When it comes to credit repair, people often believe that they can get a free pass. They think that if they pay off their debts and make sure the information on their credit report is accurate, then there’s no need for them to do anything else. But this isn’t true at all! In fact, you may be able to save money by doing some things yourself instead of hiring an expert. The following are some common credit repair misconceptions. These may be true or false, but they’re not necessarily the whole truth about how to fix your bad credit score and get a better one in no time at all!
MYTH 1: YOU CAN ONLY IMPROVE YOUR CREDIT IF YOU HAVE A GOOD CREDIT HISTORY.
This is simply untrue. If you don’t have any positive information on your report, then it’s possible that even with excellent payment histories, you could still end up with a low credit rating. This means that you’ll likely find it difficult to qualify for loans and other financial products like insurance. It also makes it more challenging to rent an apartment or buy a home. So while having good credit history will certainly help you build a strong foundation for improving your credit, it won’t guarantee success.
MYTH 2: YOUR CREDIT CARD COMPANY HAS ACCESS TO YOUR ENTIRE CREDIT FILE.
In most cases, when you apply for new cards, banks look at just three items from your credit reports – your current account balances, recent payments, and whether you’ve missed any bills. The rest stays private. However, sometimes creditors share additional details with each other, such as what type of loan you’re applying for or why you were denied another application. And because lenders use different criteria to determine who gets approved for certain types of financing, it’s important to know which ones see everything and which ones keep secrets.
MYTH 3: CREDIT SCORES AREN’T BASED ON REAL-WORLD DATA.
Your FICO® Score is calculated using actual historical data collected over many years. That includes both negative events and positive factors. For example, if you had $1,000 worth of medical expenses last year, that would show up on your credit report as a “medical” charge. On top of that, you’d probably receive a letter letting you know that your insurer paid out benefits related to those charges. Both of these actions would count toward your overall health factor. Similarly, if you made two late mortgage payments last month, that would appear on your credit report as two separate accounts marked delinquent. Each of these examples shows up on your credit report, so your lender knows exactly where to place your debt.
MYTH 4: A HIGHER CREDIT LIMIT AUTOMATICALLY IMPROVES YOUR CREDIT SCORE.
While increasing your available credit does increase your chances of getting approved for future lines of credit, it doesn’t always mean that you’ll immediately start seeing improvements in your credit score. Lenders typically review your creditworthiness before approving you for a larger line of credit than you currently carry. In fact, they may not approve the request until after several months of consistent monthly payments are established. Once this happens, however, your credit score should begin moving upward.
MYTH 5: PAYING OFF OLD DEBTS HURTS YOUR CREDIT SCORE.
If you pay down older debts first, you might be able to save money by paying less interest. But there’s actually nothing wrong with doing things differently. You can still get approval for a lower rate even though you have outstanding debt. Plus, once you make all your minimum payment obligations every month, you’ll stop accruing interest. This means that you’ll no longer need to worry about how much you owe. Instead, focus on building a solid track record of making timely payments.
MYTH 6: CLOSING ONE OR MORE REVOLVING ACCOUNTS LOWERS YOUR CREDIT SCORE.
When you close an existing card account, you won’t lose access to its cash advances. Your new balance will simply reflect the amount owed minus whatever was previously charged. If you decide to open a new card instead, you’ll likely find yourself with a better offer. Many cards now include introductory offers that let you earn rewards points when you spend money within their respective categories. These deals usually expire quickly, but they do give you time to consider them carefully.
MYTH 7: OPENING MULTIPLE CREDIT CARDS AT DIFFERENT BANKS HURTS YOUR CREDIT SCORE.
Opening multiple bank accounts isn’t necessarily bad news. It just depends on what type of accounts you’re opening. Some types of accounts—like checking and savings accounts—don’t affect your credit score. Others, like personal loans and installment plans, could hurt your credit rating. The best way to avoid any potential damage? Open only one account from each financial institution. That way, you don’t risk having too many inquiries on your credit reports.
MYTH 8: HAVING A LOT OF RECENT ACTIVITY ON YOUR CREDIT REPORT IS GOOD FOR YOUR CREDIT SCORE.
This myth stems from the idea that lenders want to see lots of positive information on your credit report because it indicates that you’ve been responsible for managing your finances over the past few years. However, if you haven’t paid back any of your bills recently, then lenders aren’t going to view those items as being very important. They also know that some people tend to use credit cards without ever paying them off. So, while these activities may help build up your overall history, they won’t improve your current standing.
MYTH 9: A LOW FICO® SCORE AUTOMATICALLY DISQUALIFIES SOMEONE FROM RECEIVING CERTAIN LOAN PRODUCTS.
A lender doesn’t always look at your credit score before approving you for a mortgage. In fact, most mortgages require borrowers to provide proof of income to qualify for financing. And although lenders typically prefer applicants who have higher scores, they often approve customers regardless of their credit histories.
MYTH 10: THERE’S SOMETHING CALLED “EQUITY” THAT HELPS DETERMINE WHETHER YOU RECEIVE FAVORABLE TERMS ON A HOME LOAN.
There’s not anything special about equity. Equity refers to the difference between the value of your house and all outstanding liens against it. When you apply for a mortgage, lenders are interested in seeing this number so they can make sure there’s enough available collateral to cover the full cost of the loan. But even though lenders might be willing to work with homeowners with less than perfect credit, they still expect to get repaid.
CONCLUSION
Credit repair is one of the most misconceived topics out there today. People think that by improving their credit score, they’ll magically become more attractive to creditors or land themselves better interest rates. Unfortunately, none of that happens. Instead, consumers end up spending thousands of dollars trying to fix problems that didn’t exist in the first place. Be sure to do your research when looking into credit repair services. Make sure you understand how much money you’d need to spend and how long it would take to achieve results.