Credit scores have become a vital part of our financial lives. They affect everything from getting a mortgage to qualifying for a car loan. However, there’s a lot of misinformation floating around about credit repair and credit score improvement. In this article, we’ll address the top myths about credit repair and clarify what actually helps boost your credit score.
You Can Remove Any Negative Information From Your Credit Report
The Reality: Only inaccurate information can be removed from your credit report. If you have valid debts or late payments, they will typically remain on your credit report for seven years. However, if there are errors in your report (like a missed payment that was actually paid on time), you can dispute these with the credit bureaus to have them corrected.
What Really Works: Regularly check your credit report for errors. You’re entitled to a free annual credit report from each of the three major bureaus (Equifax, Experian, and TransUnion). If you find an error, dispute it immediately to help improve your score.
Paying Off a Debt Removes It from Your Credit Report
The Reality: Paying off a debt doesn’t remove it from your credit report; it simply updates the status to “paid.” Closed accounts with good histories will stay on your report for up to 10 years, positively impacting your score. Conversely, negative items, like late payments or defaults, still stay on the report for seven years, even if they’ve been paid.
What Really Works: Focus on creating a long-term plan for paying off debts while maintaining current accounts responsibly. A paid-off account shows that you managed to clear your debts, which helps your credit score over time.
A High Income Will Improve Your Credit Score
The Reality: Your income doesn’t directly affect your credit score. Credit scores are based on factors like payment history, amounts owed, length of credit history, types of credit, and new credit. While a higher income might help you pay down debt faster or keep low credit utilization, it isn’t part of the credit scoring formula.
What Really Works: Instead of relying on income to improve your score, focus on paying down outstanding balances and maintaining a low credit utilization ratio (ideally below 30%). This shows lenders that you’re responsible with your credit, regardless of income level.
You Only Have One Credit Score
The Reality: You actually have multiple credit scores. There are three main credit bureaus in the U.S.—Equifax, Experian, and TransUnion—that each generate their own scores. Additionally, scoring models like FICO and VantageScore may yield different results due to variations in their algorithms.
What Really Works: Don’t stress about slight differences among your scores. Focus instead on making overall improvements that will positively affect all scores, such as paying bills on time, reducing debt, and maintaining a low credit utilization ratio.
Closing Old Credit Cards Will Help Your Score
The Reality: Closing old credit cards can actually hurt your score. Credit age is an important factor in scoring, as it shows lenders your long-term creditworthiness. When you close an old account, it shortens your overall credit history and may raise your credit utilization ratio if you carry balances on other cards.
What Really Works: Keep older accounts open, even if you’re not actively using them. To avoid inactivity fees, consider using each card for a small, manageable purchase every few months and pay it off right away. This keeps the account active without incurring debt.
You Can Only Check Your Credit Report Once a Year
The Reality: You’re entitled to a free annual credit report from each of the three major credit bureaus. However, due to the increased demand for credit monitoring, many credit card companies and third-party services now offer free access to credit scores or reports monthly or even weekly.
What Really Works: Regularly checking your report can help catch inaccuracies and stay on top of changes. Aim to review one of your three credit reports every four months to cover the full year without missing out on free access.
Hiring a Credit Repair Company Guarantees Improved Credit
The Reality: No credit repair company can guarantee results. While they may help identify errors, most of what they offer can be done by the consumer for free. Additionally, some companies use questionable practices or charge high fees with minimal results.
What Really Works: If you choose to work with a credit repair service, make sure they’re legitimate by researching online reviews and checking for any complaints. Many services they offer, like disputing errors, can be done on your own without cost. Focus on learning healthy credit habits that can sustainably boost your score.
Maxing Out Credit Cards Won’t Hurt If You Pay Them Off Each Month
The Reality: Your credit utilization ratio—the amount of available credit you’re using—affects your credit score even if you pay off your balance each month. High utilization ratios, particularly over 30%, can lower your score because they indicate potential credit risk.
What Really Works: Aim to keep your credit card balances well below 30% of your total limit at any given time. If possible, try to pay down balances before your statement closing date, as this can ensure a low utilization rate is reported to the credit bureaus.
Checking Your Credit Report Hurts Your Score
The Reality: Checking your own credit report is a “soft inquiry,” which doesn’t impact your score. Soft inquiries are different from “hard inquiries” that lenders make when you apply for credit, which can slightly lower your score for a short period.
What Really Works: Don’t hesitate to check your credit report regularly to stay informed. Checking it won’t hurt your score, and it can help you catch any issues or errors that could be hurting it.
Credit Counseling Lowers Your Credit Score
The Reality: Credit counseling itself doesn’t directly affect your credit score. Enrolling in a credit counseling program can help manage debt, but be aware that some lenders view counseling as a sign that you’re having trouble managing your finances.
What Really Works: Use credit counseling as a resource if you’re struggling with debt. Make sure the agency is reputable and has a history of positive results. Working with a credit counselor can help develop a plan to pay down debt and improve credit in the long run.
Also Read: Credit Score Improvement Hacks Every Beginner Should Know
Additional Tips for Effective Credit Repair
Now that we’ve busted some common myths, here are practical steps that can genuinely help you build or repair your credit:
- Pay Bills on Time: Your payment history is the most significant factor in your credit score. Paying bills on time shows lenders that you’re reliable.
- Keep Credit Utilization Low: As mentioned, try to use less than 30% of your available credit.
- Maintain a Mix of Credit Types: A healthy mix of credit, such as a combination of credit cards, installment loans, and mortgages, can positively impact your score.
- Limit New Credit Applications: Each application results in a hard inquiry, which can slightly lower your score.
- Be Patient: Building credit takes time. Avoid quick fixes and focus on consistent, responsible credit habits.
Final Thoughts
Credit repair is a journey that requires time, patience, and responsible financial habits. By understanding and avoiding common myths, you can focus on strategies that truly work to improve your credit score. Whether it’s disputing errors on your report, maintaining low balances, or paying bills on time, these practices will have a more lasting impact than any “quick fix.” Remember, consistent, positive behaviors are the key to building and maintaining a strong credit score for the future.