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Top 5 Credit Misconceptions
By Cindy Morus, Fri Dec 9th
We have all heard the rumors…from neighbors, relatives orfriends. There are a wide variety of myths floating around aboutwhat you should and shouldn't do to improve your credit reportsand credit scores. The buck stops here! Phelps Creek FinancialCoaching has exposed these urban legends to provide you with thetruth about credit: 1. Your score will drop if you check your credit -Fortunately, this one is definitely not true.Checking your ownreport and score is counted as a "soft inquiry" and doesn't harmyour credit at all. Only "hard inquiries" from a lender orcreditor, made when you apply for credit, can bring your creditscore down a few points. Worried about damaging your creditwhile shopping around for a loan? Multiple inquiries for thesame purpose within a short amount of time (a few weeks) aregrouped 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 peopleadvocate closing old and inactive accounts as a way forimproving your credit. In most cases, closing accounts willactually have the opposite effect. Canceling old credit accountscan lower yourcredit score by making your credit history appearshorter. Think twice before closing the oldest account on yourcredit report. If you want to reduce your levels of availablecredit, ask for your credit limits to be reduced or close neweraccounts instead.
3. Once you pay off a negative record, it is removed fromyour credit report - Negative records such as collectionaccounts, bankruptcies and charge-offs will remain on yourcredit report for 7-10 years after they are first posted. Payingoff the account before the end of the set term doesn't remove itfrom your credit report, but will cause the account
to be markedas "paid." It is still a good idea to pay your debts, it canimprove yourcredit score, but the major improvement will comewhen the record expires. 4. Being a co-signer doesn't make you responsible for theaccount - When you open a joint account, co-sign on a loanor become an authorized user on someone's credit card, you aretaking on legal responsibility for the account. Any activity onthese shared accounts, good or bad, will show up on bothpeople's credit reports. If you co-sign for a friend's auto loanand they don't make the payments, your credit profile will behurt by their actions and visa versa. The only way to stop thisdouble reporting is to refinance the loan or to have thecreditor officially remove you from the account. 5. Paying off a debt will add 50 points to your creditscore - Yourcredit score is calculated using a complexalgorithm that takes into account hundreds of factors andvalues. It is very hard to predict how many points you can gainby changing one factor. For a person with a high credit score,just one late payment can cause a significant drop. If a personhas a low credit score, it may not cause a large drop at all.There is no magical way to improve your credit score, just keeppaying your bills on time, reducing your debts and removingnegative inaccuracies from your credit report. Good financialbehavior and time are the two most important factors on yourcredit score. About the author:Cindy S. Morus (www.phelps-creek.com) is a Certified FinancialRecovery Counselor specializing in showing women and theirfamilies how to achieve financial well-being and peace of mind.She is also a Certified Credit Report Reviewer. Contact her at541-387-2995 or cmorus@phelps-creek.com She is also thepublisher and editor of "Financial Fitness", an internet gazettededicated to helping people improve their financial fitness nomatter what decisions were made in the past.
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