Myths About Credit – What I Really Need To Know?
I have found in working with numerous clients that credit is not something that we are taught as a child or talked about at the dinner table. It is something that we typically learn the hard way like when we are forced to pay more than our neighbors or if we can’t get approved for a loan or car. For this reason, I listed the top 10 myths about credit to make sure you are no longer misinformed and can make better decisions about how to manage your credit:
1. It is ok to charge up to your limit on credit cards and other revolving accounts.
This is one of the biggest unknowns and untruths. You are considered over extended or maxed out if out if your balance is more than 40% of the credit limit. For example, if your limit is $100 then the balance you carry from month to month should be no more than $40.
2. The credit bureaus are required by law to keep derogatory items on your credit report for 7 to 10 years.
There is no law that the credit bureaus report anything on you at all. Just the opposite is true! Credit bureaus are required by law to automatically remove all derogatory items older than 7 years or in the case of bankruptcy, 10 years.
3. It is impossible to get a bankruptcy off.
Bankruptcies come off just like any other derogatory that is incorrectly reported, obsolete, erroneous, misleading, incomplete, or that cannot be verified. Remember, the nature of the item has nothing to do with its removal under the Fair Credit Reporting Act.
4. You must give permission for a report to be issued.
Unfortunately that’s not always the case. There are several creditors, such as insurance companies and credit card companies that can access your credit report from time to time to re-evaluate your credit risk. These inquiries are considered soft inquiry and do not affect your credit score.
5. It is illegal or immoral to have the information on your credit report altered or removed.
Not only is it NOT illegal or immoral, but it is what the Fair Credit Reporting Act is all about. It was enacted by Congress for the very purpose of protecting consumers from the intrusion of the credit bureaus into our lives.
6. Paying a past due debt removes it from your credit report.
Just because you pay an old debt does not change or erase the fact that at on time you were not paying as you agreed. Can this record be changed? Absolutely! However, if you want it removed before it is legally removed then you have to do dispute or simply ask for it to be deleted.
7. Inquiries are not derogatory and will not affect your credit standing.
Anything that erodes your financial credibility is damaging to your credit standing. In the case of inquiries, one or two is not too bad, but any more than that and they begin to tell a story of their own. Any prospective credit grantor will look at your credit report and think that you are desperate for credit.
8. If you get a derogatory item removed, it will just come back.
Not if it is removed legally. When it is removed with the cause under the Fair Credit Reporting Act it cannot legally be placed back on your credit report. The same law that required its removal prohibits it from being placed back on.
9. The past equals the future.
The concept that once bad, always bad, or at least for 7 years is totally false. Anybody can run into hard times or an emergency situation now and then, but that doesn’t automatically mean that they are a poor credit risk for a magical 7 years. The simple truth is, no credit report can predict the future.
10. I have bad credit and it’s too late to do anything about it.
This is the biggest myth of all. Regardless of your age or the age of your credit history, change is possible. As we’ve seen in recent history with the election of the first Black President, Barack Obama, change is achievable. Well, your credit can be changed as well! This is something to get excited about, because it is not too late and the change starts now!
