Credit Score: These Factors Don’t Affect Your Credit Score

Your credit score is an important indicator of your creditworthiness. It’s checked by your prospective lenders when you apply for a new loan or credit card. It also plays a role in determining the interest rate at which you get the loan. Therefore, it is important that you pay all your credit card bills and loan EMIs on time, which would keep your credit score robust.  

Your credit-related transactions have a direct impact on your credit score. However, there are several other aspects of your finances that have no bearing on the computation of your credit score. There are some misconceptions about what shapes your credit score. So to clear them, let’s look at a few things that don’t. 

YOUR SALARY

Your salary is not mentioned in the credit report. An increase or decrease in your salary may affect your financial and personal life but has no impact on your credit score. Whatever your income may be, if you pay your EMIs and card dues on time, you will enjoy a good credit score. However, your income does play a role in your loan and credit card eligibility. If you have a large income along with a good credit score, you may be eligible for premium credit cards that offer tonnes of freebies and lower interest rates as well as bigger loan disbursals due to your enhanced ability to repay loans. 

WHERE YOU LIVE

The state, city, or the type of house you live in has no impact on your credit score. Even though your address may be mentioned in the credit report, it is not used to determine your creditworthiness. 

THE RENT YOU PAY

For many individuals, their rent payment may be the biggest cheque they write every month. Therefore, it may be disappointing to know that paying rent on time will not have any impact on your credit report. 

WHERE YOU WORK

The company or organisation that you work for has no impact on your credit score. Even though certain information about the employer is mentioned in the credit report, it is mainly used to ensure that the account data is linked to the right individual. Therefore, your creditworthiness will not improve if you work for a bigger or more reputed organisation. 

YOUR BANK BALANCE

Like income, the amount of money that is available in your bank account does not affect your credit score. Therefore, having a huge investment portfolio or bank balance will have no impact on your credit report. However, in case loans are taken to lead a lavish lifestyle, your credit rating will take a hit if the payments are not made on time.

UTILITY BILL PAYMENTS

Like rent, payment of phone bills, utility bills, and internet bills on time does not improve your credit rating. You may be timely with these payments, but it makes no impact on your creditworthiness. However, being timely with your payments generally reflects positively upon your ability to pay your dues on time. There are a few alternative credit scoring models that are yet to take off in India. These models factor in utility payments to evaluate individuals who may not have a traditional credit history. 

YOUR INSURANCE PREMIUMS 

Insurers check your credit score only to determine your insurance premium. However, payment of premium on time does not affect your credit report as they are not reported to the credit bureaus. Missing any payments could lead to the cancellation of your policy rather than impact your credit rating.

YOUR DEBIT CARD USE

Using your debit card instead of the credit card to buy items or pay bills usually does not have any influence on your credit score, simply because a debit card is not a credit product. When making a payment using a credit card, you are borrowing funds that must be paid back later. Using a debit card does not involve any borrowing as you are spending your own money. Similarly, making payments via cash or cheque have no impact on the credit report.

YOUR SPOUSE’S CREDIT SCORE

Your marital status does not impact your credit score. Every individual’s credit score and credit report are separate. However, in case you open a joint account or co-borrow a loan with your spouse, the details will be mentioned in both the credit reports. And not making payments on time will impact both the reports.

CHECKING YOUR CREDIT SCORE

One of the misconceptions that many people have is that the credit score is impacted in case you check the credit report. Any inquiry you make about the credit report, also known as a soft inquiry, has no impact on your credit rating. Your score will be impacted only in case of multiple hard inquiries. A hard inquiry happens only when you apply for a loan or credit card. Therefore it’s a bad idea to apply for multiple credit products simultaneously. You can also check your credit report to keep a track of your accounts and see what is being reported to creditors and lenders.

Even though the above-mentioned factors do not affect your credit rating, it is vital that payments are made on time, irrespective of the impact on your score. Also, if you’re an individual with a loan or credit card, you should keep a check on your credit score and avail your free credit reports once a month to track your progress. 

(Disclaimer: The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans, credit cards, and more. The liability for the article solely rests with the author/brand. The content has not been created or verified by India TV channel and IndiaTVNews.com)