The path to credit repair is always full of trials and tribulations, not to say of ignorance and misconceptions. To get a better credit score, you need to fix past financial problems, develop good spending habits and also consider credit score fictions (myths) for an improved credit score.
Myth 1 Your age as well as your income determine your score
One popular myth is that higher salary bumps up credit score. Most of you are unaware that the factors such as sex, income, age, and length of employment are not taken into account when the bureaus evaluate scores.
Myth 2 Improved credit is only possible by the help of a credit repair company
A lot of consumers believe that only a credit repair company can get their scores resurrected. However, you are capable of doing the same thing (that a company will do) and that too for free.
Myth 3 Lenders are legally obliged to report all your account activities
No law demands financial institutions (lenders, banks, etc.) to report all your financial activities to a certain CRA (Credit Reporting Agency). The law just asks them to report any financial transaction (only if they choose to) correctly.
Myth 4 Credit bureaus and institutions working with them are government-backed agencies
Surprisingly, credit bureaus are for-profit commercial entities with no government affiliation at all. According to the Comptroller of the Currency, both the CRAs and the entities providing data to them will function under the direct authority of the Federal Trade Commission (FTC) and the Office of the Comptroller of the Currency (OCC). In addition, the Fair Credit Reporting Act (FCRA) clearly states as to how would a CRA permit the consumer to challenge their credit reports. Even the Consumer Financial Protection Bureau (CFPB) has the authority to keep a constant vigil over the day-to-day operations of the CRAs.
Credit score myths for young adults (Aged 20 through 40):
As an young adult, your career has just taken flight and you're experiencing a new sense of freedom, precisely, financial freedom. However, be responsible with your finances and find out the facts behind the popular credit score fictions revolving around your age group.
Myth 5 You just have a single credit score
There are hundreds and thousands of credit scoring models for the lenders to use. These models are usually prepared by credit reporting agencies, independent companies, and even by the lenders themselves. However, FICO score (developed and administered by the Fair isaac Corporation) is the most widely used credit scoring model.
Myth 6 Your credit score will suffer if you check your credit report
You can check your credit reports as many times you want without pulling down your score. It doesn’t affect credit score calculation. However, inquiries made by the businesses due to your credit applications affect your credit score negatively.
Myth 7 After marriage, your credit information gets combined with that of your spouse
Credit report is separately made for every individual. However, certain items get reflected on both of your credit reports; like, the information regarding joint accounts will show up on your and your spouse’s credit reports.
Myth 8 Debt is necessary to improve credit score
You shouldn’t get into knee deep debt to establish a shining credit history and a stellar FICO score. Instead, try to show moderate but responsible use of credit by paying entire credit card bills at every billing cycle and making loan payments on time.
Myth 9 Both credit reports as well as credit scores are one and the same
No, they are not. Credit scores are numeric grades derived on the basis of information (on the credit reports) concerning a consumer's personal debt liabilities, financially-related public records, etc. Credit report contains personal identifying information, too.
Myth 10 Both credit reports and scores are used to screen for better employable candidates
Simply put, employers don’t use or have the access to credit scores so as to screen suitable candidates. However, credit reports may be used by a prospective employer for employment screening purpose.
Myth 11 Getting credit report errors fixed is easy
It takes long to rectify mistakes on your credit report. As per FTC (Federal Trade Commission), you’ve to include a copy of the disputed credit report (areas of dispute encircled with a red pen) along with copies of other valid documents.
Myth 12 All your social media activities affect your credit scores
Creditors have started using social media to find out the preferences of their consumers. A clear understanding of the markets help them to promote their products/services in front of the right audience in a better way.
Credit score myths for baby boomers (Aged 49 to 60):
At this matured age, whether or not you have a family, you’ve already experienced most of the harsh realities of life. You know what it takes to be financially independent, not to say of good credit. However, there are some credit score myths that bother the baby boomers, too.
Myth 13 Closing old accounts will boost your score
No, closing old accounts shorten your credit history, which pulls down your score, as the length of your credit history determines 15% of your overall score. Too many open accounts have some negative effect; but, instead of closing accounts, repay what you’ve borrowed.
Myth 14 Accurate negative information can be removed from your credit files to spike your credit score
No one can legally remove accurate negative information like bankruptcy, lien, foreclosure, etc. before a certain time. For ex. - Chapter 7 Bankruptcy stays on report for 10 years.
Myth 15 Shopping around for loans leave scars on your score
Shopping around for the best mortgage or automobile loan rates (also known as hard inquiries) doesn’t usually lower their score. Such inquiries (like mortgage or car loan) are counted as a single request as long as they occur within 30 to 45 days.
Myth 16 Credit card offers hit your score
Credit card offers don’t have any negative effect on your score. However, if you’re applying for a lot of credit or you’ve opened multiple credit accounts within a short span of time, then there are chances you’ll overspend, which can hamper your score.
Myth 17 Seeking Consumer Credit Counseling will improve score
When you sign up with a credit counseling company, your credit report will show a statement in relation to each of the account for which you are seeking credit counseling. This statement will be something like "payments made with the help of credit counseling", or "client is undergoing CCCS". Statements like these itself may not lower your score, but then it is considered as derogatory by the lenders as it implies that you are overwhelmed with debt and have mismanaged your finances. In addition, most of the credit counseling companies will make your payments after the due date has passed and this will cause late-payments to get reported on your credit file as well. This in turn will further lower your credit score.
Myth 18 Credit rating of your previous tenants affects your score
Your score is yours. It has no relation with that of your tenant. If your tenant’s accounts are included on your report, then it's an error made by the information provider / CRA (Credit Reporting Agency. The way out is disputing with both of them.
Myth 19 Credit reports are studied quite carefully
As per the federal law, your credit report must contain information that is fair and 100% correct. Each and every information should be validated upon your request. Previous record shows that around 79% of all credit reports have errors of some kind.
Myth 20 Adding negative credit items alongside positive ones are helpfuls
Negative items are always harmful for your credit score. However, its effect will depend on the type of the negative item and other positive listings on your report. It is the lender's discretion to rate your creditworthiness and decide whether or not to grant your loan request.
Myth 21 All negative items will continue to show on your credit report for 7 years
Credit reporting is completely a voluntary business in our nation. It has no specific executable minimum time period; if the creditors fail to report credit activities in a fair, accurate and validated manner, the reported data must be removed. The law only sets the maximum permissible time limit. Data providers can remove any information at their own discretion, keeping the specified time limit in mind. Moreover, not all data are reported for 7 years; it can be 2 years or 10 years depending on the negative item.
Myth 22 The credit rating agencies sell your credit reports to lenders
Credit rating agencies (Ex. Standard and Poors, Moodys Investors Service, Fitch Ratings, etc.) evaluate and grade financial tools (like mortgage or corporate bonds) and not rate any individual consumer. Whereas, credit reporting agencies (TransUnion, Experian and Equifax) grade the creditworthiness of the consumers individually.
Myth 23 After divorce, your ex-spouse’s credit score will have no effect over yours
Both your credit scores may remain entangled, even after a divorce. For instance, if both of you use a same credit card, then both of you are equally liable to repay the balance. So, it’s better to close all the joint accounts beforehand.
Credit score myths for retirees (Aged 60 and beyond):
According to latest market reports, an increasing number of retirees like you are still severely indebted. This is wreaking havoc on their retired life, especially on their savings and credit. Moreover, you may get bombarded with several credit score misconceptions when thinking of using any particular debt relief option. Finally, senior citizens (retirees) too often fall prey to some of these credit score misconceptions.
Myth 24 FICO score considers unpaid medical debt differently
Any unpaid medical debt shows up on credit report (especially if they’re sent to collections), which have a negative impact on FICO score. However, the extent of the impact is determined on the basis of the collected information, along with different other information shown on your report. Moreover, smaller amount of collection accounts (actual debt amount being lower than $100) is usually ignored by the score.
Myth 25 Foreclosure affects your credit more than short sale
Both foreclosure and short sale are equally harmful for your credit, as they are regarded as loan primaries - a factor the FICO scoring model uses to predict your creditworthiness. However, if you owe a deficiency balance amount, and it is reported, your credit score will suffer more as compared to a short sale with no deficiency balance at all.
Myth 26 Getting credit repair help is unlawful
As per the law, Attorney Generals (AGs) can file a lawsuit against any credit repair agency under the federal Fair Credit Reporting Act. Many consumers reportedly lodge complaints with the FTC or their state attorney generals to help defend themselves against the three leading credit reporting agencies - Experian, Equifax and TransUnion.
Myth 27 You’ll be penalized for being debt free
Credit scores will appreciate you for having no debt at all. A number of metrics are used in various credit scoring systems that penalize you for owing outstanding loan balances. Basically, using your credit card up to its credit limit, having multiple accounts with high outstanding balances, and having a number of delinquencies and the likes, hurt credit scores.
Myth 28 Credit scores are immune to the negative effects of debt settlement
Debt settlement does impact your credit scores negatively. However, negotiating for a settlement won’t ding your credit score, but having your debts settled successfully will. Moreover, missing monthly payments will also pull down your credit score, as often asked by the debt settlement companies.
Myth 29 Bankruptcy will ruin your credit score permanently
Your credit score will start improving after about 1 year from the date of complete bankruptcy discharge. This is very likely to happen if you continue to make monthly payments on time. Moreover, 7-10 years later, you’ll be able to gain complete control over your credit score and lenders will once again be willing to grant you fresh credit at suitable terms and conditions.
Myth 30 Being debt free gives you a commendable credit score
You will have to repay your debts to establish that you are capable of managing multiple lines of credit efficiently. Alternatively, not borrowing any loan will make it difficult for you to obtain a credit card or any other type of credit. Hence, if you start slow but are responsible with your purchases and pay back your balances on time, you can build a pretty stellar credit score.