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12 Credit Score Myths

Bankrate has an excellent article about the 12 myths of credit reports [3] and does a pretty good job at explaining most of them. It’s always difficult to know what is truth and what is fiction, especially when you’re under duress and forced to make a decision (such as with #3, credit counseling). Also, a lot of these myths come with caveats and not all of the myths have been proven entirely false.

1. Paying my debts will make my credit report instantly pristine.
Your credit score is generated based on your history, so paying off your debts won’t make it instantly pristine. It will improve your score dramatically though, but all the nicks and dents of past discretions will still be visible.

2. I must give permission for a company to see my credit report.
You don’t actually need to give permission unless it’s for a job.

3. Credit counseling always destroys my credit score.
Bankrate acknowledges that the jury is out on this one with some guessing counseling is like filing for bankruptcy. If you have no choice, you have no choice. Think about it from the creditor’s perspective, if you saw someone sought counseling in the past and now wanted to borrow $100 from you – would you lend it to him or her?

4. Canceling credit cards boosts my score.
You want to look like a responsible borrower so you want a bunch of older lines of credit that shows a history of responsibility. If you cancel a lot of cards, you’ll have fewer older lines of credit which makes you appear less favorable.

5. Too many inquiries hurt my score.
It depends on the inquiry. If you apply for a dozen credit cards, yes that will hurt your score. If you apply for a dozen mortgages, then it won’t. It is an understood practice that all mortgage applications within a 30 day window only count as a single inquiry. Since the application is necessary to shop around, it’s understood that you won’t sudden snatch up a dozen mortgages – you’d only be approved for one.

6. Checking my own credit report harms my standing.
A serious, or hard, pull is what creditor’s use, your own check is a soft pull and the two are treated differently. Now, if you have a lot of soft pulls then potential creditor’s will be curious why you are trying to bump things off the list of pulls. Don’t check your credit score a thousand times a month or someone will wonder. If you want to check your FICO score, my friend Cap keeps an updated list of myFICO promotional discount codes [4] that can save you around 20%.

7. FICO scores are locked in for six months.
Your score changes once something is added or modified or removed from your report.

8. I don’t need to check my credit report if I pay my bills on time.
You make mistakes, I make mistakes, we all make mistakes – including the reporting agencies. It could be an error of omission (missing a nice revolving payment you’ve made, a score plus) or the addition of someone else’s derelict account. With free annual credit reports [5], there’s no reason why you should check them once a year.

9. All credit reports are the same.
Three agencies mean three databases and potentially three versions of you. While everyone reports to all three, based on their delays you might see differing reports.

10. A divorce decree automatically severs joint accounts.
Unfortunately you have to manually do this.

11. Bad news comes off in seven years.
Most bad news does. Chapter 13 falls off the table after 7 years but Chapter 7 takes ten.

12. I can always pay someone to fix or repair my credit.
From Bankrate:

“Virtually any time someone says that, they’re lying,” [says John Waskin, executive director of BillFree American Credit Counselors].