Credit Score Myths Debunked: What Malaysians Need to Know

Understanding the Basics of Credit Scores

Credit scores play a crucial role in determining your financial health and access to credit in Malaysia. However, many myths surround credit scores, leading to confusion and misinformation. It's important to understand what a credit score truly represents and how it affects your financial standing.

A credit score is a numerical expression that evaluates an individual's creditworthiness. It ranges from 300 to 850, with higher scores indicating better creditworthiness. In Malaysia, credit scores are used by lenders to assess the risk of lending money to a borrower.

Myth 1: Checking Your Credit Score Lowers It

One of the most common myths is that checking your own credit score will decrease it. This is not true. Self-checking your credit score is known as a "soft inquiry" and does not affect your score. On the other hand, when a lender checks your credit score for a loan application, it is called a "hard inquiry," which may slightly impact your score.

Regularly checking your credit score is a good practice as it helps you stay informed about your financial health and identify any inaccuracies or fraudulent activities.

Myth 2: Closing Old Accounts Boosts Your Score

Many believe that closing old or unused credit accounts can improve their credit score. In reality, closing these accounts can actually harm your score. Credit history length is a factor in your credit score calculation, and older accounts contribute positively to this aspect. Instead of closing old accounts, consider keeping them open and using them occasionally to maintain a healthy credit history.

Myth 3: Only Debt Affects Your Credit Score

While debt is a significant component, other factors also influence your credit score. Payment history, credit utilization, length of credit history, types of credit, and new credit inquiries all play a role. Even if you have little to no debt, late payments or numerous new credit inquiries can negatively impact your score.

Understanding these factors can help you take a more holistic approach to managing your credit score effectively.

Myth 4: A Good Credit Score Guarantees Loan Approval

Having a good credit score is advantageous, but it does not guarantee loan approval. Lenders in Malaysia also consider other factors such as income, employment history, and existing financial obligations. A strong credit score improves your chances, but a comprehensive financial profile is essential for securing loans.

Steps to Improve Your Credit Score

If you're looking to improve your credit score, consider the following steps:

• Make timely payments on all your bills and loans.
• Keep credit card balances low.
• Avoid opening too many new accounts in a short period.
• Regularly check your credit report for errors and dispute any inaccuracies.

By understanding these myths and taking proactive steps, Malaysians can better navigate the financial landscape and maintain a healthy credit score.