10 Great Credit Myths Exposed!

This article is one of my favorite because it addresses so many of the questions people have about credit and their credit reports.

You will be hearing some things that will most likely be the opposite of what you currently believe. Keep in mind that credit and credit reports are not widely understood, and even those in the financial and credit industry, often do not have a good understanding. With that in mind, let's get started

Myth 1: Paying off collection accounts, tax liens, judgments, or late payments will remove the negative item from my credit reports.

This is simply not true. In fact, by paying off an old collection account, you can actually lower your credit scores. The reason for this is because more recent negative items will hurt your score more than older negative items. If you pay off an old collection account, not only will the collection account remain on your reports as a paid collection, but it will now show a current date, and cost your more points. I am not suggesting that you should not pay off your delinquent accounts, only that you need to understand the consequences so that you can factor that into your decision.

Myth 2: Paying my credit card balances in full every month will improve my credit.

Not true! In fact, this is absolutely not what the credit card companies want you to do. In the eyes of the credit card companies, the best client is one who only pays a little more than the minimum payment each month, but makes all their payments on time. Keep in mind that the credit card companies do not maximize their profits unless you are paying interest every month, and they are the ones who designed the credit system. If you want to maximize your credit scores, you need to give them what they want.

Myth 3: Credit repair is illegal.

Very false! Credit repair is not only perfectly legal; it is actually protected by federal law. For more information on the law, you can refer to the Fair Credit Reporting Act (FCRA). It is legal for you to repair your own credit, as well as hire anyone you choose to do it on your behalf.

Myth 4: Consumer Credit Counseling will improve my credit.

Credit counseling programs will only harm your credit. The first thing that will happen as a result of enrolling in a CCCS or credit counseling program, is that your creditors will add the line "Account in CCCS" or "Account paid through credit counseling" to each of their trade lines. This will not affect your score, but does look very negative to lenders. The next thing that seems to always happen is that the credit counseling program will make the payments to your creditors late. Sometimes this is not their fault since they just setup the payment to be on your original due date. However, the credit card companies often adjust your due date, and since nobody, like yourself, is monitoring this, they began making your payments late. This will result in late pays on your credit, in addition to late fees.

Myth 5: The law requires that negative items stay listed on my credit for 7 years.

Completely false! There is no such law.

Myth 6: Making a lot of money will give you good credit.

Actually, your credit scores are made up of several factors such as payment history, account balances, types of credit in use, etc. Your income is not one of those factors that determine your credit scores.

Myth 7: I have never been late on my payments, I must have great credit.

It is important to your credit scores that you have never been late on your payments; however, this is only one piece of the credit score pie. It is possible to have never been late on a payment and have sub prime credit, or no credit at all. Your history of payments only makes up 35% of your credit scores.

Myth 8: Your credit report from each credit bureau will be the same.

Actually, this is quite the opposite. It is very rare to have all the same items on all your credit reports from each of the major credit bureaus. This is because not all companies report to all credit bureaus, and they don't always report the same thing to each bureau.

Myth 9: If you are married, you will share the same credit reports as your spouse.

This is not true at all. Even if you are married, you will still have your own unique credit reports. It is possible to see some shared items if you have joint accounts, but your credit reports are yours.

Myth 10: Closing credit card accounts will increase your credit scores.

This is often a huge surprise for many. When you close old accounts, your scores will often drop substantially, sometimes by more than 100 points. Often a lender will ask you to close some old accounts to qualify for a loan, but once the accounts are closed, your scores may actually prohibit you from qualifying. This is good knowledge for to know so you understand the impact of this decision. Old good standing accounts carry more positive weight on your credit scores than newer accounts. When you open new credit, you may also see a temporary drop in scores until those accounts have seasoned (usually 6-12 months).

You are now armed with some very powerful information that will surely be able to use to your advantage.

By: Jon Ochs

Jon Ochs has over a decade of experience in the credit field and is the founder and CEO of NCA Credit Repair. Get your free credit consultation, and credit repair estimate.

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