Debunking 5 widely-held myths around credit scores

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credit scores, some of which can lead to misunderstandings about how credit works. For example, when 29-year-old Ajay Jain, a software engineer based in Noida, got a promotion last year to ‘Software Lead’ with a 30 percent salary hike, he assumed that his credit score would also see a spike. Sadly it did not happen.

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. ALSO READ: How to ensure a good interest rate on your personal loan? Here are 3 primary ways 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