| What You need to know about your Credit |
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| Written by Daniel R. Michaelson |
| Saturday, 02 May 2009 10:15 |
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This article is one of my favorite because it addresses so many of the questions people have about credit and their credit reports.
This article is one of my favorite because it addresses so many of the questions people have about credit and their credit reports. 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. Not true! In fact, this is absolutely not what the credit card companies want you to do. In the eyes of the credit card companies, the best client is one who only pays a little more than the minimum payment each month, but makes all their payments on time. Keep in mind that the credit card companies do not maximize their profits unless you are paying interest every month, and they are the ones who designed the credit system. If you want to maximize your credit scores, you need to give them what they want. Myth 3: Repairing credit is illegal. Very false! Credit repair is not only perfectly legal; it is actually protected by federal law. For more information on the law, you can refer to the Fair Credit Reporting Act (FCRA). It is legal for you to repair your own credit, as well as hire anyone you choose to do it on your behalf. Myth 4: Enrolling in a Credit Counseling program will improve my credit. We have all seen the statements made by credit counseling companies that state that their program will improve your credit. I can tell you that this is false. When you enroll into a credit counseling program, one of the first things that happens is a statement is inserted into your credit reports for each account included in the program. This statement will say something like "payments made through credit counseling", or "client in CCCS". This statement itself may not cost you any points; however it is looked at by the lending industry as very negative. It is like putting a sign on your forehead that says, "I can't pay my bills!" In addition, most credit counseling programs will make your payments late, and this will then cause you to have late-pays, which will cost you many points on your credit. Myth 5: The law requires that negative items stay listed on my credit for 7 years. This is also false. There is no law that dictates the duration that an item must remain on your credit reports. The only thing that dictates that an item must remain on your credit report is that it can be proven to be 100% true and accurate. Myth 6: If you make a lot of money, you will have great credit. Your income does not play any direct roll in determining your credit scores. In fact, statistics show that large percentage of high-income earners have sub prime credit. Your credit scores are made up of several factors including payment history, account balances, types of credit in use, etc. Myth 7: As long as I have never been late on a payment, I will have great credit. It is important to your credit scores that you have never been late on your payments; however, this is only one piece of the credit score pie. It is possible to have never been late on a payment and have sub prime credit, or no credit at all. Your history of payments only makes up 35% of your credit scores. Myth 8: Your credit report from each credit bureau will be the same. 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. False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts. Myth 10: If I close my old credit accounts, my scores will increase. 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). You are now armed with some very powerful information that will surely be able to use to your advantage. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. With over 20 years in the consumer debt relief field, Daniel R. Michaelson is one of the leading authorities on credit Solutions. |