Bad credit can cost you thousands of dollars in high interest rates each and every year. It can even prevent you from qualifying for a loan in the first place.
If you’ve been met with credit roadblocks or saddled with the high price of poor credit for too long, you may be working toward improving your credit now.
However, as you begin the credit repair process, be sure to prepare yourself with a clear understanding of which practices actually matter when trying to make a change for the better.
Here are some common credit myths too often associated with the repair process.
Myth #1 — Higher income means better credit
While a higher income might help you pay all of your bills on time and keep your credit accounts healthy, income itself has no bearing on your credit score. It’s how you manage your income in relation to your debt pay off that ultimately matters.
If you’re struggling to make ends meet, consider taking out a personal loan to help smooth your consumption until your financial situation improves.
Myth #2 — Closing negative accounts boosts credit
While you certainly don’t want negative items showing up on your credit reports, removing those accounts doesn’t necessarily leave you with a perfect score.
Closing old accounts can actually damage your credit score, as it can reduce your length of credit history and your amount of available credit, increasing your credit utilization ratio (a percentage you want to keep as low as possible).
“Closing old accounts can actually damage your credit score.”
Myth #3 — Opening new credit accounts will improve credit
While it’s always good practice to keep credit accounts in good standing — new and old — opening a bunch of accounts in quick succession can actually harm your credit score, no matter how responsible you are in maintaining and paying them off.
Hard inquiries made when opening a new credit account lower your credit score, and a variety of fresh credit lines suggest you’re desperate to borrow money, making you appear like a high risk to lenders.
Myth #4 — Reporting credit errors is as good as removal
Simply reporting an error on your credit report doesn’t ensure it will be removed. Follow up on any disputes 30 to 60 days later to make sure they’ve been properly resolved and reflected in the paperwork.
Keep track of all correspondence with the credit bureau and/or creditor so you have a detailed record of your dispute to reference if need be.
Myth #5 — Credit blunders can’t be removed from your credit report
No matter your past history with credit — foreclosures, tax liens, bankruptcies, etc. — all negative listings can be removed from your credit reports eventually.
“All negative listings can be removed from your credit reports eventually.”
While seven to 10 years is the maximum amount of time those red flags can stay on your report (depending on the infraction), you can work with the credit bureaus or a credit repair company to help you get them removed sooner.
Myth #6 — Credit repair is a quick fix
Whether you’re working to improve your credit on your own or using the assistance of a credit repair service, fixing credit takes time and a perfect score can neither be bought nor guaranteed. If anyone tells you otherwise, be wary — they may be trying to scam you.
Yes, credit repair is possible, but it takes time, effort, a strong understanding and commitment to the process. Reputable debt relief firms can be helpful in developing a positive plan to resolve past credit issues, build new credit and move you toward a healthy credit future.
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