True, 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 may have to fix past financial problems, develop good spending habits and know how to separate facts from fictions. So, you need to consider the below discussed credit score fictions (myths) all along your way to an improved credit score. Having those misconceptions clarified will certainly help you to stay away from the credit repair scams.
Common credit score myths
As far as credit score is concerned, there are certain credit score fictions that have an equal effect on all the above age groups. Some of them are as follows:
Fact: Another common myth that is popular with the masses is higher salary bumps up credit scores. Most of the people are unaware of the fact that the factors such as sex, income, age, and length of employment are not taken into account when the bureaus evaluate scores.
Fact: This is another widely popular credit score myth that attracts many people. A lot of consumers believe that only a credit repair company can get their scores resurrected. However, the truth is that, such companies do nothing that youre not capable of doing it yourself and that too for free.
Fact: There is no law as such that demands lenders, banks, or any other financial institution to report about all your financial activities to a certain credit reporting agency or CRA. Rather the law just asks them to report any financial transaction (only if they choose to) correctly.
Fact: 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 affecting different age groups : Here are three groups divided into their most probable ages where the following credit score myths have major influence:
Young adults (aged 20 through 40):
As a young adult, youre probably in your 20s or 30s. Interestingly, your career has just taken flight and you're experiencing a new sense of freedom and that is, financial freedom.However, you should be responsible with your finances and find out the facts behind the popular credit score fictions revolving around your age group. Myths that usually affect people of this age group are as follows
Fact: This is one of the most common credit score myths of them all. If you believe that only a single credit score is used by the lenders to analyze your credit worthiness, then it is very important to know that there are practically hundreds and even thousands of credit scoring models for them to use. These so-called credit scoring models are usually prepared by credit reporting agencies, independent companies, and sometimes even by the lenders themselves.
Fact: Firstly, you are free to check your credit report as many times as you deem fit without pulling down your credit score ever. Secondly, the number of credit report requests has no significance towards the calculation of your score. However, inquiries made by the businesses due to your credit applications do affect your credit score negatively. However, the most widely used credit scoring models are FICO scores. These scores are developed and administered by the Fair Isaac Corporation.
Fact: Credit report is separately made for every individual. However it might be possible that there will be certain items that will get reflected on your as well as your spouse's credit reports. For instance, the information regarding the accounts that you hold with your spouse will show up on both the credit reports.
Fact: As a matter of fact, it isnt necessary at all to get knee deep into debt so as to establish a shining credit history, or rather to have a stellar FICO score. However, if possible, then it is advisable that you show some most recent moderate, but responsible use of loans on your credit report, instead of doing away with them altogether. The fact is paying down your debt on time on a regular basis helps in to chip away on your credit utilization ratio. The trick is to pay off your balance before the deadline expires. Thus, you get to take advantage of the credit cards without allowing them to reflect negatively on your credit report.
Fact: No, they are not. Credit scores are basically numeric grades derived on the basis of information concerning a consumers personal debt liabilities, financially-related public records, hard inquiries, 3rd party collection accounts and so on. These scores are sold alongside a credit report, but they are in no way a part of it. Alternatively, credit report of a consumer is prepared using all the above information along with his or her personal identifying information.
Fact: Simply put, employers dont use credit scores or even have the access to them, so that they can screen suitable candidates for their companies. However, credit reports may be used by a prospective employer for employment screening purpose.
Fact: The opposite of the above statement is the truth. It is, in reality, quite difficult to rectify any mistake you find on your credit report. Credit repair process is a long, drawn one, even if it's mandated by the law. As per the recommendations of the Federal Trade Commission (FTC), you'll have to include the copies of any or all the valid documents to prove point and most importantly, a copy of the disputed credit report. The report should have areas of dispute encircled with a red pen for the authorities to identify the problem easily.
Fact: In the recent past, creditors have started using social media in order to find out the preferences of their consumers. This is because a clear understanding of the markets will help them to promote their products/services in front of the right audience in a better way.
However, all these have little to do with your own social media activities and preferences. The best part is that your social activities aren't reported to the credit bureaus and so, have no influence on your credit score.
Baby boomers (aged 49 through 60):
At this matured age, you may or may not have a family, but then youve already faced most of the harsh realities of life. You know what it takes to be financially independent, not to say of good credit. However, if youre plagued with some sort of credit score myths, then you can get some of those most common ones cleared out here. These are some of the credit score myths that bother the baby boomers.
Fact: No, closing old accounts will actually shorten your credit history and that'll pull down your score. This is because the length of your credit history adds up to 15 percent of your overall score. Though having too many open accounts do have some negative effect to some extent, but then you shouldnt close them just to build a positive credit history. So, the most suitable option to improve your credit score would be to pay back all that youve borrowed, instead of closing down your credit accounts.
Fact: No one can legally remove negative information like bankruptcy, lien, foreclosure that is accurate and current from your credit report. Over time these blemishes can be earsed. Beware of the credit repair companies that promise to create a new credit identity for you, assuring you that they can remove accurate bankruptcies & judgements from your file forever.
Fact: Many think that shopping around for the best mortgage or automobile loan rates (also known as hard inquiries) can lower their score. But what they don't know is that the inquiries for a mortgage or car loan are counted as a single request as long as they occur within 30 to 45 days of each other.
Fact: Credit card offers do not have any effect on your score. However, if you are applying for a lot of credit or you have opened multiple credit accounts within a short span of time, then you may overspend. This can hamper your score. Higher the balances you carry on the cards, the lower your credit score will be; and if you do not repay the minimum amount every month, then it will leave a "dinge" on your credit file.
Fact: Don't get swayed away by the compelling offers made by the credit counseling companies. When you sign up with a credit counseling company, one of the first things that will happen is that 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.
Fact: Your score is yours and it has no relation with that of your tenant. It might happen that you see the accounts opened by your tenant being included on your report, then in this case it's an error on the part of the information provider or the credit reporting agency (CRA) and the way out is disputing it with both of them.
Fact: As per the federal law, your credit report must contain information that is fair and 100 percent correct. Each and every information should be validated upon your request. Previous record shows that around 79 percent of all credit reports have errors of some kind.
Fact: Any such credit statement will be considered as an acceptance of guilt. Additionally, your FICO score will be used to either approve or deny you of a loan and not on what your credit report has to say. However, different lenders follow different lending norms and so, it is the individual lender's discretion whether or not to provide you with a loan.
Fact: Here, in this country, credit reporting is completely a voluntary business. It has no specific executable minimum time period and if the creditors fail to report about your credit activities in a fair, accurate and validated manner, then all such data that theyve reported against you 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.
Fact: First of all, credit rating agencies are different from credit reporting agencies. Credit rating agencies evaluate and grade financial tools like mortgage or corporate bonds, and not any individual consumer. Some of the names of credit rating agencies worth mentioning are Standard and Poors, Moodys Investors Service and Fitch Ratings. On the other hand, organizations like TransUnion, Experian and Equifax grade the credit-worthiness of the consumers individually. These are credit reporting agencies and not credit rating agencies.
Fact: Sadly enough, your credit scores may remain entangled with that of your spouses' long after getting a divorce from him or her. For instance, if you and your ex-spouse use the same credit card, then both of you are equally liable for the repayment of the balances incurred on it, irrespective of the state of your marriage. So, in order to avoid future heart-burns and credit problems, it is best to close all the joint accounts held by you and your spouse.
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.
Fact: Any unpaid medical debt will show up on your credit report as soon as it is sent to the collections. These collection accounts will have a negative impact on your FICO score since according to research, such financial activities are indicative of probable credit risk. However, the extent of their impact on your credit score will be determined on the basis of the collected information, along with different other information shown on your report. Moreover, as the newer versions of the FICO scores keep coming up, smaller amount of collection accounts (actual debt amount being lower than $100) will be ignored by the score.
Fact: Both foreclosure as well as short sale are equally harmful for your credit. This is due to the fact that both of them are regarded as loan primarys - a factor that the FICO scoring model uses to predict your credit-worthiness. However, there is a certain differentiation, in case you owe a deficiency balance amount to your lender and it gets reported following the closure of a short sale on your property. If a deficiency balance is reported, your credit score will suffer more as compared to a short sale with no deficiency balance at all.
Fact: 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 in order to help defend themselves against the three leading credit-reporting agencies - Experian, Equifax and TransUnion.
Fact: Credit scores will appreciate you for having no debt at all. Actually, a number of metrics are used in various credit scoring systems that penalize you for owing outstanding loan balances to others. Basically, using your credit card upto its credit limit, having multiple accounts with high outstanding balances, having a number of delinquencies and the likes, hurt credit scores.
Fact: The truth is debt settlement does impact your credit scores negatively. However, negotiating for a settlement wont 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. Actually, primary credit accounts and the names of the creditors accepting your settlement offer have adverse effects on your credit scores.
Fact: Though it is true that you are entitled to a free credit report once every year from www.AnnualCreditReport.Com, yet youll have to pay a certain amount in order to get your actual credit score (somewhere around $15) or may be, youll have to sign-up for the year-long services. Fortunately, you wont require your credit score, if you keep a tab on what is being shown on your credit reports and take prudent steps to rectify mistakes or issues affecting them.
Fact: Your credit score will start improving after about one year from the date of your complete discharge under bankruptcy. This is very likely to happen if you continue to make monthly payments on time. Moreover, seven to ten years later, youll be able to gain complete control over your credit score and that the lenders will once again be willing to grant you fresh credit at affordable rate of interests.
Fact: You will have to pay off your debts in order to establish that you are capable of managing multiple lines of credit efficiently. Alternatively, not borrowing any loan at all will make it difficult for you to get a credit card or any other type of credit, for that matter. Hence, if you start slow but are responsible with your purchases and payback your balances on-time, then you can build a pretty stellar credit score.