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9 Myths And Facts About Credit Repair

by | Jan 31, 2024 | News

Credit scores play a vital role in your financial life as they have an impact on your ability to secure loans, credit cards and even affect the interest rates you receive. Regrettably, there are various misconceptions surrounding credit scores and the process of credit repair. Let’s sort out the truth from the fiction:

Myth 1: Closing Old Accounts Improves Your Credit Score.
Fact: Contrary to popular belief, closing old accounts can actually have a negative effect on your credit score. A portion of your score is determined by the length of your credit history and closing old accounts may shorten that history, potentially lowering your overall score.

Myth 2: Checking Your Credit Score Hurts Your Score.
Fact: The truth is that checking your own credit score (a soft inquiry) does not have any impact on your score whatsoever. However, it’s worth noting that hard inquiries, which occur when a lender checks your credit as part of a loan application, may have a minor and temporary impact.

Myth 3: Paying Off a Debt Removes It From Your Credit Report.
Fact: Paying off a debt does not immediately erase it from your credit report. The record of the debt typically remains on your report for seven years, although its impact gradually lessens over time.

Myth 4: The Misconception about Closing Credit Cards and Your Credit Score.
Fact: It is a common misconception that closing credit cards positively affects your credit score. However, the truth is that closing these accounts can actually increase your credit utilization ratio, which is the ratio of your balances to your credit limits. It is generally recommended to keep your credit card accounts open, especially if they have a long history of on-time payments.

Myth 5: The Impact of Late Payments on Your Credit Score.
Fact: While it is true that late payments have a significant impact on your credit score, it’s important to note that other factors also contribute to its calculation. These factors include credit utilization, types of credit and new credit accounts. To maintain a healthy overall credit profile, it’s crucial to manage all aspects effectively.

Myth 6: The Effect of Paying Off Collection Accounts on Your Credit Report.
Fact: One common misconception is that paying off a collection account automatically removes it from your credit report. However, this isn’t entirely accurate as the record of the collection may still appear. However, it will be updated to reflect that it has been paid.

Myth 7: Understanding the Impact of Bankruptcy on Your Credit History.
Fact: Bankruptcy undoubtedly has a severe impact on your credit history. However, it’s essential to understand that its effects are not permanent or lifelong. Bankruptcies remain on your credit report for a specific duration of time, typically ranging from 7 to 10 years depending on the type. However, it’s important to note that you can begin rebuilding your credit immediately after this period.

Myth 8: All Credit Scores Are Identical.
Fact: There are various credit scoring models available and lenders may utilize different ones. The most commonly used model is the FICO score, but there is also the VantageScore. Each scoring model has its own set of criteria and scale.

Myth 9: It’s Impossible to Quickly Improve Your Credit Score.
Fact: While significant improvements in your credit score may take time, certain actions such as paying down high balances and removing negative items on your credit report can have a relatively swift impact on your score.

Understanding these misconceptions and realities can empower you to make well-informed decisions when it comes to managing your credit score and credit repair. It is crucial to be proactive by regularly reviewing your credit report and taking steps to maintain or improve your creditworthiness.