A Good Credit Score

A Good Credit Score

The 10 Greatest Myths about Credit

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: Paying off (or “settling”) late payments, tax liens, collections or judgments will remove them from your credit reports.

This statement is not true. In fact, when you pay off an old collection account, in most cases, your creditors will update the trade line to show as a paid collection, but with a current date. This means that this trade line is now a current paid collection, instead of an old unpaid collection.

They are both still negative, but a current negative item will cost you more points than an old one. I am not saying that you should not pay your delinquent accounts, but only that you need to understand the consequences.

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: 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: By law, negative items on my credit have to remain for 7 years.

Completely false! There is no such law.

Myth 6: I make a lot of money so I must have excellent 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.

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 from all 3 major credit bureaus will be the same.

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

This is completely false. All individuals will always have their own individual credit history. If you have joint accounts, you may share some of the same trade lines, but it is still your credit.

Myth 10: If I close my old credit accounts, my scores will increase.

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.

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

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 www.ncacreditrepair.com for more info on credit and credit repair.

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