The 10 Greatest Myths about Credit Repair

by Jon Ochs   

In past posts we have written about how to finance your dream franchise.  In many cases, franchises are too expensive to finance in full from out of pocket.  That’s where the need becomes apparent for some sort of franchise funding.  What most people don’t know about business funding of any kind, is that the amount of credit that will be proferred to a borrower is predicated upon the following 3 items:

1. Whether they own or rent
2. What kind of income they make
3. Their credit rating

While the first two are more or less set in stone, the third factor as many of you know, is variable.  Particularly after the tumultuous past couple of years that have seen the banking industry teetering on the brink of insolvancy due to uncollected debt, consumers looking for a loan with a credit score of below 700 for the most part need not apply.  For those of you that fall into that category at present, do not lose heart, because there are ways of increasing substandard credit scores.  Of course, the most important thing is to understand what does and doesn’t work.  To help you navigate the sometimes turbulent waters of credit reporting, below are the 10 Greatest Myths about Credit Repair.

Myth 1: Paying off (or “settling”) late payments, tax liens, collections or judgments will remove them from your credit reports.

This is simply not true. In fact, by paying off an old collection account, you can actually lower your credit scores. The reason for this is because more recent negative items will hurt your score more than older negative items. If you pay off an old collection account, not only will the collection account remain on your reports as a paid collection, but it will now show a current date, and cost your more points. I am not suggesting that you should not pay off your delinquent accounts, only that you need to understand the consequences so that you can factor that into your decision.

Myth 2: Paying my full credit card balance every month will improve my credit scores.

Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.

Myth 3: Credit repair is illegal.

Not only is this false, but your right to repair your credit is protected by federal law. The Fair Credit Reporting Act (FCRA) protects consumers from inaccurate reporting, as well as issues surrounding identity theft. As a consumer, you have the right to repair your own credit, as well as hire anyone you choose to do it for you.

Myth 4: Enrolling in a Credit Counseling program will improve my credit.

We have all seen the statements made by credit counseling companies that state that their program will improve your credit. I can tell you that this is false. When you enroll into a credit counseling program, one of the first things that happens is a statement is inserted into your credit reports for each account included in the program. This statement will say something like “payments made through credit counseling”, or “client in CCCS”. This statement itself may not cost you any points; however it is looked at by the lending industry as very negative. It is like putting a sign on your forehead that says, “I can’t pay my bills!” In addition, most credit counseling programs will make your payments late, and this will then cause you to have late-pays, which will cost you many points on your credit.

Myth 5: By law, negative items on my credit have to remain for 7 years.

This is also false. There is no law that dictates the duration that an item must remain on your credit reports. The only thing that dictates that an item must remain on your credit report is that it can be proven to be 100% true and accurate.

Myth 6: Making a lot of money will give you good credit.

Making a lot of money really has very little to do with your credit directly. What determines your credit is your payment history, account balances, your open accounts, the type of accounts, etc.

Myth 7: As long as I have never been late on a payment, I will have great credit.

While never being late is an important part, it is only 35% of your credit scores. In order to have great credit, you need to focus on all the factors that make up your credit scores.

Myth 8: Your credit reports from all 3 major credit bureaus will be the same.

This is not true. In fact, most of the time, all 3 of your credit reports will differ from one another. The reason for this is that each of the credit bureaus is a separate independent company, and the processes at each are different. Also, some creditors may only report to 1 or 2 bureaus, but not all 3. In my experience, your reports will very rarely be exactly the same.

Myth 9: Once you are married, you and your spouse share the same credit.

False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts.

Myth 10: Closing credit card accounts will increase your credit scores.

This is one of the biggest surprises that I see happen to people all the time. You go to your mortgage lender and they instruct you to close some accounts in order to qualify for a loan. You do as you are told, but only to see your scores plummet almost immediately; sometimes by more than 100 points. What happened? The reason for the drop was because you just closed some of your oldest and most valuable accounts as far as your credit scores were concerned. Remember, the longer you have had an account in good standing, the more positive points it will provide. It is not advised to close a long-standing account unless you have good reason.

Now that you are armed with this powerful knowledge, you can get on the road to optimizing your credit today.

For a free credit repair consultation, Click Here.

Jon Ochs has over 12 years experience in the credit and debt industry and is the founder and CEO of NCA Credit Repair, one of the most trusted and respected Credit Report Repair companies in the nation.