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Busting 7 Credit Repair Myths
Sometimes asking people for advice on what to do is the worst possible thing you could do to resolve your situation. This is especially true if you ask people who don’t know any more about the situation than you do, but who are always willing to share their uninformed opinion. It’s similar to asking someone on the street for directions who then points you in the opposite direction to where you need to go.
While myths are often harmless, they can hurt you financially when you listen to myths about credit repair. Here are 7 of the most pervasive and harmful risks when it comes to fixing your credit score:
1. Paying all debts will improve your credit score.
Unfortunately, even if you pay off all past debts, delinquencies, and late payment and collection fees, bringing your account to a zero balance, it is not enough to clean up your score. If you do wish to clear your account, you must specifically tell the creditor that you will only resolve any unpaid debts if they agree to remove delinquencies. If you do not do ask for the delinquencies to be removed, they will still be on record and your credit score remain bad even after it has been brought to a zero balance.
2. Paying early will improve your credit score.
If you pay off the balance on your credit card in full earlier than the due date will not make a difference. The only thing creditors care about is if you pay by the due date. You don’t get rewarded for being one day or ten days early, but you do get punished if you pay only the minimum or less or later than balance. On the bright side, a zero balance by the closing date of your statement will improve your utilization rate, which is a measure of how much credit you are tapping.
3. You can’t have good credit if you have any negatives.
Fortunately, this is not true. Although some negatives can’t be erased, this is not always enough to give you a low score — because older negatives will count for less than newer ones. By keeping current on your newer bills, the older bills will gradually lose their weight in your credit score. This is a gradual process and you must show consistently improved bill paying behavior for older negatives to lose their weight.
4. Closing older credit card accounts will improve your
On the face of it, this seems like sensible advice. However, this will not help your credit score and will actually hurt it. It will reduce the length of your credit history and leave you with much less available credit. A long credit history establishes a person as a seasoned borrower. A large amount of available credit lowers your utilization rate, a measure of how much available credit you use, and the lower your percentage, the better it looks.
5. Opening more credit cards will improve your credit
This is the opposite tactic, but it doesn’t work either. Instead of proving that you are able to handle more credit by getting more credit cards, lenders will categorize you as a high risk borrower because the number of inquiries made on your credit score will negatively impact your credit score.
6. Correcting errors will not improve your credit score.
This is definitely not true. You can write a credit dispute letter to the credit bureau. Explain what you believe the facts to be and remember that your letter should follow generally accepted letter writing guidelines and needs some specific components that the credit bureaus will need to investigate your dispute.
According to FICO, you should take the following action: “Tell the credit bureau in writing what information you believe is inaccurate. Include copies (NOT originals) of documents that support your position. You may want to enclose a copy of your credit report with the items in question circled. Send your letter by certified mail, return receipt requested, so you can document that the credit bureau received your correspondence. Keep copies of your dispute letter and enclosures.”
7. All bills are weighed the same.
All bills are not weighed the same. Being late or delinquent on some is worse than being late or delinquent on others. If you don’t have enough money at the end of the month to pay off all your bills, then it is better to pay off an automobile loan or a mortgage than a credit card bill.
Avoid relying on myths to rebuild your credit score. This is sometimes difficult because at times, the myths seem more logical than the facts themselves. Instead of relying on logic, conjecture, or the opinion of other people who know as much as you do, seek expert advice and only do those things that make a difference to improve your credit score.