1. Paying my debts will make my credit report instantly pristine.
A credit report is a history of your payments, not just a snapshot of where you are at the moment, says Maxine Sweet, vice president of public affairs for Experian, one of the three major credit reporting agencies. As the author of the popular Web column "Ask Max," she continuously reminds people that you can't change the past.
2. I must give permission
for a company to see my credit report.
3. Credit counseling always destroys my
"We don't want consumers to consider credit counseling to be detrimental to their FICO scores," says Craig Watts, public affairs manager at Fair Isaac Corp., the company that developed the FICO score.
However, if the credit counselor negotiates a lesser contractual obligation, the lender decides how it wants to report that. So if your $500 monthly payment is refigured for $300, the creditor may either legally report that as $200 in arrears every month or reward you for not filing bankruptcy by reporting the account as up to date.
"As long as the accounts are delinquent and not brought up to date, it will be viewed negatively by lenders," says Deborah McNaughton, owner of Professional Credit Counselors and author of "The Get Out of Debt Kit." However, she says, "if everything is current, whether it's a home loan or not, they're not going to view it as negative. The FICO scores are not affected by it." The credit score system ignores any reference to credit counseling that may be in your file.
Although credit counseling does not by itself influence your credit score, it is apparent on the report that you've been through, or are currently in, counseling -- and that is something individual lenders may not like. Or they might never know.
"If they looked manually at your credit report and saw that debts were being repaid through a debt management program, they probably wouldn't open a new account for you," Sweet says. Of course, "you shouldn't be opening a new account if you're in a debt management plan."
However, most lenders these days will never see your actual report.
"They don't look at reports manually anymore," Sweet says. "Some small creditors might, but most of any size use automated scoring systems of one model or another."
Once you've successfully emerged from credit counseling with your formerly tattered credit pieced back together, the history of consistent payments is what matters the most. "Even mortgage lenders will work with consumers who have successfully gone through debt management counseling and will work to get them a mortgage," McNaughton says.
4. Canceling credit cards
boosts my score.
And, Watts chimes in, those unused cards lying in your jewelry box aren't wreaking havoc with your score.
"The myth is that they look ominous to potential lenders," he says. "Reality is that paying your bills on time and not being overextended is more important than having $5,000 worth of available credit on a card you're not using. We continue to evaluate this 'open to buy' statistic, and we simply don't find it falling into one of those highly predictive areas."
On the other hand, extremes never look good. Opening one charge account occasionally to take advantage of a 10 percent offer is negligible. Going wild and signing up for five during the holiday season probably would invite a decreased score, he says.
5. Too many inquiries hurt my score.
"Outside that 30-day period, if we locate a mortgage or car inquiry that occurred 180 days ago, and then see more mortgage- or auto-related hits in the accompanying 14-day window, we err on the consumer's side and still assume she's shopping for one item," he says.
"We really feel like we are capturing the true consumer experience and not holding it against them for being an aggressive or smart rate shopper."
Furthermore, there's no such thing as some fixed number of points associated with these inquiries, Watts says.
"Inevitably when a consumer or a lender evaluates a credit file, they think this item must be worth 20 points, this is worth 100 points," he says. "In reality we design the FICO scoring model so that each credit report item is given a reasonable or statistically valid number of points."
In English, that means FICO is designed to predict the likelihood that you'll fall seriously behind in repaying one of your creditors within the next two years. Some things have predictive value and some don't. Inquiries fall in the middle.
"They're not incredibly predictive, so they're in the model but they don't drive the boat," Watts says.
6. Checking my own credit report harms my
Using a company that promises credit reports as a perk can turn this myth into a self-fulfilling prophecy, however, McNaughton says.
Because they are merchants in disguise, their freebie costs you. Citizens must go directly to the three bureaus if they want a soft pull. Ditto FICO.
"Pulling your credit scores is quite empowering," says Watts. "You have a choice: You can either be very aggressive with your credit management and pull your score with some regularity or take a more passive approach once a year to see how all those credit cards are actually doing."
7. FICO scores are locked in for six
"When we calculate a score, for all intents and purposes it then goes away and is recalculated the next time someone pulls your file," says Watts.
8. I don't need to check my
credit report if I pay my bills on time.
"There can be a lot of other activity going on that you don't have any clue about," McNaughton says.
In her experience, 80 percent of all credit reports have
erroneous information ranging from a wrong birth date to accounts you
never applied for.
credit reports are the same.
But "that was not true in the past," Sweet says.
And, because they are separate companies, the speed in which they update records isn't necessarily equal.
Additionally, the agencies use inquiry activity to update your address, phone numbers, employment status and the like. Because creditors typically pull only one company's report, it's possible that, say, TransUnion doesn't show your current address.
According to McNaughton, she's never seen a client yet for whom all three reports spit out the same records and scores.
10. A divorce decree automatically severs
"We see so many people who, a year or two after the divorce, are just outraged and hurt because their credit report reflects their ex-spouse's missed payments," she says.
Unfortunately, at that point, they are helpless to erase the damage.
Divorcing parties must contact the creditors and either close current accounts or have the booted name sign a letter of consent for this action. And assuming certain debts isn't a unilateral decision on your part, says Sweet. Creditors typically do a credit check on your name and if they don't deem you financially stable enough to assume that $30,000 car loan, for instance, they won't agree to remove the other person.
11. Bad news comes off in seven years.
On the good-news side, accounts in bankruptcy can be deleted seven years after the date of your first missed payment, so those individual pieces may disappear before the word "bankruptcy" on your report. And if you pay off or close an account that had no delinquencies or problems, it, too, remains on the record for 10 years rather than the previous seven, say Experian experts. Again, this means positive information hangs around longer, as a consumer benefit.
12. I can always pay someone to fix or
repair my credit.
Companies claiming to fix your credit deliver on their promises by generating a flood of dispute letters to the credit reporting agencies, which in turn ask the creditor to verify or document the entry. If they cannot, the listing must come off at that time. But if the creditor later does verify or document it, the agency slaps it right back into the file after 30 days.