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Your credit scores with the three major credit bureaus is one of the most important factors for your financial well being. Sadly, most consumers do not truly know what their actual scores are and they haven't a clue on what factors raise or lower their scores. Listed below are some of the most common misunderstandings about credit scores. Knowing these factors will help consumers know better what will really hurt or help their score.
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Myth # 1. Paying my Bills on Time Will Improve My Score
This is true but the increase in your score will be very minimal as it takes 48 to over 120 months of good on time payment history to move your score in a strong positive fashion. It is true that FICO scores use a system to base 35% of your score on whether you're making your payments on time but again, it takes time to improve your score. So if 35% of your score is based on payment history, that leaves 65% of your score that has nothing to do with missed or late payments. Consumers should not put all their eggs in one basket and rely solely on making their payments on time and assuming that their scores will raise.
Myth # 2. Carrying a Balance Is Good
This is a myth that was probably started by the credit card industry. Carrying balances will not only cost you in interest and financing charges, but will also hurt your credit score if your total balances are higher that 15% of your total credit limits. There is nothing wrong with carrying a small balance that is below 15% of your total limit but very large balances will affect your "utilization" -- (the percentage of your available credit limit) and lower your scores dramatically. Maxing out your credit cards will hurt your score even worse. What you really want is a relatively low balance -- never more than 15 percent of your overall limit.
Myth # 3. Employers Can See My Credit Score
Although a lot of people treat them as though they are interchangeable, credit reports and credit scores are two completely different things. Employers in most states can look up your credit report as part of a pre-employment screening (and during your term of employment) -- but they do not have access to your credit score. The only ones who can see your score are lenders, insurance companies, landlords, or utility providers. They can actually buy your score from one of the three major credit report agencies. That is how the credit report agencies make money by the way! :)
Myth # 4. Foreclosures and Bankruptcies Stain Your Score for 10 Years or longer
This myth is not true.: Whether you face a short sale, a foreclosure or bankruptcy proceedings, you'll surely have that negative mark on your credit report for at least seven years. (In most cases a bankruptcy will actually be on there for 10 years.) But your credit score will improve as the negative bankruptcy item gets older. It just takes time and patience and your score will improve slowly. And as a matter of fact, you can have a very solid credit score in three or four years after a bankruptcy. As long as you don't fall back into the same bad habits and make late payments on current creditors. You can also get a bankruptcy deleted from your credit reports by using a legal credit repair company.
Myth # 5. It is not possible to remove negative items that I truly did default on the item and it really was my fault.
This myth is completely false. Although the three credit bureaus would like consumers to believe this, any negative item can be removed! Although deleting negative items on your reports that were your fault may seem corrupt, it is completely legal and within the law to have anything that is unverifiable removed from your credit report. Whether you defaulted on a derogatory item or not, every item on your credit report must be verified. Only the best credit repair companies will follow the due process of law to protect your rights and exercise the rights that the laws govern you. Again, although this process may seem unethical, remember that the laws are there for your protection. If the credit bureau or credit issuer cannot verify a debt, it is your right to have the negative item removed.
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