Credit Score Myths: Debunking Misconceptions for a Better Financial Future

Today, obtaining credit from financial institutions or a regulated NBFC, whether for a bike, car, house, or business expansion, is a standard growth strategy. However, your approval hinges more than ever on your credit profile. Your CIBIL or Experian score is a three-digit number reflecting your creditworthiness.

Despite its importance, many borrowers are misled by common credit score myths. Misunderstanding how these scores are calculated can lead to poor financial decisions. This guide explores the truth behind credit score misconceptions and provides the credit score myths and facts you need for effective credit management.

What Is a Credit Score and Why Does It Matter?

A credit score is a numerical summary of your credit history, typically ranging from 300 to 900. Lenders use this number to evaluate the risk of lending to you. A good credit score (typically 750+) ensures access to loans with faster approvals and lower interest rates. Under the RBI Credit Information Reporting Directions 2025, lenders now report your data fortnightly (every 15 days), making real-time credit management essential to avoid sudden score drops.

Key Factors That Influence Your Credit Score

Understanding what truly impacts your score is the first step to debunking common credit score myths:

• Payment History (35%): Timely payments of EMIs and credit card bills. Even a 30-day delay can now impact your report within two weeks due to increased reporting frequency.
• Credit Utilization Ratio (30%): The percentage of your available credit limit currently in use.
• Length of Credit History (15%): The age of your oldest active credit account.
• Credit Mix (10%): The variety of credit products you hold (secured vs. unsecured).
• New Credit Inquiries (10%): Frequency of recent credit applications.

Common Credit Score Myths Debunked: Facts vs. Misconceptions

Myth 1: Checking your own score lowers it

The Fact: This is among the most frequent credit score misconceptions. Checking your own score is a "Soft Inquiry," which has no impact on your rating. Only "Hard Inquiries" made by lenders during a loan application can cause a temporary dip. Under the CICRA Act, you are entitled to one free full credit report from each bureau annually.

Myth 2: Income and bank balance affect your credit score

The Fact: Your salary, savings account balance, or investment portfolio size are not part of your credit report. A person earning ₹50,000 can have a higher score than someone earning ₹5 Lakh if their repayment discipline is superior. Bureaus only track credit behavior, not asset wealth.

Myth 3: Closing old credit cards improves your score

The Fact: Closing an old account reduces your "Credit Age" and your total available credit limit. This often leads to a spike in your credit utilization ratio, which can actually lower your score. Lenders prefer a long, stable history of managed credit.

Myth 4: Debts disappear from the report once paid

The Fact: While paying off debt is vital, the history of that account remains on your report for several years (typically 7 years). However, its impact diminishes as you build a newer, positive track record. "Settled" accounts remain a red flag compared to "Closed" or "Paid in Full" accounts.

Myth 5: A low score means you can never get a loan

The Fact: While a low score (below 700) makes it harder, many regulated NBFCs offer specialized products for those looking to rebuild credit. Additionally, applying with a co-applicant or providing collateral can improve your chances. However, expect higher interest rates as a risk premium.

Myth 6: Marriage merges credit scores

The Fact: Your credit score is tied to your individual PAN. Getting married does not combine your score with your spouse's, though joint loan applications will evaluate both profiles independently. A spouse's poor credit only affects you if you apply for joint credit.

Myth 7: Paying the 'Minimum Due' on credit cards is enough

The Fact: Paying the minimum prevents a "late fee" and "default" status, but the remaining balance accrues high interest (often 36-42% p.a.) and keeps your credit utilization high. Standardized RBI rules 2025 require the minimum due to be at least 5% of the principal plus all interest/fees to prevent debt traps.

How Credit Inquiries Affect Your Credit Score

• Soft Inquiries: Occur when you check your own score or when lenders perform pre-screened offers. These do not affect your score.
• Hard Inquiries: Occur when you apply for credit. According to CIBIL data, multiple hard inquiries in a short period (under 30 days) can signal "credit hunger" and may reduce your score by 5-10 points per inquiry.

Tips for Improving and Maintaining Your Credit Score

1. Automate Payments: Ensure you never miss a due date.
2. Keep Utilization Low: Aim to use less than 30% of your credit card limit.
3. Monitor for Errors: Under the RBI 2025 Framework for Compensation, bureaus must resolve report errors within 30 days. If they fail, they must pay the consumer ₹100 per day of delay.
4. Maintain Old Accounts: Keep your oldest cards active to preserve your credit vintage.

Conclusion

Mastering your financial health requires moving past credit score misconceptions. By understanding the credit score myths and facts, you can navigate the lending landscape with confidence. Before applying for your next loan, take a moment to check your CIBIL score. At Hero FinCorp, a regulated NBFC, we are committed to transparent lending and helping you achieve your goals through informed financial choices.

Frequently Asked Questions (FAQs)

Does Checking My Credit Score Lower My Credit Rating?

No. Checking your own score is a soft inquiry and has zero impact on your score.

Will Closing Old Credit Cards Improve My Credit Score?

Generally, no. It reduces your credit history length and total available credit, which can hurt your score.

How Do Missed Payments Affect My Credit Score?

Missed payments are reported to bureaus and can significantly drop your score. With 15-day reporting cycles in 2025, the impact is now felt much faster.

Is Having Multiple Credit Cards Bad For Credit Scores?

Not if managed responsibly. Multiple cards increase your total limit, which can lower your utilization ratio if balances are kept low.

How Long Does It Take To Repair A Bad Credit Score?

With consistent discipline and timely payments, you can see significant improvement within 6 to 12 months.

What Are The Biggest Myths About Credit Scores?

The biggest common credit score myths are that high income automatically equals a high score and that debit card usage helps build credit (it does not).

How Can I Improve My Credit Score Quickly?

Pay off high-utilization credit card balances, rectify report errors immediately, and ensure 100% on-time payments for all current EMIs.

This content is provided by Hero FinCorp, a regulated Non-Banking Financial Company (NBFC), for educational purposes only. Loan approvals, interest rates, and tenures are subject to individual credit assessment, internal policy, and the prevailing Reserve Bank of India (RBI) guidelines as of 2025. Borrowers are advised to review the Key Fact Statement (KFS) and Fair Practice Code before entering into a loan agreement. Credit scores are managed by independent bureaus (CIBIL/Experian/Equifax/CRIF), and Hero FinCorp does not guarantee score improvements.