Read on to learn about a few common misconceptions about the concept of credit score and how it really works. For starters, a credit score tells a lender how worthy it is going to be to sanction a loan to a customer.
Many financial experts believe that a score above 700 is generally considered healthy. Hence, you must aim for a score of 700+ to ensure good creditworthiness.
This score takes several factors into account to determine your financial position, like payment history, credit utilisation, and credit mix.
This is not entirely true. Having a low credit score doesn't necessarily mean you will be rejected for a loan. Although it decreases your chances, banks and other lenders may still consider you with adjusted terms like higher interest rates.
Many a time, it is believed that using a credit card or using it too much too often hurts your credit score. Financial planners often suggest restricting credit utilisation to a maximum of 30% while ensuring timely payments. This way, using a credit card does not reflect badly on your credit score.
There is a common misconception that having more than one credit card impacts your credit score. In fact, many financial planners say that managing multiple credit cards wisely can actually boost your credit score.