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Top 5 Credit Misconceptions

We have all heard the rumors…from neighbors, relatives or friends. There are a wide variety of myths floating around about what you should and shouldn't do to improve your credit reports and credit scores. The buck stops here! Phelps Creek Financial Coaching has exposed these urban legends to provide you with the truth about credit:


1. Your score will drop if you check your credit - Fortunately, this one is definitely not true.Checking your own report and score is counted as a "soft inquiry" and doesn't harm your credit at all. Only "hard inquiries" from a lender or creditor, made when you apply for credit, can bring your credit score down a few points. Worried about damaging your credit while shopping around for a loan? Multiple inquiries for the same purpose within a short amount of time (a few weeks) are grouped together into a less damaging period of inquiry.

2. Closing old accounts will improve your credit score - To close or not to close, that is the question. Many people advocate closing old and inactive accounts as a way for improving your credit. In most cases, closing accounts will actually have the opposite effect. Canceling old credit accounts can lower yourcredit score by making your credit history appear shorter. Think twice before closing the oldest account on your credit report. If you want to reduce your levels of available credit, ask for your credit limits to be reduced or close newer accounts instead.

3. Once you pay off a negative record, it is removed from your credit report - Negative records such as collection accounts, bankruptcies and charge-offs will remain on your credit report for 7-10 years after they are first posted. Paying off the account before the end of the set term doesn't remove it from your credit report, but will cause the account to be marked as "paid." It is still a good idea to pay your debts, it can improve yourcredit score, but the major improvement will come when the record expires.

4. Being a co-signer doesn't make you responsible for the account - When you open a joint account, co-sign on a loan or become an authorized user on someone's credit card, you are taking on legal responsibility for the account. Any activity on these shared accounts, good or bad, will show up on both people's credit reports. If you co-sign for a friend's auto loan and they don't make the payments, your credit profile will be hurt by their actions and visa versa. The only way to stop this double reporting is to refinance the loan or to have the creditor officially remove you from the account.

5. Paying off a debt will add 50 points to your credit score - Yourcredit score is calculated using a complex algorithm that takes into account hundreds of factors and values. It is very hard to predict how many points you can gain by changing one factor. For a person with a high credit score, just one late payment can cause a significant drop. If a person has a low credit score, it may not cause a large drop at all. There is no magical way to improve your credit score, just keep paying your bills on time, reducing your debts and removing negative inaccuracies from your credit report. Good financial behavior and time are the two most important factors on your credit score.

Cindy S. Morus (www.phelps-creek.com) is a Certified Financial Recovery Counselor specializing in showing women and their families how to achieve financial well-being and peace of mind. She is also a Certified Credit Report Reviewer. Contact her at 541-387-2995 or cmorus@phelps-creek.com She is also the publisher and editor of "Financial Fitness", an internet gazette dedicated to helping people improve their financial fitness no matter what decisions were made in the past.

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