7 Persistent Credit Score Myths Debunked: What Actually Impacts Your Borrowing Power
Separating fact from fiction to help Indian consumers build smarter credit profiles
Why Your Credit Score Matters More Than Ever
A credit score remains one of the most critical numbers in your financial life—governing access to loans, credit cards, and even rental agreements. For most lenders in India, a score of 750 or above unlocks prime loan offers and competitive interest rates. Yet, many hopeful borrowers find their applications rejected or their costs increased, often because they're acting on common misconceptions rather than facts.
In this guide, we address seven widespread myths about credit scores and clarify what actually matters.
1. Myth: Checking Your Own Credit Score Lowers It
Reality: When you check your credit score using a reliable credit bureau (like CIBIL or Experian), it is counted as a 'soft inquiry.' This has no impact on your score. Only 'hard inquiries,' made by lenders while evaluating your loan or credit card application, can cause a small dip if too frequent in a short period.
Practical tip: Regular self-checks help you spot errors or fraud, which can improve your score over time.
2. Myth: Applying for Multiple Loans or Cards Is Harmless
Reality: Each application to a financial institution triggers a 'hard inquiry.' Several applications in quick succession signal higher risk to lenders and may reduce your score.
Tip: Apply only for credit you genuinely need and space out applications to avoid negative hits.
3. Myth: Closing Old Credit Cards Helps My Score
Reality: Closing an old or unused credit card can shrink your total available credit. This can increase your credit utilisation ratio (the percentage of your available credit you’re using), which is an important scoring factor. Higher utilisation generally hurts your score.
Tip: If annual fee isn’t a concern, keeping old credit cards open (occasionally using them for small purchases and settling in full) benefits your score.
4. Myth: Having No Loans or Credit Cards Makes My Score Great
Reality: No credit activity means no data for credit bureaus to assess. This results in a 'no score' or 'zero score', potentially making it harder to get your first loan. Lenders prefer applicants with a record of responsible credit management.
Tip: Start with a single secured credit card or a small loan to build a positive credit history.
5. Myth: High Salary Means High Credit Score
Reality: Income is not a direct factor in your credit score. Credit bureaus only consider your credit usage and repayment behaviour, not your pay cheque.
Tip: Even with a modest salary, on-time payments and low utilisation can yield a strong score.
6. Myth: Prepaid Cards Build Credit History
Reality: Using a prepaid card (loaded with your own money) does not involve any borrowing. Hence, it creates no credit record and does not help your score.
Tip: Only products where you borrow and repay (like credit cards or loans) count towards credit history.
7. Myth: Paying Only the Minimum Due on Credit Cards Is Enough
Reality: Consistently rolling over balances or paying just the minimum means accumulating high-interest debt, which can damage your score if you start missing payments. It’s always better to pay your dues in full and on time.
Tip: Schedule reminders or auto-payments to avoid late fees and protect your score.
What Actually Matters: Good Habits for a Healthy Credit Score
- Make all loan and credit card payments on time—delays negatively impact scores.
- Aim to use less than 30-35% of your total credit card limits—high utilisation impacts your rating.
- Maintain a mix of secured (e.g., home loan) and unsecured (e.g., credit card) credit.
- Keep old credit accounts open for a longer credit history.
Quick Example: Credit Utilisation
| Card Limit | Outstanding Balance | Utilisation Ratio |
|---|---|---|
| ₹1,00,000 | ₹30,000 | 30% |
| ₹1,00,000 | ₹70,000 | 70% |
Using ₹30,000 of a ₹1 lakh limit keeps your utilisation to 30%—healthy for your score. Using ₹70,000 (70%) means a likely negative impact.
Key Takeaway
Understanding these basics will help you avoid poor financial decisions, improve your credit access, and secure better terms when you need to borrow in the future.
Frequently asked questions
Does checking my credit score often hurt my credit rating?
No, checking your own credit score is a 'soft inquiry' and does not affect your score at all.
Will closing an old credit card improve my credit score?
No, closing an old card can reduce your total available credit, potentially raising your utilisation and lowering your score.
Can a person with no loans or credit cards have a good credit score?
No, a lack of credit history typically results in no or zero score, which can make new loan approval harder.
Do high salaries guarantee a good credit score?
No, income is not a factor in credit scoring. Only borrowing and repayment behaviour are considered.
If I pay only the minimum dues on my credit card, is my score safe?
Paying only the minimum keeps your account in good standing, but rolling over balances can lead to high debt and possible score drops if payments are missed.
Do prepaid cards build a credit history and improve credit scores?
No, because prepaid cards do not involve borrowing, they do not impact your credit history or score.