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Myths And Misconceptions About Credit Repair

by | Mar 21, 2024 | News

Many people engage in credit repair to enhance their credit scores. It’s crucial to distinguish between truth and fiction regarding credit score myths and misunderstandings. Here are some common misconceptions clarified:

1. Closing Credit Accounts Boosts Your Score: Contrary to popular belief, closing credit accounts can actually lower your credit score, especially if they have a long history or a high credit limit. Shutting down accounts decreases your available credit, which can raise your credit utilization ratio – a significant factor in credit scoring.

2. Paying Off Debt Erases It from Your Credit Report: While paying off debt is vital for financial well-being, it doesn’t automatically erase it from your credit report. Most negative information, like late payments or collections, may linger on your report for up to seven years. Nevertheless, settling debt can enhance your credit utilization ratio and potentially elevate your score over time.

3. Checking Your Credit Report Reduces Your Score: This is a prevalent misconception. Reviewing your own credit report is considered a “soft inquiry” and does not impact your credit score. However, when lenders or creditors review your credit during a credit application (referred to as a “hard inquiry”), it could have a slight, temporary impact on your credit score.

4. Closing Credit Cards Will Help You Get Out of Debt: Closing credit cards might seem like a good strategy to curb spending, but it doesn’t tackle the root cause of overspending. Moreover, shutting down accounts can negatively affect your credit score. It’s often more beneficial to pay down balances while keeping credit accounts open but inactive.

5. Using Cash Only Will Improve Your Credit Score: While responsibly managing cash can help with financial management and debt avoidance, it doesn’t directly enhance your credit score. Your credit score is determined by your credit history, which involves having and using credit accounts responsibly. Without a credit history, you might have a lower or nonexistent credit score.

6. Paying Off Collections Will Automatically Improve Your Score: Settling collections is crucial for settling debts. However, it may not result in an immediate boost to your credit score unless you negotiate a pay-for-delete settlement. The collection will still be visible on your credit report even after being marked as paid. As time passes and your credit history matures, the influence of your actions on your credit score may lessen.

To boost your credit score, it’s essential to grasp the workings of credit repair and make sound financial decisions consistently. Stay cautious of misconceptions about credit repair and seek advice from a trusted financial advisor or credit counselor for tailored support.