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Top 10 Credit Reporting Myths
10. Paying off your car loans and credit cards will instantly boost your credit score.
Paying off (and not canceling) your debt does not erase the fact that you previously carried a lot of debt. Credit reports have a long memory and if you were over-extended within the last few years it will still be reflected in your credit scores despite the fact that you have no major debt today. And closing accounts will lower your score for a period of time.
9. Canceling credit cards will boost your credit score.
The credit bureaus like to see that you have available credit and that you know how to manage credit responsibly. If you cancel your credit cards, you are making it harder for the credit bureaus to judge your creditworthiness.
8. Seeking credit counseling will ruin your credit score.
Not true. It all depends on what you work out with the creditor. If they perceive the forgiveness or deferment of debt as something that saved you from tougher consequences (e.g. bankruptcy) then they may not report this as a delinquency to the credit bureaus.
7. Your credit score is what it is and doesn't change that often.
While credit scores are often referred to as "Adult SAT scores", they are not as static as SAT scores. They change every time the bureaus receive new information from your creditors. They are only calculated when a credit report is requested, so there isn't a credit score on record for every person at all times.
6. Bankruptcy kills any chance of getting a good credit rating again.
Chapter 13 bankruptcies are removed from credit reports after 7 years. Chapter 7 bankruptcies after 10 years. Even if you're seeking credit, such as a mortgage, prior to a bankruptcy being removed from your credit report, you may still qualify for a mortgage. Other factors are considered; the largest being whether you've successfully reestablished credit.
5. Co-signing a loan won't impact your credit score.
If you co-sign a loan for someone else (e.g. a car loan for your son) then it is treated no differently than if you had taken out the loan solely for yourself. If the person you co-signed for were to miss car payments, then your credit would be negatively effected.
4. Checking your own credit will negatively impact your credit score.
It all depends on how you have your own credit checked. The safest way to make sure that your request for your own credit report does not impact your scores, is to request it directly from the 3 major credit bureaus. It is recommended you do this periodically to uncover any discrepancies or errors.
3. Multiple inquires will negatively impact your credit score.
Credit bureaus understand that consumers normally shop around for mortgages or cars and that their credit may be checked by multiple creditors within a short time frame (usually 10 days). These multiple requests do not have a negative impact on your credit score.
2. You've got great credit scores because you pay your bills on time.
Maybe in a perfect world, but the truth is that something on the order of a third of all credit reports have mistakes on them. Reviewing your own report is the only way you'll know for sure.
1. There are "credit specialists" that can repair your credit rating for a fee.
There are things that can be done to improve credit scores, but paying a specialist isn't one of them. If applicable, a reputable and knowledgeable mortgage broker can usually recognize what you can do to improve your scores.
Bonus Myth: Lowering your credit availability (i.e. Credit Limits) will improve your score.
Actually raising the limits of your credit card will improve your score. A portion of the score is the ratio between the credit limit and the amount of credit currently being used. As a guideline, the credit bureaus like to see a ratio of no more than 50%.
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