10 Great Credit Myths Exposed!

By: Jon Ochs

This is one of my most favorite articles that I have written because it addresses so many questions that people have about credit. I love watching the eyes of my clients widen when they find out the truth about some of these most common myths.

You will be hearing some things that will most likely be the opposite of what you currently believe. Keep in mind that credit and credit reports are not widely understood, and even those in the financial and credit industry, often do not have a good understanding. With that in mind, let's get started

Myth 1: Paying off (or "settling") late payments, tax liens, collections or judgments will remove them from your credit reports.

This is false. By paying off these types of accounts, in most cases, you will actually see your credit scores drop significantly. The reason for this is because what you have effectively done is bring an old negative trade line to current status. A more recent negative item will cost your more points on your credit than an old negative item.

Myth 2: Paying my credit card balances in full every month will improve my credit.

Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.

Myth 3: Credit repair is not legal.

This is far from the truth. In fact, credit repair is legal for you to do on your own, or hire anyone you choose to do it for you. Repairing your credit is a right protected under the Fair Credit Reporting Act (FCRA).

Myth 4: Consumer Credit Counseling will improve my credit.

Credit counseling programs will only harm your credit. The first thing that will happen as a result of enrolling in a CCCS or credit counseling program, is that your creditors will add the line "Account in CCCS" or "Account paid through credit counseling" to each of their trade lines. This will not affect your score, but does look very negative to lenders. The next thing that seems to always happen is that the credit counseling program will make the payments to your creditors late. Sometimes this is not their fault since they just setup the payment to be on your original due date. However, the credit card companies often adjust your due date, and since nobody, like yourself, is monitoring this, they began making your payments late. This will result in late pays on your credit, in addition to late fees.

Myth 5: Negative items have to stay on my credit for 7 years because that is the law.

Completely false! There is no such law.

Myth 6: I make a lot of money so I must have excellent credit.

Actually, your credit scores are made up of several factors such as payment history, account balances, types of credit in use, etc. Your income is not one of those factors that determine your credit scores.

Myth 7: I have never been late on my payments, I must have great credit.

Your timeliness of payments does make up 35% of your credit scores, but the other 65% is made up of other factors that are not related to making your payments on time. It is important to understand all those factors to maximize your scores.

Myth 8: Your credit reports will be identical from each of the 3 major credit bureaus.

Wrong again! Most, if not all the time, your credit report from each credit bureau, Equifax, Experian, and Transunion, will be different. Not all creditors report to all 3 credit bureaus, so it is perfectly normal to have different items on each report. Also, your scores will not be the same since each credit bureau uses their own scoring model.

Myth 9: Once you are married, you and your spouse share the same credit.

This is completely false. All individuals will always have their own individual credit history. If you have joint accounts, you may share some of the same trade lines, but it is still your credit.

Myth 10: Closing credit card accounts will increase your credit scores.

This is often a huge surprise for many. When you close old accounts, your scores will often drop substantially, sometimes by more than 100 points. Often a lender will ask you to close some old accounts to qualify for a loan, but once the accounts are closed, your scores may actually prohibit you from qualifying. This is good knowledge for to know so you understand the impact of this decision. Old good standing accounts carry more positive weight on your credit scores than newer accounts. When you open new credit, you may also see a temporary drop in scores until those accounts have seasoned (usually 6-12 months).

Now that you are armed with this powerful knowledge, you can get on the road to optimizing your credit today.

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Jon Ochs is the founder/CEO of NCA Credit Repair, one of the most trusted and respected Credit Report Repair companies in the nation. Visit www.ncacreditrepair.com for more info on credit and credit repair.

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