You have heard all of the advice… from your relatives, friends, and neighbors. There are a myriad of myths about what you should and shouldn’t do to manage your credit. CreditFirm.net is here to provide you with the facts about managing your credit correctly
1. Your score will drop if you check your own credit – False.
Checking your credit report and credit score on your own is a “soft inquiry” which doesn’t impact your credit score at all. Only “hard inquiries” from a lender or bank, which are looked at as applications for an extension of credit, can impact your credit score. Multiple inquiries within a short time span (7-14 days) are all counted as one inquiry.
2. Closing old accounts is a good idea – Not True.
Many people preach closing old and inactive accounts as gospel. But you should think twice before closing old inactive accounts. Closing old credit accounts can lower your credit score by decreasing your average length of credit, which accounts for 15% of your overall credit score.
3. Paid collections are automatically deleted from your credit report – Wrong again.
Derogatory tradelines such as collections, charge-offs, and repossessions remain on your credit reports for 7-10 years whether they are paid or not. Paying off the account before the FCRA Compliance Date doesn’t remove it from your credit report. It is still a good idea to pay your debts, just be aware of one very important thing. Accounts active within the last 6 months carry the most impact on your credit report. So although paying an old collection account may seem like a logical step toward improving your credit score, it may actually end up lowering your credit score because it re-activates the Date of Last Activity on the account and makes the account look fresh.
4. Being a co-signer doesn’t make you liable for the account – Incorrect.
If you were silly enough to co-sign for someones loan, there’s something you should know. When you open a joint account or co-sign on a loan, you are taking on legal liability on the account. Any activity on these shared accounts, good, bad, or ugly will show up on both people’s credit reports. If you co-sign for a friend’s auto loan and they don’t make the payments, your credit score will be hurt by their poor payment history and vice versa. In fact, if the borrower defaults on the loan, as the co-borrower, you will be 100% liable for the debt, and responsible for paying it back. Long story short, don’t co-sign for anyone. There’s probably a reason they need a co-signer, and that’s because they can’t pay their bills on time.
5. Paying off a debt will add 50 points to your credit score – Your credit score is a compilation of several different factors.
It is very difficult to predict how many points you can gain by changing one factor. For a person with a high credit score, just one late payment can cause a significant drop (20-120 points). If a person has a low credit score, it may not cause a large drop at all. Most importantly, pay your bills on time, reduce the amount of debt you have and work on removing erroneous, misleading inaccurate, or incomplete derogatory accounts from your credit report either by yourself or by hiring CreditFirm.net to do so on your behalf.