Credit Misconceptions and Credit
Myths Revealed
There
are a wide variety of myths floating around about what you should and
shouldn't do to improve your credit reports
We have all heard the rumors,
from neighbors, relatives or friends. There are a wide variety of myths
floating around about what you should and shouldn't do to improve your
credit reports and credit scores. The buck stops here! Phelps Creek
Financial Coaching has exposed these urban legends to provide you with
the truth about credit...
1. Your score
will drop if you check your credit - Fortunately, this one is
definitely not true.Checking your own report and score is counted as a
"soft inquiry" and doesn't harm your credit at all. Only "hard
inquiries" from a lender or creditor, made when you apply for credit,
can bring your credit score down a few points.
Worried about damaging your credit while shopping around for a loan?
Multiple inquiries for the same purpose within a short amount of time
(a few weeks) are grouped together into a less damaging period of
inquiry.
2. Closing old
accounts will improve your credit score - To close or not to
close, that is the question. Many people advocate closing old and
inactive accounts as a way for improving your credit. In most cases,
closing accounts will actually have the opposite effect.
Canceling old credit accounts can lower yourcredit score by making your
credit history appear shorter. Think twice before closing the oldest
account on your credit report. If you want to reduce your levels of
available credit, ask for your credit limits to be reduced or close
newer accounts instead.
3. Once you pay
off a negative record, it is removed from your credit report -
Negative records such as collection accounts, bankruptcies and
charge-offs will remain on your credit report for 7-10 years after they
are first posted.
Paying off the account before the end of the set term doesn't remove it
from your credit report, but will cause the account to be marked as
"paid." It is still a good idea to pay your debts, it can improve
yourcredit score, but the major improvement will come when the record
expires.
4. Being a
co-signer doesn't make you responsible for the account - When
you open a joint account, co-sign on a loan or become an authorized
user on someone's credit card, you are taking on legal responsibility
for the account. Any activity on these shared accounts, good or bad,
will show up on both people's credit reports.
If you co-sign for a friend's auto loan and they don't make the
payments, your credit profile will be hurt by their actions and visa
versa. The only way to stop this double reporting is to refinance the
loan or to have the creditor officially remove you from the account.
5. Paying off a
debt will add 50 points to your credit score - Yourcredit score
is calculated using a complex algorithm that takes into account
hundreds of factors and values. It is very hard to predict how many
points you can gain by changing one factor. For a person with a high
credit score, just one late payment can cause a significant drop.
If a person has a low credit score, it may not cause a large drop at
all. There is no magical way to improve your credit score, just keep
paying your bills on time, reducing your debts and removing negative
inaccuracies from your credit report. Good financial behavior and time
are the two most important factors on your credit score.
Cindy S. Morus- Author is a Certified Financial Recovery Counselor
specializing in showing women and their families how to achieve
financial well-being and peace of mind |
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