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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:
Credit - Google News
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