8 Credit Report Myths Explained

When it comes to your credit score and history, few things are more important in securing your financial standing. Having a strong credit score and history, ensure that you receive favorable terms for loans and other financial products. Yet, many consumers are unaware of some of the myths that surround credit and how it works.

In an effort to alleviate some of the stress and make credit something easy to understand, we’ve put together a list of myths and the realities surrounding them to help take away some of the false stigmas and notions concerning credit. Read below of eight myths on credit and what you need to know about bolstering your financial health.

1) Balances on Credit Cards Boost Your Score

Your score can be increased by opening and using a credit card as well as for starting or rebuilding your credit. At the same time, when you run a balance, you incur interest rate charges and fees that lower your overall available credit and your credit score potentially.

2) It’s Wise to Close a Credit Card Once You Pay Off the Balance

In a couple of ways, this can actually hurt your credit score. Closing a card can reduce your credit history, especially if it is a card you have had for a while. This will erode about 15% of your score. Also, closing a card can increase your debt-to-credit-ratio, which inversely affects your credit score. As a result, it is better for you to cut up the card and not use it, but don’t close the account.

3) Using a Debt Settlement Firm is a Good Idea

Usually, the first thing a debt settlement company will do is to gather your payments and try to negotiate for a lower pay-off with the lender in the long-run. This technique typically involves a great deal of harassing phone calls from creditors and subsequent reductions in your credit score.

4) You Should Consistently Make Payments on Past Debts

If the debt is older than the statute limitations of your state, the debt collector will be unable to sue you for it, even though it may feel like the right thing to do. At the same time, if you actually make the payment, the creditor gets an opportunity to sue you as you start the clock again in terms of the statute of limitation. After 7 years, the debt will not appear on your credit report and it may be better to just start with a clean slate.

5) You Can Get a Free Credit Report Anywhere Online

While many sites offer free reports accessible online, you should access your free report from one of the three major agencies online such as Experian, TransUnion and Equifax. Many sites employ the offer of free credit reports as a marketing vehicle to enroll you in costly programs that serve no real value to your credit needs. Concealed membership and service fees are just a couple of the shadow costs these companies will charge after providing you with a credit report. Furthermore, the integrity of the report is questionable as well.

6) Your Credit Report Reads Fine and So You Are In the Clear

Always be vigilant in checking your report supplied by Experian, Equifax, and TransUnion. Sometimes there are inconsistencies that may impact your creditworthiness depending on which service a potential lender you solicit uses. In the past, lenders have been unaware of credit reporting errors that have cost them loans and other incentives because they weren't aware of inconsistencies in their credit documentation. This can make all the difference in securing the best rate on your mortgage and other financial assets.

7) Checking Your Credit Actually Hurts Your Score

Performing sporadic checks on your credit will not affect your score in a significant way. Checking it regularly will ensure you don’t fall victim to identity theft or other breaches in security of your accounts.

8) You’re Responsible With Your Credit So You Have Nothing To Worry About

Most credit reports feature errors that even the most responsible parties are unaware exist. This can result in higher interest rates for you or other unexpected penalties. Be vigilant in monitoring your credit, even if you handle it impeccably.

 

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