Credit report myths
There are so many credit report myths and misconceptions circulating around that it's hard to figure out where to begin. It is important to know some of those, and I will try to cover as many myths as I can before my patience runs out.
Myth #1 Paying off my debts will make my credit score go instantly up and by a lot. A credit score considers the history of your payments, not just a snapshot at the moment. Paying off revolving loans does increase your credit scores and rather fast, but it doesn't happen overnight.
Myth #2 FICO scoring formula is the only one used in calculating credit scores. While it has been the most popular, it is getting some competition from VantageScore, developed jointly by Equifax, Experian and TransUnion.
Myth #3 You only have one credit score. Actually you get three credit scores, one from Equifax, Experian and TransUnion, and they can differ sometimes by a large margin, something like 80 points.
Myth #4 Lender always orders merged 3-in-1 credit report from Equifax, Experian and TransUnion when you apply for a loan. Wrong, most if not all car loans are based on only one agency, while home mortgage lenders always get credit reports from all three.
Myth #5 Once you pay off a negative record, it is removed from your credit report and your score increases. Nothing can be further from truth. Most negative records remain on your credit report for 7 years after they are first posted, some stay for 10 years. Paying off the account before the end of the set term does not remove it from your credit report, but will cause the account to be marked as "PAID." See Bad Credit Time Limits. You scores will actually go down initially but recover and improve after few months.
Myth #6 Your age, income and sex are factored into your score. This is a complete baloney.
Myth #7 Checking your own credit will lower your score. Not true, as long as you do it through myFICO or a credit card that offers this service. Even doing it through a mortgage broker friend on occasion won't hurt.
Myth #8 Keeping your old credit cards open with little or no balance increases your credit scores. Now, this one of the most confusing and popular credit report myths out there. As I wrote in Repair credit score for the right type of loan, this could be true for a home loan applicant, but spell disaster for a car loan seeker. Why? Because loans with different types of collateral (house vs car) employ different formulas. So while FICO formula for home loans looks at your empty revolving credit lines quite favorably, the one for auto loans simply frowns ... and rather heavily.
Myth #9 Any negative credit records can be removed just by disputing them. True only if you can prove that the negative information got on your credit report by mistake. Credit agencies are obligated to investigate credit reporting errors within 30 days and verify it, or remove disputed information. But if a credit repair company promises to remove negative but accurate information from your credit reports to instantly improve your score, don't waste your money.
Myth #10 Credit counseling ruins your credit score. As long as all your renegotiated payments are reported correctly, the credit score system simply ignores any reference to credit counseling that may be in your file. If your $200 monthly payment is lowered to $100, the creditor better be reporting this account as "PAID AS AGREED".
Myth #11 Too many inquiries hurt your scores. It is still true for credit card inquiries so keep those to no more that 2 a week and only if you really need one. Once upon a time however, shopping around for any type of a loan did hurt credit scores. Today the same type of hard inquiries related to installment loans made within 30 days doesn't damage your credit scores. Make sure you shop only for the same loan type within these 30 days, e.g. home loan or car loan.
Myth #12 Credit scores are locked in for three or six months. This is of course no correct. Your scores will change as soon as new information is reported by the creditors.
Myth #13 Credit card offers are hurting your score. This is not correct. The credit report pull that credit card issuer does to see if you are remotely qualified for one of its enticing products is considered a soft inquiry. Only when you apply and give them permission to run your credit, hard inquiry occurs. Again keep those to no more than 2 a week and 4 a month.
Myth #14 A divorce decree automatically splits joint accounts. This is one the most potentially damaging credit report myths, as what happens in courts, has absolutely no legal bearing with the creditors. So make sure to negotiate and change the payment responsibilities with your ex and with your creditors, otherwise a year or two after divorce, your credit may be ruined because of your ex stops paying.
Myth #15 When you get married your credit scores are merged automatically. No, they are not.
Myth #16 Being a co-signer does not make you responsible for the account. When you cosign for a loan, it is yours. You are as responsible as the person you cosigned for. Think very carefully before cosigning, as bad things do happen to good people.
Also see FICO score myths.
Fri Oct 17, 2008 01:10PM | Copyright: www.bad-credit-advisor.com | More in Credit Report Dispute | Comments (0)
Recent Entries
- Capital One Secured Credit Card to Improve Credit Score - Review
- How to get approved for mortgage - loan approval help
- Spouse average FICO credit score is higher?
- Why average credit score?
- Getting mortgage after bankruptcy - go FHA
- Debt settlement and how it affects credit score
- Debt settlement with Citibank
- Can I settle with credit card company with no late payments?
- Credit card limit lowered, credit score goes down
- Gold price will rise in 2011
