Credit Repair Myths: What Will Not Increase Your Score

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When you make the decision to repair your credit, things may seem confusing. Everyone seems to have a different opinion on what works and what doesn’t. Here are 11 common myths that you should definitely be aware of.

Peruse them all, or click on a specific myth to jump to it.

11 Common Myths About Your Credit

Myth 1: You Only Have One Credit Score

FACT : You have many credit scores.

There are hundreds of different scoring methods used for different types of loans and different companies.

Your credit scores will be within a certain range, with a 25 – 50 point difference being the largest between them.

If your credit scores show more variation, then there may be mistakes on one or more of your reports. You could also have a few accounts that only report to one credit reporting agency and not the other two. This is somewhat common.

Check your credit report on file at each of the three major credit reporting agencies – Experian, Equifax, and TransUnion. Creditors and other lenders view your different credit scores for different types of loans. You want to verify them all for maximum accuracy.

The two most popular credit evaluation methods used by lenders are FICO and VantageScore. Check out our article, The Difference Between VantageScore and FICO to learn more.

Myth 2: Checking Your Credit Report Will Hurt Your Credit Score

FACT : Checking your credit report does not affect your credit score.

This common myth may have gained momentum because lender inquiries, such as an application for a new credit card, do hurt your credit score. An inquiry from a credit company can decrease your credit score by up to 5 points.

If your credit score is 650 and you try to open six credit cards in a week, expect to see your credit score drop by 15 to 30 points. This drop is temporary, but it will affect your credit card and loan options during the period.

Why? Because a host of credit inquiries in a short period of time gives creditors the idea that you might be “credit shopping” in an effort to buttress failing financial health.

But when you request a copy of your credit report, that request does not count as a hard inquiry (or an inquiry at all). This is thanks to the rights given to all consumers through the Fair Credit Reporting Act (FCRA) which permits credit consumers to view their reports for free once every 12 months from each of the three credit reporting agencies.

We show you How to Get Your Free Credit Report. Do it at least annually.

Myth 3: You Have To Wait Many Years for Negative Item Removal

FACT : Negative items can be removed from your credit report in as little as 30 – 45 days.

While it is true that most negative items expire after seven years, it does not mean that those negative items need to be dragging down your credit score for that much time.

You can send a dispute letter and have those negative items more quickly removed from your credit history.

A creditor has 30 days to investigate and respond to a negative item dispute. The countdown begins on the day the creditor receives your letter.

Failure of your creditor to respond within 30 days gives you the right to request that the negative items be removed, as per federal law. For some consumers, it’s that easy. For others, though, the creditor will respond, and you will have more stages in your dispute before the negative items are removed from your report.

Diligent research and/or requesting the help of experts is vital to successful disputes. Even the slightest wording of your sentences can be the difference between having a negative item removed, or having it stuck on your credit report for years.

Although you are not doomed to wait many years for negative item removal, you are tasked with sending a dispute letter to your creditor to have the negative items removed more rapidly.

Does Credit Repair Really Work? We think it does.

Myth 4: Paying Past Due or Debts in Collection Erases Them

FACT : Paying a debt already in collections and showing as “delinquent” on your credit report will probably not impact your credit score much.

Your credit score is calculated by a variety of factors. Positive payment history is the largest chunk, amassing 35% of your FICO credit score. Paying off old debt does not erase its negative mark on your report. When a debt is sent to collection, your original creditor has already lost money.

Debt collecting agencies operate by paying your creditors a small percentage of your total outstanding debt. The rationale behind this is that your creditor is at least guaranteed some income, while the debt collecting agency takes on the full risk associated with the repayment of your debt.

Debt collecting agencies are not the companies that issue credit lines, and as such, making late payments of debt to them does not boost your standing in the eyes of potential creditors.

There are ways around this. The most important thing you can do with old debt is getting written confirmation from the debt collecting agency of its legal rights to collect your outstanding debt.  Then get a deletion in writing in exchange for a partial or full payment of the debt you have outstanding.

The deletion in writing is needed as evidence to send to the credit bureaus for the best chance of erasing old, paid debts from your credit report.

Also, be aware of your state’s statute of limitations on debt. A handful of your old debt accounts that have been passed onto debt collectors may be near expiration. Once your debt expiration passes, you are no longer going to face legal repercussions from your creditors for not paying the debt.

For more options on how to squash your old debt, check out this Complete Guide to Debt Collectors.

Myth 5: Debt Is Just Debt

FACT : Not all debt is the same. Paying particular types of debt first will do wonders in boosting your credit score.

This ties back to the myth above. Paying a debt that is in good standing will almost always improve your credit score. Paying a debt to a debt collector may have only a negligible impact on your credit score.

If you have two credit cards with a credit limit of $1,000 on each card, but you’ve maxed out both and are making the minimum monthly payments… the credit card companies love you! They’re making all that interest from you! However, your credit score does not love you. Even if you’ve never been late with any of your payments.

If you pay down both of those credit cards and keep their balance low from month to month, the credit card companies will appreciate your fiscal responsibility and your credit scores will begin to show you some real love! This is the kind of debt you want to pay down. This is what we refer to as “good debt”.

Debt collecting agencies are not the companies that issue credit lines, and as such, making late payments of debt to them does not boost your standing in the eyes of potential creditors. It is far better to focus on paying the debt you owe to your original creditors first.

If you’re not sure which to start with, check out this article: It Matters Which Debts You Pay First. Here’s Why.

Ask your creditors for deletions in writing when repaying large debts on which you missed payments. Some creditors may agree to remove late fees and other charges on your account in exchange for payment on your original debt amount.

Myth 6: Keeping a Credit Card Balance Is Good for Your Credit

FACT : We don’t think you should keep any balance on your credit cards from month-to-month. The interest is just too high and it does little to nothing for your credit score.

There is a lot of confusion about how a credit card (revolving credit) is reported on your credit report. This is an example of how most credit card companies report it.

Let’s say you have a credit card with a credit limit of $1,000. From June 1st to June 30th, you charge $850 in normal monthly expenses to your card (groceries, gas, transportation, medical, utilities, etc.).

On or around July 10th, your credit card company calculates your outstanding balance for the previous month of $850 and reports that as the “statement balance” on your credit card statement and “outstanding balance” to the credit reporting agencies. It would appear that you are using a whopping 85% of your total credit available on that card. That is not good for your credit score. Even if you pay it in full.

So here’s one of the best ways to manage your credit utilization: pay the $850 balance in full on July 8th. The credit card company will now report your outstanding balance as $0 (assuming no additional charges are made between your payment date of July 8th and the statement date of July 10th).

The above is provided as an example only. That’s why you need to go online to your credit card company and find out which dates they use to calculate the statement date. Set a reminder 2-3 days in advance of that date and make an online payment that will be accepted before the official statement date.

A low credit utilization rate demonstrates to creditors that you can manage debt well.  It signals to them that you do not overspend. This builds trust that you will be able to keep your spending in check as you open credit lines of more and more value.

With that being said, you do not need to keep a credit card balance to improve your credit. If you pay off your balance in full each month prior to the statement date, your credit may be in even better shape than if you let your balance carry over from month to month.

Positive payment history is a much more valuable tool to boost your credit score.

Myth 7: The Government Owns the Credit Bureaus

FACT : All credit bureaus operate as private, for-profit companies.

Your jaw might have just dropped. Everything you thought you knew about the credit system for 20 years is out the window. The three major credit bureaus – Experian, Equifax, and TransUnion – are private, for-profit businesses.

The government regulates the bureaus. It has published the Fair Credit Reporting Act(FCRA), established the Federal Trade Commission(FTC), and mandated the Consumer Financial Protection Bureau(CFPB) to keep the credit bureaus in check. Still, it does not own them.

Hence, when disputing your credit report, these credit bureaus will do everything in their power to efficiently process your dispute, even when that means auto-verifying your report against their internal system instead of reaching out to the independent creditors (also known as “furnishers”) for reporting accuracy.

Which, though technically illegal, is common practice. You must be persistent when dealing with the credit bureaus. Keep pushing forward and eventually, your dispute will be given an in-depth analysis that could save you thousands in reporting inaccuracies, administrative mistakes, and lowered interest rates when getting a loan for any major life purchase.

Myth 8: The Amount of Money You Have Affects Your Credit Score

FACT : Credit reporting agencies do not consider your income in their appraisal of your credit trustworthiness.

The five factors that make up your credit score are payment history, length of credit history, debt to credit ratio (your credit utilization), credit mix, and new credit inquires.

Income does not make the list.

That said, when making major purchases such as a home or car, the lender, mortgage company, or auto dealer may ask you to show proof of income. They want to be assured you have a good income history and stability to make the monthly payments on the loan they are about to give you. They do this because credit reporting agencies do not (currently) have access to your verifiable income.

Myth 9: Your Credit Score Is Lower Because You Have A Lot of Debt

FACT : The total amount of debt you have is inconsequential to your credit score.

What matters is your credit utilization ratio. Installment loans like a mortgage and student loan do not factor into your credit utilization ratio. Only revolving lines of credit such as credit cards determine this ratio.

Furthermore, different types of loans or credit have different expectations for repayment. A home mortgage is a long-term debt investment, whereas a credit card is expected to be paid monthly.

Myth 10: A Bad Credit Score Prevents You from Obtaining Credit

FACT : A bad credit score does not prevent you from opening new lines of credit.

Albeit a bad credit score does hurt your chances of securing credit with more favorable terms. Creditors are keen to offer good terms to consumers in good credit standing, as they know these consumers are trustworthy to repay their debts and have other good credit options.

With a bad credit score, you are a later pick in the draft. Two individuals with identical lives, but different credit scores, can expect different terms that may affect their future financial wellbeing.

The individual with good credit may have a 1% interest rate and a smaller down payment. The individual with worse credit will receive worse terms, perhaps a 2-3% interest rate in addition to a larger down payment.

A bad credit score does not necessarily prevent you from obtaining credit, however, it will cost you more with higher interest rates and larger down payments. If have a lower credit score, we’ve detailed some options in our article, The Best Credit Cards for Bad Credit or No Credit.

Myth 11: Credit Cannot Be Rebuilt

FACT : Credit can be rebuilt.

Your credit report is meant to reflect your ability to manage debt and uses data over time to calculate a credit score. Bad credit is mainly due to missed payments, large credit utilization ratios, and a lack of payment history.

To rebuild your credit, do the opposite.

Pay your payments on time, every time. Keep your rolling account balance below 30% of the total line of credit available, or even better, pay your balance in full each month.

Keep your old credit card accounts open. Perhaps use them for one small purchase a month that you immediately repay. As you incorporate these positive credit habits, your credit score will begin its ascent to 850.

For more insight on how to rebuild your credit, check out The Complete Guide to Credit Repair.

Final Thoughts

There are a handful of credit repair myths that will not help you improve your credit score. Some of these may have come as a surprise to you. Keep these myths in mind during your credit repair process and you will be one step ahead of the game!

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