By Reginald Garth
The subject of credit does not have to be intimidating especially when you know the facts about the myths out there about credit. Several myths circling around have caused many to become discouraged and not want to seek the assistance needed to repair their credit and or not get the proper help that is needed to repair their credit.
Here are some of the most common myths you may have heard:
– Checking your credit will hurt your score.
Understand what inquiries do impact your score versus those that do not. A soft inquiry does not impact your score. A soft inquiry means that you are simply checking the status of your score. You are also seeing where you are financially. You are allowed a free annual credit report from each of the three credit bureaus. A suggestion would be to get one from Experian in one quarter, one from Equifax in another, and TransUnion the third. Here at Operation HOPE we provide you with a soft inquiry check that is free and we go over it line by line with you.
– Closing a credit card helps your score.
Here is the truth behind that, closing a credit card hurts your score. You can have as much credit available as you want but what is really being measured is how much of that credit you are using in a month. The other point of note here is 15% of your credit score is made up of the length of credit history. Your score is calculated by your oldest tradeline as well as the average age of your accounts. When you close a credit card, you are erasing a part of your credit history. It is important to keep a good history which shows to the lenders that you have and are a good steward of credit.
– Credit is your money.
Credit is NOT your money. Credit at the end of the day is a loan from a lender, usually a bank. In short, credit is the bank’s money. You are simply loaned the money for a specific purpose. Student loans, credit cards, auto loans, mortgage loans, even consolidation loans, all are ultimately the bank’s money that is entrusted to you to pay back. Credit is NOT and DOES NOT replace your income.
– Paying off all your debts erases them.
Paying off amounts owed helps but understand it does not erase them entirely. Some things can remain on your report for an undetermined amount of time. Bankruptcies, for example, remain on your credit report for up to 10 years. When you do pay-off accounts, it is good to have that on your report and you want to make your payments on time. This shows good credit responsibility. When paying off accounts that have gone to collections, be sure to uphold your obligation to make monthly payments or settlements and make sure that they are on time. When the account is to be settled be sure you keep record of when the account went into delinquency and when it was settled. You may not get all of your points back when you pay off an account in collections, but you will avoid causing more damage to your credit.
– Anyone can “fix” your credit.
Be mindful of debt settlement/credit repair companies. Not everyone who says they can help really are being helpful. Some will tell you to stop paying debts which can cause you to incur more late fees/penalties and interest. By not paying your debts, you ultimately lower your score and hurt any further chances of getting additional credit. Also keep in mind that just because you are working with a debt settlement or credit repair company, collection agencies can still file a lawsuit against you for failing to pay on an account that is owed. The best resource in fixing your credit is you. You can improve your credit score by learning how to negotiate your payment plan, dispute inaccurate information, and maintain a healthy budget.
Operation HOPE can help you with learning how practice good credit management.