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7 CREDIT REPAIR MYTHS

Too often we hear too much about the importance of credit repair, but not enough about how to actually go about it. Worse, misinformation often prevents us from taking the necessary steps toward reforming credit habits and getting out of debt. Debt repair is possible, and it’s simple (if not easy). With the right information, you can do it yourself.

Here are seven of the most common myths about debt:

Myth #1 – Credit inquiries and applications do not affect my credit score.

Nowadays, applying for credit is easy. Each day our mailboxes are filled with credit card and loan offers, and on the Internet, credit applications are always only a click away. However, you need to be careful about requesting new credit, because it can affect your credit rating. If you apply for a new credit card, for instance, and prompt the credit card company to access your credit report, your credit score might suffer. For one thing, having too many credit cards (and other types of debt) can negatively impact your credit rating; new debt, in particular, has an impact. For another, if your application or inquiry is denied, that too can negatively affect your rating. Generally speaking, if you initiate the action that causes a company to investigate your credit score, it might come back to haunt you; if your credit score is accessed for a reason that doesn’t involve action by you, it won’t hurt your rating.

Myth #2 – Once I pay off “past-due” and “in collection” debts, they are considered “paid” and no longer negatively affect my credit score.

While paying your debts is usually a much better idea than ignoring them, paying a balance off entirely doesn’t erase the history of that debt. Your credit report will still indicate problems incurred relating to the debt – late payments, involvement of a collection agency, etc. However, a paid debt is still usually better than an outstanding one, as it demonstrates responsibility and increased financial stability.

Negative credit report items tend to stay on your report for a maximum of seven years. Thus, there are some cases in which paying off an old debt can actually hurt your credit score. If the outstanding debt is more than seven years old, it might make more financial sense to leave it alone, since any activity you take will reactivate the item on your report. If you’re unsure about the best course to take with old debts, consult a professional.

Myth #3 – If I declare bankruptcy, my credit history is erased and my credit report is clean.

Bankruptcy is not a magic wand. Rather, it is a last resort that should be avoided if at all possible. When you file for bankruptcy, every credit report item involved will still appear on your credit report, marked as an account in bankruptcy. Your bankruptcy declaration and discharge will appear on the report as well. These negative items – and thus the fact of your bankruptcy – will remain in your credit history for 7-10 years, and bankruptcy does not impress lenders. In other words, bankruptcy is almost never the best solution.

Myth #4 – Deleted negative items on my credit report just come right back.

You may have heard that there’s no point in removing negative items in your credit history, because they simply reappear. In fact, it is true that you cannot simply erase accurate negative credit activity; only time can remove unfavorable items that you are in fact responsible for. However, you can dispute items that you think are inaccurate or incomplete. When you dispute an item on your credit report, the creditor has anywhere from 30 to 60 days to refute your claim; if the creditor cannot validate the negative item, or if the creditor never responds, that item will be amended or removed from your credit report. However, even if the creditor misses the deadline, if they later validate the disputed item, it will reappear on your credit report. In short, you cannot erase accurate negative items, but you can dispute them as inaccurate or in need of adjustment. What happens after that depends on the validity of your claim.

The most important lesson here is to keep a close watch on your credit report. Studies show that as much as 79% of credit reports contain errors! Credit bureau reporting practices are notoriously sloppy, and it’s up to you to make sure that your credit history report is accurate and complete.

Myth #5 – Some of the most serious negative credit report items, such as foreclosures and bankruptcies, can never be removed from a credit report.

Though some types of unfavorable credit report items – such as foreclosures, bankruptcies, tax liens, and tax judgments – do stay in your credit history for a long time, everything eventually “falls off” your report, given enough time. The most serious negative items tend to remain on your report for 7-10 years.

Myth #6 – By building good credit, I can repair my negative credit history and be considered a “good risk” by lenders.

Of course, to a certain extent, this is true. Demonstrating conscientious financial behavior, eliminating old debts, and avoiding irresponsible new debt are all excellent strategies for improving your credit score. As you add new, positive items to your credit history and establish a pattern of responsible decision-making, your status will improve in the eyes of lenders, especially as old negative items expire and fall off your report. However, positive items can’t simply erase negative items, and it will still take time to improve your credit rating. The most important thing is to remember that even one negative item – a late payment, for instance – can seriously damage your credibility in the eyes of lenders, particularly if you’re attempting to rebuild shaky credit. So make good decisions, stick to them, and be patient, and eventually your good behavior will outweigh the bad.

Myth #7 – Credit repair is complicated and difficult, and I can’t do it without professional help.

Debt relief consultants such as attorneys are no more capable of “fixing” your credit than you are. The only way to repair your credit is to make consistently responsible financial decisions, keep a close watch on your credit report to catch false or incomplete information, and wait for negative items to expire. You don’t need an attorney or other credit repair professional for that.

If you have questions or are unsure of how to handle erroneous information on your credit report, you might consider consulting a professional. Make sure to weigh the cost of professional help against the potential cost of erroneous credit report items before you seek to hire an attorney, and remember that the only negative credit report items a professional can “fix” are ones that are inaccurate. No amount of professional aid will remove accurate negative items, and any professional service that promises this or any other “quick fix” solution is scamming you or acting illegally.

Before paying for professional aid, make sure the company is reputable, and make sure that you actually need hired help. Many resources are available to help with debt relief, including books (which cost much less than an attorney!), nonprofit organizations, government information services, Internet sites, and more. The fact is, credit repair is a lengthy process that requires responsibility and commitment from you, and only you. You can improve your credit score, but only by being financially prudent, keeping a close eye on your credit report to ward against identity theft and false information, and accepting that only time can remove accurate negative items from your credit report.

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