This article is one of my favorite because it addresses so many of the questions people have about credit and their credit reports.
A word of warning before we get started You are about to hear some things that will most likely be the exact opposite of what you have been told. Keep in mind that credit issues are some of the most misunderstood of all financial topics, and there are many professionals in the financial industry giving advice to their clients, who do not really understand credit themselves. On that note, here are the greatest myths about credit
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.
Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.
Myth 3: Repairing credit 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: Credit Counseling (CCCS) programs will raise my credit scores.
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: Negative items have to stay on my credit for 7 years because that is the law.
Completely false! There is no such law.
Myth 6: Making a lot of money will give you good credit.
Making a lot of money really has very little to do with your credit directly. What determines your credit is your payment history, account balances, your open accounts, the type of accounts, etc.
Myth 7: As long as I have never been late on a payment, I will 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.
Wrong again! Most, if not all the time, your credit report from each credit bureau, Equifax, Experian, and Transunion, will be different. Not all creditors report to all 3 credit bureaus, so it is perfectly normal to have different items on each report. Also, your scores will not be the same since each credit bureau uses their own scoring model.
Myth 9: If you are married, you will share the same credit reports as your spouse.
False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts.
Myth 10: Closing credit card accounts will increase your credit scores.
This is one of the biggest surprises that I see happen to people all the time. You go to your mortgage lender and they instruct you to close some accounts in order to qualify for a loan. You do as you are told, but only to see your scores plummet almost immediately; sometimes by more than 100 points. What happened? The reason for the drop was because you just closed some of your oldest and most valuable accounts as far as your credit scores were concerned. Remember, the longer you have had an account in good standing, the more positive points it will provide. It is not advised to close a long-standing account unless you have good reason.
Armed with this new knowledge, you can now get started putting it into action to improve your credit, as well as share it with others.
Jon Ochs is the founder/CEO of NCA Credit Repair, one of the most trusted and respected Credit Report Repair companies in the nation. Visit
http://www.ncacreditrepair.com for more info on credit and
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