Home Buddies - Houston Credit Repair Coach for Investors and Homeowners

Credit Myths and Facts

If you don’t educate yourself about the myths and facts surrounding the credit scoring system, you may cause a lot of damage that can affect all areas of your financial life. And in today’s world you can only go as far as your credit will take you.

There are many credit myths, but this a list of those myths and facts that we feel are worth paying attention to:

1. Paying my debts will make my credit report look perfect.
A credit report is a history of your payments. You need to be able to show a past history as well as a current history; not just one or the other. About 2/3rds of your credit report score comes from how well you pay your bills. Paying all of your bills on time is not the only thing to pay attention to. You need to be sure that you still are able to stay out of too much debt.

2. Credit counseling always destroys my credit score.
Usually this does not have a negative affect on your score; it’s the history of consistent payments that will matter.

3. Canceling or closing credit cards/accounts boosts my score.
Its better to show that you are paying bills on time and not overextending yourself, instead of just having $2000 worth of available credit that is just sitting there on an account that you are not using. Having too many open accounts can hurt your score. You can’t fix it by just shutting down the account, because they look at the difference between your available credit and what you are using. If you just shut down an account, then you just made your available credit lower; which made your balances look higher. This hurts your score. It affects your debt to credit ratio.

In addition to that risk, the length of your credit history is also tracked. If you close out old accounts, then it can make your credit history look “newer and younger” than it truly is. You need to have some “age” established in your credit history.

You may be able to offset some of this damage if you can get your credit limits increased, and pay down your account balances.

4. Too many inquiries hurt my score.
If you’re “shopping around”, the credit agencies usually recognize that now, so if you have several car loan inquiries within 30 days, this usually won’t count against your score. Getting a copy of your own credit report or credit score doesn’t count either. And the inquiries from those lenders trying to offer you a pre-approved card don’t affect it unless you accept their offers.

Applying for new credit is generally what hurts your score. Try to do your “shopping” in a fairly short amount of time. FICO looks at multiple inquiries in a 45-day period as just one inquiry. And it has been said that FICO will ignore all inquiries made within 30 days prior to the day the score is computed.

5. Checking my own credit report hurts my score.
The reporting agencies distinguish between soft and hard pulls. A hard pull (like applying for department store credit card, gas card, etc) counts against your score. If you are personally requesting your own credit pull, then that is considered a soft pull and does not count as an inquiry (if you are not applying for a loan). But if you have a lender pull it for you, then it will count as a hard inquiry and will make your scores drop.

6. Credit scores are locked in for six months.
Your FICO score changes as soon as data on your credit report changes.

7. I don’t need to check my credit report if I pay my bills on time.
About 80% of all credit reports have erroneous information. This includes missing accounts that have a good standing, how many times you really had late payments, wrong personal information like date of birth, address, etc. Wrong information hurts your score!

8. All credit reports are the same.
The 3 main credit bureaus are separate companies. Usually the three reports will not show the same records and scores. Not every creditor reports to all 3 credit bureaus. And each creditor doesn’t report the same time each month. So some of your accounts and activity won’t show up at all on at least one of the credit bureau reports.

9. A divorce decree automatically severs joint accounts.
Divorcing parties must contact the creditors and close those current joint accounts themselves, or try to get the other party’s name removed. Creditors may do a credit check on your name only to see if you could actually be financially stable enough to assume that joint debt on your own.

10. All negative remarks come off in seven years.
Some of it does. A Chapter 13 Bankruptcy normally disappears seven years from the filing date. But a Chapter 7 Bankruptcy would be 10 years from the filing date.
You may need to personally request other information to be removed from the credit report. They may not just automatically fall off and disappear.

11. If you already have bad credit then your credit scores will suffer for seven years.
Persons with bad credit can start improving their scores very quickly, usually within 6 months. Remember, credit scores are primarily based on your most recent 2 years of credit information. So you can make some positive changes to the information on your report now and begin to change your scores for the better.

12. Check Cards (debit cards) can help your credit scores.
Check cards (Debit Cards) are just a means for you to be able to access to your checking account. Because there is usually a Visa or MasterCard logo on the debit card, many people assume that it is looked at as a form of credit. It’s not. But you still need to be very alert to how you are managing your banking account because there is a company that tracks bad banking habits (overdraws, bad check writing,etc.) and their special report is available to any creditor or lender.

13. Moving your credit card balances around helps you hide your debt.
The total amount that you currently owe on your credit cards is called your revolving debt. You can’t cover up that total amount by spreading it over several different cards. The total amount of total revolving debt is still there. Even if you consolidated the total debt into a new “no interest for 12 months” account, it is still there. You just need to start paying it off more efficiently.

14. Pay off (settle) late payments, tax liens, collections or judgments will remove them from your credit reports.
Yes it is your financial obligation to pay back your debts, but it doesn’t mean that any or all of your negative information about that debt will be removed from the report. It does not mean that negative (derogatory remarks) will just disappear. Your account information will be updated on your credit reports to reflect a “paid collection” or “released tax lien” or “satisfied judgment”, etc. These remarks are however better looking than the original negative remark, but these new remarks will still have some affect on your credit scores.
Special note: Collection agencies will usually suggest that if you pay off your collections then the collection remark will be removed from your credit report. No, no, no. For those items to be completely removed they must be erroneous. Negative remarks are not removed from your credit report just because they have been “paid in full” finally.

There is certainly more credit myths that exist. We strongly suggest that you educate yourself about all aspects of credit. And also seek advice from an experienced and knowledgeable credit restoration coach.

Good luck.

Barbara Partaka
Home Buddies