A common misconception about credit scores among many individuals has been debunked by a financial authority in a recent article. The piece used the case of an employed individual, referred to as 'A,' who discovered their credit score was in the bottom 50% after a recent application for a credit card was denied due to poor credit.
Several misconceptions were addressed in the article:
1. It's widely believed that checking your credit score reduces it, however, this myth is incorrect. Prior to April 2011, credit checks did affect your score, but the Financial Services Commission announced improvements to this issue, and since October of the same year, a credit score check doesn't reflect in your credit rating.
2. The number of credit cards does not directly impact your credit score. However, if multiple cards are issued within a short period, it could affect the score due to the credit check conducted by the financial institution during the card issuance. The key to maintaining a good credit score is using credit cards within one's repayment capacity.
3. The lack of a loan history does not guarantee a high credit score. New entrants to the workforce and university students with little financial transaction information often receive low credit scores even without loan history. It's important to borrow within one's repayment capacity to avoid negative impacts on the score.
4. Delinquencies are a major cause of credit score reduction. Public utility payment delinquencies do not directly impact the score, but tax delinquencies past the 5th business day are taken into account. Regular payments of utility bills over six months can positively impact your credit score.
5. Repaying debts does not immediately reflect in your credit score. This is due to credit bureau standards that consider individuals who have defaulted at least once as potential defaulters in the future. Default history may remain on record for up to five years, even after complete repayment.
The article recommends regular credit score checks, which can now be done for free through partnerships with services like KCB, to assist in credit management. These checks also provide information on delinquency status and other factors that can impact your credit score.