In this article, I will expose some of the most common myths about credit and credit reports. I love watching the expression on my client's faces when they realize the truth about some of these common myths.
I caution you before we get started In this article, you are going to hear some things that will contradict what you have been told in the past. This is because credit is one of the most misunderstood topics, and most people, even many of those in the financial field, do not really understand credit.
Myth 1: Paying off (or "settling") late payments, tax liens, collections or judgments will remove them from your credit reports.
This is false. By paying off these types of accounts, in most cases, you will actually see your credit scores drop significantly. The reason for this is because what you have effectively done is bring an old negative trade line to current status. A more recent negative item will cost your more points on your credit than an old negative item.
Myth 2: Paying my full credit card balance every month will improve my credit scores.
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: Credit repair is illegal.
This is far from the truth. In fact, credit repair is legal for you to do on your own, or hire anyone you choose to do it for you. Repairing your credit is a right protected under the Fair Credit Reporting Act (FCRA).
Myth 4: Enrolling in a Credit Counseling program 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: By law, negative items on my credit have to remain for 7 years.
Completely false! There is no such law.
Myth 6: Making a lot of money will give you good credit.
Your income does not play any direct roll in determining your credit scores. In fact, statistics show that large percentage of high-income earners have sub prime credit. Your credit scores are made up of several factors including payment history, account balances, types of credit in use, etc.
Myth 7: I must have excellent credit because I have never been late on a payment.
Your timeliness of payments does make up 35% of your credit scores, but the other 65% is made up of other factors that are not related to making your payments on time. It is important to understand all those factors to maximize your scores.
Myth 8: Your credit reports will be identical from each of the 3 major credit bureaus.
This is not true. In fact, most of the time, all 3 of your credit reports will differ from one another. The reason for this is that each of the credit bureaus is a separate independent company, and the processes at each are different. Also, some creditors may only report to 1 or 2 bureaus, but not all 3. In my experience, your reports will very rarely be exactly the same.
Myth 9: Once you are married, you and your spouse share the same credit.
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: By closing old accounts, I will improve my 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.
Now that you are armed with this powerful knowledge, you can get on the road to optimizing your credit today.
Article Directory: http://www.articletrunk.com
Jon Ochs is the founder and CEO of NCA Credit Repair, a licensed & bonded credit repair service. Visit their website for more info on credit repair and building credit.
Please Rate this Article
Not yet Rated
Additional Articles From - Home | Finance 
