Common Credit Misconceptions
Happy Saturday! I wanted to share a short list of common client misconceptions that I have dealt with this year. It seems that clients are more informed these days, but not always accurately. Are you waiting for their credit score to improve before you buy? Make sure you talk to me about the fastest way to get a credit score up using legal and ethical means. It doesn’t happen overnight, but it doesn’t take more than a month in most cases!
Here are the biggest myths of credit scores and credit repair.
Myth # 1: Disputing a credit report is easy - any consumer can do it themselves. Restoring your own credit is like representing yourself in court; it is possible, but you have to be willing to invest the time to learn the processes, assume the risks of inexperience and realize that it will probably take you much longer. And you will be considerably less effective than a professional.
Myth # 2: The credit bureau allows me to submit my 100-word explanation. Creditors will read my statement and take it into consideration. No known creditors consider the information submitted in your statement. This statement only verifies some of the negative items on your report. The 100-word explanation should never be added, and it should be the first thing deleted from your credit file.
Myth # 3: I can create a totally new credit file by getting a federal tax ID number or changing a few numbers on my social security number. This fraudulent scheme has proven to be complex, difficult and illegal. Lying on a credit application is a criminal offense.
Myth # 4: Closing an account will help your score. If you have been responsible with credit in the past, the chances are that you are likely to continue to be responsible in the future. After all, that is the basic principle behind credit scoring. It rewards behaviors that show moderate and responsible use of credit over time, because those habits are likely to continue. The score also punishes behavior that's not responsible, such as applying for a lot of credit you don't need. Many people with high credit scores find that one of the few marks against them in their reason codes is the number of credit accounts listed on their reports. When they go to get their credit scores, they're told that one of the reasons their score isn't even higher is that they have "too many open accounts." Many then erroneously assume they can fix this problem by closing accounts. But after you've opened the accounts, the damage has been already done.
Myth #5: You don't have to use credit to have a high score. Unfortunately, there are some people who are so suspicious of credit that they advise giving up credit cards and living on a cash-only basis. They acknowledge that most people need mortgages and auto loans, but they feel the best way to impress a lender is by living a credit-free lifestyle. This is unfortunate, because it is just plain wrong. The credit scoring formula is designed to judge how well you handle credit over time. If you have no credit, or you don't at least occasionally use the credit you have, the formula won't have enough information to generate a score for you.
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