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10 Great Credit Myths Exposed!

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This article is one of my favorite because it addresses so many of the questions people have about credit and their credit reports.

A word of warning before we get started You are about to hear some things that will most likely be the exact opposite of what you have been told. Keep in mind that credit issues are some of the most misunderstood of all financial topics, and there are many professionals in the financial industry giving advice to their clients, who do not really understand credit themselves. On that note, here are the greatest myths about credit

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

This is false. By paying off these types of accounts, in most cases, you will actually see your credit scores drop significantly. The reason for this is because what you have effectively done is bring an old negative trade line to current status. A more recent negative item will cost your more points on your credit than an old negative item.

Myth 2: Paying my credit card balances in full every month will improve my credit.

Not true! In fact, this is absolutely not what the credit card companies want you to do. In the eyes of the credit card companies, the best client is one who only pays a little more than the minimum payment each month, but makes all their payments on time. Keep in mind that the credit card companies do not maximize their profits unless you are paying interest every month, and they are the ones who designed the credit system. If you want to maximize your credit scores, you need to give them what they want.

Myth 3: Repairing credit 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: Consumer Credit Counseling 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.

Completely false! There is no such law.

Myth 6: If you make a lot of money, you will have great credit.

Your income does not play any direct roll in determining your credit scores. In fact, statistics show that large percentage of high-income earners have sub prime credit. Your credit scores are made up of several factors including payment history, account balances, types of credit in use, etc.

Myth 7: I have never been late on my payments, I must have great credit.

Your timeliness of payments does make up 35% of your credit scores, but the other 65% is made up of other factors that are not related to making your payments on time. It is important to understand all those factors to maximize your scores.

Myth 8: Your credit report from each credit bureau 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: When you get married, your credit reports will be merged with your spouse.

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: By closing old accounts, I will improve my credit scores.

This one is a big surprise to most people. I am sure at some point you have been told by your mortgage professional to close some of your open account to better qualify for a loan. Once you closed those accounts, you watched in anguish while your scores dipped as much as 100 points or more. Why did this happen? The reason is that one of the largest factors that make up your credit scores is the age of your good-standing accounts. The longer an account has been in good standing, the better it is for your credit scores.

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

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Jon Ochs is the founder/CEO of NCA Credit Repair, one of the most trusted and respected Credit Report Repair companies in the nation. Visit www.ncacreditrepair.com for more info on credit and credit repair.



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