financial picture a perfect one yet there are so many misconceptions regarding it that affects it. Speaking of taking an instant personal loan online paperless is what anyone in a financial need would prefer. But getting that is bound with some clauses. A credit score is one of them. Also, people looking forward to borrowing a loan get confused with a few myths. Here is the truth behind the 5 most common myths people have regarding credit score.

1.    Myth: Checking credit score lowers it.

Reality: It’s not true. Checking for credit score does not lower the score. It may be that people are doing it just for the sake of awareness. Though, checking for a credit card and applying for it can pull down the credit score yet temporarily.

 

2.    Myth: One only has 3 credit scores.

Reality: Any person usually has 80 credit scores which are way more than 3. So this is a misconception. All different credit scores are noted for different reasons. Though all of them are observed collectively too it is always a matter of specific purpose before approval on a personal loan. For example, the insurance companies observe the credit score for checking the risk of someone filing for a claim. These are also evaluated to check the chance of bankruptcy or a person getting insolvent.

 

3.    Myth: Spreading balances can increase the credit score.

Reality: The credit score is always a collective measure. By gathering all the financial information about every account and credit card the score is attained. So if one plans to spread debt balances on multiple credit cards it doesn’t help in getting a good credit score, rather it lowers the score. The fewer account and debt balances are the things that work for managing the credit score. This is also a reason why “Debt consolidation” pulls up the credit score and people do it before going for a new loan.

 

4.    Myth: Paying off debt increases the credit score.

Reality: It is a half-truth. When talking about a credit card debt, this the truth. But, it does not work for a long-term loan paid back in installments such as student loans, etc. Paying off a long term loan will lessen your credit accounts, like paying off a secured loan completely. Whereas, an unsecured loan like on credit cards are considered good for credit score.

 

5.    Myth: Credit scores are used for pre-employment screening.

Reality: Credit score and credit report are the two different terms that are interchangeably used by many. Yet, they both are different from each other. An employer may have access to the credit report that too with overt permission but employers can’t access credit scores, they are confidential information.

Credit scores indeed wield a lot of power yet they are overstated many times. Credit scores could affect the chances of getting a loan, deciding the quantum of loan, insurance premium, rate of interest on the loan, etc. But they work positively if the financial instruments and debts are planned well.

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