When it comes to learning how to manage your credit, there are a lot of rumors floating around that you need to avoid. Some of the myths are passed on to you from your family and friends while others seem to be factual knowledge found on the internet. Certified Credit Experts would like to expose a few of these common urban legends to provide you with the truth about managing you credit.
1. Checking your credit will hurt your credit score – Thank goodness, this one is absolutely not true. How would anybody be able to manage their credit score if they couldn’t look to see what was on their report? You couldn’t. When you check your own credit report and score this is called a “soft inquiry” and it does not harm your credit in any way. When a creditor or lender checks your credit this is called a “hard inquiry” and these can bring your credit score down by a few points. Are you worried about how this could damage your credit? When multiple hard inquiries are made for the same purpose within a short period of time (a few weeks), such as when shopping for a new car, they are grouped into a less damaging period of inquiry.
2. You should close all your old accounts – We often see people recommending that you close your old accounts that are no longer active. Is this really a good way of managing your credit? You should think carefully before closing accounts on your credit reports that are really old. Canceling these older credit accounts can actually lower a credit score because it makes your credit history appear shorter than it really is.
3. If I pay off a negative record, it will be removed from my credit report – Collection accounts, bankruptcies, late payments and other negative marks will stay on your credit report for up to 7-10 years. Once the account has been paid off the account will be marked as “paid” and show the recent activity. Consultant with a professional or request that the creditor delete it upon settling the account. Not all creditors will do this but it never hurts to try.
4. A co-signer is not responsible for an account – If you open a joint account or co-sign for somebody on a loan that means you are taking on the legal responsibility of making sure that account is paid. Any activity on the account, both good and bad, will show up on the credit reports for both individuals. This means if you co-sign to help a friend get a car loan and then they fail to make the payments, your credit profile is going to be hurt from their actions. The only way you can have this stopped is to refinance the loan or be officially removed from the account by the creditor.
5. Each debt you pay in full will add 50 points to your credit score – It’s just not that simple. Credit scores are calculated using a very complex algorithm that looks at hundreds of factors and values. It is impossible to determine a set number of points by simply changing one factor. Somebody with a high credit score can cause a significant drop for making just one late payment. If you already have a low credit score, missing one payment might not show a large drop at all in score. The best advice is to just keep paying all of your bills on time, start reducing your debts, and have any negative inaccurate information removed from your credit report. Your credit score will improve through time and good financial behavior.
