As we wrap up 2025, there are many learnings from the year passed that come to mind, and there are quite a few things that I don’t want to carry into the New Year, especially related to personal finance. In the recent past, there has been a lot of awareness created around personal finance and credit, yet there are plenty of messages floating around social media that spread confusion.
As a year-end checklist, I am listing these few myths related to personal finance, especially credit, that I would like to leave behind for good.
Busting misconceptions
“BNPL doesn’t affect your credit report.” It absolutely does now.
Over the past few years, credit has become accessible. The digital players have made credit available to everyone with a mobile device, at the click of a button. This facility makes us tap on the pay later option or take a small ticket loan, not because of need but convenience. But every credit facility you use, BNPL included, is recorded in your credit history. Frequently seeking credit signals low liquidity and can negatively impact your credit score. While it is easily accessible, it’s important to be mindful of the impact of these transactions on our credit profile.
“A high income guarantees a high credit score.” Your repayment behaviour matters more.
A lot of people assume high income equals a high credit score. High income does result in a higher capability to repay a loan and hence enhances your ability to seek a loan. But a credit score is based purely on your credit history, such as loans taken, credit cards held, repayment timelines, credit age, and usage. Income doesn’t appear in your credit report unless declared during a loan application and is not a factor while calculating the credit score. Someone with a high income but no loan history may have no score at all, as there is no footprint in the credit bureau. Also, someone earning well but missing EMIs or delaying card payments will hurt their credit score.
“Closing old cards improves your score.” It can actually hurt your credit age.
We often worry that having multiple credit facilities can hurt our score. But simply having more cards isn’t the problem; utilising the credit leading to over-leverage is. In fact, an old credit card with a long repayment history is a sign of stable and healthy credit behaviour. Closing a credit card with a good record will reduce your credit age, which can impact your credit score. It is thus prudent to keep your old credit cards active with disciplined usage.
“Checking your own score lowers it.” Soft inquiries are safe.
Self-monitoring your credit score does not lower it. Bureaus clearly distinguish between a consumer checking their own score and a lender checking it for a loan assessment. When a lender checks the credit score, it is known as a hard inquiry, whereas when consumers check their own scores, it is known as a soft inquiry. Only the hard inquiry leaves a footprint in the credit report. Checking your own report is actually a healthy habit, as it helps you stay aware, track changes, and spot any inaccuracies or fraudulent activity early.
“Credit limit increases are dangerous.” Higher limits can actually help.
Lenders and credit card issuers often increase credit limits for customers who show good credit behaviour over a period of time. This is not a red flag; it’s usually a sign of trust. This allows the consumer an enhanced line of credit to utilise in case of need without going through a sanction or approval process for credit. The key, however, is to use the higher limit wisely. A higher credit limit reduces your utilisation percentage when your usage remains the same, which improves your credit health if you don’t over-leverage.
In the new year, financial health is as important as physical and mental health, and to stay healthy, it’s important to know the truth versus the myths. Being influenced by inaccurate information can lead to poor financial decisions and long-term damage to your creditworthiness. Consumers should be aware, read the terms and conditions of their financial products, and monitor their credit score regularly. Stay aware, stay informed, and stay financially secure always.
Sachin Seth, Chairman CRIF High Mark and Regional MD CRIF India & South Asia
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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards, and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
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