Do you know what is the easiest way to judge someone’s creditworthiness? The answer is Credit scores. It tells lenders about a person’s past behavior when it comes to taking loans or repaying debt.

This is the reason that credit score plays an important role when you apply for a credit card or a personal loan. Both of them are unsecured borrowings where lenders do not have any access to collateral. So in case of default, there is no recourse. Only your credit history (credit worthiness) is what lenders rely on.

But people have a lot of confusion about their credit history and how it impacts borrowings. Lets try to clear some of these myths:

Myth 1: Won’t get a Loan if you don’t have a Credit History

It is possible to get loan without even a credit history. Though there will be some limitations about the amount of loan or your credit limit on the card. But it is still possible to get a small loan. This in turn will help start your credit history.

Myth 2: My credit score will be high if I never take a loan.

Having some outstanding credit helps your score if you can keep repaying on time. On the other hand, if you have cleared off all your loans, it is possible to be perceived, as you are unable to manage credit! As odd as this may sound, it is a fact. But this should not stop you from clearing your loans.

Myth 3: Once a poor credit score means it will remain poor forever.

The score is neither constant nor fixed. Credit scores are recalculated regularly. So any new piece of information that might impact it, is considered during recalculation. If you repay on time, get new credit cards, etc., then all this will have a bearing on your credit score.

There are a lot of myths about credit scores and how they impact loans and vice versa. As a borrower, it makes sense to clear your doubts about credit scores at the earliest.

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