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10 Great Credit Myths Exposed!

Jul 26, 2008
This is one of my most favorite articles that I have written because it addresses so many questions that people have about credit. I love watching the eyes of my clients widen when they find out the truth about some of these most common myths.

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: Settling or paying off tax liens, collections, late payments or judgments will erase 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 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: 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: If you make a lot of money, you will have great 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 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: When you get married, your credit reports will be merged with 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 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).

Now that you are armed with this powerful knowledge, you can get on the road to optimizing your credit today.
About the Author
Jon Ochs has over 12 years experience in the credit and debt industry and is the founder/CEO of NCA Credit Repair, one of the most trusted and respected Credit Report Repair companies in the nation.
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