Myths about your credit

[CindyLou]

click here for great article

http://aol1.bankrate.com/aol/news/debt/debtmanageguide/report-myths1.asp?caret=39#2

[lrprn]

Thanks for the link, Cindy - very informative!

[SinkingFast]

Great info, Cindy!!

I copied and pasted the info here just incase they change the link or something.

11 credit report myths

By Bankrate.com

Most people have heard about the alligators in New York's sewers and the little kid with cancer who wants a zillion postcards. Unfortunately, those aren't the only myths floating around out there.

A lot of the things that people "know" about credit reports and credit scores have about as much validity as those monstrous Manhattan alligators.

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. Credit counseling always destroys my credit score.
Attending a credit counselor's debt management program is not considered negative in the scoring models.

"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.

3. Canceling credit cards boosts my score.
Open accounts spells available, potential debt, so better to close them, runs the legend. But experts agree that most creditors want to see at least two or three pieces of active credit to prove you can manage debt responsibly.

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 'total credit limits' 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.

4. Too many inquiries hurt my score.
Once upon a time, this statement was true. But get with the times -- in this millennium, the credit agencies recognize a shopping mind-set when they see one. If a batch of mortgage or car loan inquiries arrives within 30 days, it doesn't count at all, Watts says.

"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 credit scores are 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.

5. Checking my own credit report harms my standing.
The reporting agencies distinguish between soft and hard pulls. When Target calls to check before issuing its line of credit, the agencies chalk that up as a hard pull and it counts against your score. Personal requests and credit counselors -- if they do it correctly, so insist on this as part of your agreement terms -- fall under soft pulls, which do not reflect negatively on the evaluation.

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."

6. Credit scores are locked in for six months.
Fair Isaac Corp.'s models are dynamic, meaning that your FICO score changes as soon as data on your credit report change.

"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.

7. I don't need to check my credit report if I pay my bills on time.
When the Consumer Federation of America and the National Credit Reporting Association analyzed credit scores in the summer of 2002, they discovered that 78 percent of the files were missing a revolving account in good standing, while 33 percent of files lacked a mortgage account that had never been late. Twenty-nine percent contained conflicting information on how many times the consumer had been 60 days late on payments.

"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.

8. All credit reports are the same.
Way wrong. These days, most creditors across the country do report their information to all three major agencies: Equifax, Experian and TransUnion.

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.

9. A divorce decree automatically severs joint accounts.
The judge may have rubber-stamped your plans to divide credit card, car and house payments, but that carries absolutely no legal weight with the creditors themselves, Sweet says.

"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.

10. Bad news comes off in seven years.
Some of it does. Chapter 13 (reorganization of debt) disappears seven years from the filing date. But if you filed Chapter 7 bankruptcy (exoneration of all debt), the window is 10 years from the filing date.

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.

11. I can always pay someone to fix or repair my credit.
Yes, you can clear up erroneous information posted to your account, such as a repossessed car that you didn't purchase in the first place, but if you paid your Sears bill three months late in 1997, that's a hard fact.

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.

[chpxiii]

Awesome info, thank you.

[littlephoenix]

Im sure this will come in handy for all of you, 8 credit score myths [Moderator note - poster found these at http://money.cnn.com/2005/03/16/pf/d...core/index.htm ]

Myth: You only have one credit score. In truth, you have three credit scores, one from each of the three major credit bureaus. "These scores can vary by as much as 50 points or more," said Ryan Sjoblad, a spokesman for Fair Isaac. This is why it's a good idea to check all three.

Myth: Checking your own credit will lower your score. You can check your own score as many times as you want without impacting your score, said Sjoblad, but make sure you do so via the bureaus or a legitimate score seller like MyFICO.com rather than, say, at a car dealership.

Myth: Your age, income and sex are factored into your score. According to Sjoblad, none of this information has any bearing on your score. Your employment is something that is listed on the credit bureau report, he added, but doesn't affect the score itself.

Myth: A higher salary will boost your score. Paying off your debts will improve your score. Earning more money, winning the lottery or inheriting a fortune, however, will not because, again, your net worth and income are not factored into your score.

Myth: To remove unfavorable info just dispute it. If there is information in your report that is legitimately inaccurate, you should by all means dispute it. Credit agencies are obligated to investigate credit inaccuracies within 30 days or remove disputed information. But don't fall for so-called credit repair companies promising to remove unfavorable (though accurate) information from your credit reports to "instantly" improve your score. These days credit agencies not only investigate disputes quickly, they know a sham when they see it.

Myth: Shopping around for a loan hurts your score. When you apply for a loan or get pre-approved the creditor checks your credit report, which shows up as an inquiry to your credit. While it's true that too many inquiries to your credit will lower your score, you absolutely can shop around for a mortgage, home equity loan or car loan without worrying about damaging your credit, said Sjoblad. "As long as the same kind of inquiries are made within 14 days of each other, they count as one inquiry on your credit score," he said. Take note: This grace period doesn't apply to credit cards.

Myth: Credit card offers are hurting your score. Credit card solicitations, while annoying, don't affect your score. That's assuming you don't respond to the solicitations and use all of the credit that's available to you. There is no magic number for how many credit cards are too many, said Fair Isaac's Cheri St. John. But, if ratio of credit used to credit available is high, that indicates higher risk. "Clearly consumers want to keep balances below the available credit line," she added.

Myth: When you get married your credit scores are merged. "People think once you're married your credit information gets mixed," said Sjoblad. But, your good or bad credit is yours and yours only 'til death do you part. When you open accounts jointly, though, that information will be reflected on each of your credit reports, for better or for worse.

[lrprn]

Thanks for posting these, littlephoenix. However, in the future when you copy/paste content straight from a webpage, be sure to post the URL with it. Thanks!

[littlephoenix]

Thanks for posting these, littlephoenix. However, in the future when you copy/paste content straight from a webpage, be sure to post the URL with it. Thanks!

Thanks lrprn i really thought i had included the link but I will next time double check thanks

[teddy26]

Myth: Shopping around for a loan hurts your score. When you apply for a loan or get pre-approved the creditor checks your credit report, which shows up as an inquiry to your credit. While it's true that too many inquiries to your credit will lower your score, you absolutely can shop around for a mortgage, home equity loan or car loan without worrying about damaging your credit, said Sjoblad. "As long as the same kind of inquiries are made within 14 days of each other, they count as one inquiry on your credit score," he said. Take note: This grace period doesn't apply to credit cards.




Glad to find this as when we had our "Credit Counseling", our counselor told this as well. Guess this includes any inquires for any online auto loans (Capital One, Roadloans, Americredit, etc) as well as "in dealership" auto loans???

[username123]

Has anyone had any luck with services saying they will improve your credit score? I heard of a program that did, but am not sure?