Credit repair companies are everywhere lately, but there are some myths to be aware of. Credit repair is difficult, but there are many things you can do yourself!
Bad Accounts are Removed From Your Report
This myth is oftentimes promoted by credit repair companies. They are not able to remove negative accounts just because you paid them to do so. These companies are only allowed to remove accounts that are inaccurate. They can help you locate incorrect items on your report and will contact your creditors for you. If the company makes a promise to raise your credit score by a certain amount of points, you should be skeptical because this is a nearly impossible to fulfill or to predict. Most inaccuracies are easy to find yourself, because only you know your accurate basic information and accounts you may have. You can check your credit reports for free every week from www.annualcreditreport.com
Closing old accounts boosts your credit score
Your credit score is influenced by the amount of time you have lines of credit reporting. Older accounts that are positive will generally give you a better credit score. The average age of all of your accounts also matter. So, if you close an old credit card that you no longer use, it can actually lower your credit score. The length of your credit history makes up 15% of your score based on the FICO Score.
Paying off Collections Improves your Credit Score Immediately
Even if you pay off your collection accounts, those accounts can still continue to hurt your credit history for up to 7 years. Paying it off will only stop the collection action from creditors and debt collectors, and it can increase your credit score a little, but because it was in collections it can still impact your credit score for 7 years. If you want a collection account removed, it needs to be proven as inaccurate. To do this, you must file a dispute to the credit bureau reporting it and provide them with proof of the inaccuracy. If you have an inaccurate collections on your account and they keep verifying it as correct, you should contact an attorney to take action, especially if you have been denied credit due to this inaccurate reporting.
All your credit reports have the same information
here are three major credit reporting agencies: TransUnion, Equifax, and Experian. All three have their own credit report, and may all contain different information. This is one important reason to review all three of your credit reports to make sure that they are consistent and accurate.
Checking your own credit score or reports lowers your credit score
Checking your own credit reports and credit score does not harm your credit score. You are entitled to review your information without consequence. Your credit score is also not harmed when you receive an unsolicited preapproval from a lender, such as a letter notifying you that you’re prequalified for a credit card that you did not apply for. These are considered “soft inquiries” on your credit.
Multiple credit pulls can harm your credit score
This is partially true, but it depends on how you are applying for new credit. When you apply for new credit, the lender will request your your credit reports and this is what is considered a “Hard Inquiry”. This can harm your credit score by around 5 to 20 points for up to 12 months. If you apply for multiple credit lines over a span of just a few months, it can harm your credit score and cause points to drop. There is a way to minimize this impact and its called rate shopping.
If you apply for the same type of credit within two weeks the credit-scoring models understand that you’re shopping for a good deal. When done correctly, only one hard inquiry impacts your credit score - all are reported but only one carries influence on your score.
Your employment status impacts your credit score
Whether you are employed, collect Social Security, or have never had a job in your life, it has no affect on your credit score. It is true that sometimes your employment history is listed on your credit reports, but it doesn’t have influence on your credit score. The credit scoring models care about how you’re handling repaying your loans - not where you work. On the other hand, lenders do care about your employment history because they want to have confidence in your ability to repay the credit that you’re taking on.
Your and your spouse’s credit scores merge
When you get married, it is true that many things between you and your spouse become shared. However, your scores are still separate. Your marital status has no bearing on your credit score.
If you apply for new credit with your spouse, such as a joint auto loan, your credit scores are also considered separately. Oftentimes, the spouse with the lowest credit score is the one that is used to meet credit score requirements.
Having no debt is good for your credit score
If you don’t have anything currently being reported on your credit reports, then you likely have what is called a thin file. A thin file can create a lower credit score. The majority of your credit score is based on your payment history. If you don’t any loans or credit that you are actively paying on, you are not building a good credit score.
However, having too much debt can also hurt your credit score. For example if you have credit cards that are over 30% of their borrowing limit, it will likely lead to a poor credit score. There is no real baseline for how much debt you should have. What is most important is that you are not overextending yourself and that you’re paying loans back on time. It all depends on your situation and what you can comfortable handle.
Most lenders prefer that borrowers have active accounts because it proves that you are able to handle credit. Borrowers that have never taken on any credit can also be called no credit borrowers. It can be tough for new borrowers to get their feet wet in the credit world because they have not yet proven they can handle relying credit.