Top 5 Credit Misconceptions

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 (www.phelps-creek.com) is a Certified Financial Recovery Counselor specializing in showing women and their families how to achieve financial well-being and peace of mind. She is also a Certified Credit Report Reviewer and Get Clients NOW!? licensee. Contact her at 541-387-2995 or cmorus@phelps-creek.com She is also the publisher and editor of "Financial Fitness", an internet gazette dedicated to helping people improve their financial fitness no matter what decisions were made in the past.

More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More Credit Information:

Related Articles

Will Inquiries Lower Your Credit Score?
What are inquiries?When you apply for credit the creditor or lender checks your credit report to verify that you qualify for the credit or loan you are applying for. The "inquiry" is then reported to the credit bureaus and shows up on your credit report.
Credit Help for Real Estate Financing: Credit Scores
When you buy real estate, lenders run all of the "big three" credit bureau reports. Each credit reporting agency lists your credit history as supplied to them by the individual lenders and includes governmental records.
Credit and Loan Help for Mortgage Loans
Mortgage loans are some of the most difficult loans to receive if you havebad credit because lenders focus heavily on your credit score and historyof making payments on time. However, there is credit and loan help forindividuals interested in home mortgage loans.
Warning: Todays Non Profit Credit Counselors Are Yesterdays Bill Collectors!
Here's a dirty secret, today's "non profit credit counselors" are often just front organizations paid lucrative commissions by creditors to keep consumers from declaring bankruptcy!In the "debt collection biz", creditors will sell your outstanding debt along with the debt of hundreds of others to a collection agency for cash up front.The collection agencies will work this debt until they've made all the money they can.
Credit Education
Having credit education is like knowing how to read. It will be necessary throughout your life.
Credit Report And Correction Techniques
The three major credit bureaus, Experian, Equifax and Trans Union are similar and feature a "Credit Score", which is created from credit report data submitted to them about you. Their report includes where you live, your bill-paying habits, and bankruptcy and arrest information.
Beware of Bogus Credit Repair Companies!
So-called "credit repair" companies claim they can remove negative information from credit reports. Advertising as "Credit Advisors," "Credit Rating Correction Services" or "Credit Consultants," they trumpet variations on this message: "Turned down because of bad credit? We can help!" Many of these companies charge hundreds if not thousands of dollars for the promise to "clean up" bad credit reports.
Credit Cards
Credit cards are a form of unsecured credit. The issuer isextending you a line of credit, usually tacking on all sorts of little surprises in the fine print.
Give Yourself Credit
The Beginning of the Credit Card EraIn 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants in New York City. From that modest beginning, credit cards have become an indispensable part of modern life.
Five Reasons to Repair Your Credit Score - You Can Do It Yourself
There are multiple reasons that tell us why we should have a 700+ Credit Score, but these five facts will definitely give you the big picture and hopefully will drive you to want to fix your credit score starting today.Fact #1: Did you know that consumers with Credit Scores of 700+ are likely to get interest rates up to four points lower than those with scores under 640.
Preventing Credit Card Mess
Credit card debts problem is extremely common today. It is usually the first sign of longer term financial troubles.
New Credit Scoring Model Could Help Millions
Mark and Beth, a young married couple in their twenties, established a goal to buy a home within the first three years of their marriage before starting a family. They budgeted and used their money wisely in order to save for the down payment.
Understanding Your Credit Score
When you apply for credit one of the first things almost all credit officers do is check your credit score. Although not all of those officers explained to us what a credit score is, we are all rated according to it and the offers we receive were all dependent on that score.
Always Avoid Payment Holidays
Once you've been paying off a credit card for a while, you might be offered a 'payment holiday'. You'll get a letter, saying that since the company knows it's difficult for some families around Christmas (or whatever other excuse they think up), they're offering you a month off from paying, as a 'special present'.
Ethical Finance: Who Benefits From Our Spending?
On one hand consumers are being universally criticised for running up significant amounts of debt on credit cards, yet conversely many companies are capitalising on the growing credit card debt, from charities and political organisations to football clubs, the Association of Surgeons and somewhat ironically ActionAid, an international development agency whose aim is to fight poverty worldwide.Financial comparison site moneynet.
Debt Collection Agencies
Debt collection agencies are often a viable option for receiving payment on overdue bills. Here you can earn how debt collection agencies work and what to look for in reputable debt collection agencies.
Searching For A Low Interest Credit Card?
These days, people need to very carefully consider whattype of credit card they will carry in their wallets. Thereare so many options out there, and each individual hasdifferent needs.
Credit Card Debt: One Way To Avoid It
One of the biggest problems people have in these modern times is Credit card debt, and worst is USA.Simply because there have always been so many laws and regulations before you could have acard in the rest of the world, you can't for instance borrow someone elses card and go shopping becauseyou always have to show some ID before they accept cards in Europe.
How To Survive In A Plastic World, Qualifying For Credit Card
Let's face it, having credit is no longer a choice. "Don't leave home without it" is more like "can't buy a home without it.
What You Need to Know about Debt Negotiation on Credit Cards
Debt negotiation on credit cards is often referred to as credit card debt settlement. Whenever you make a credit card payment- or even pay your utility bills- it usually gets reported to one- or all- of the three main credit agencies.