Top 5 Credit Misconceptions

Top 5 Credit Misconceptions

We have all heard the rumors...from neighbors, relatives, or friends. A wide variety of myths float around about what you should and shouldn't do to manage your credit. Credit Karma has exposed these urban legends to provide you and your informers with the truth about credit:

Your score will drop if you check your credit - Fortunately, this one is definitely not true. Checking your own report and score is counted as a "soft inquiry" and doesn't harm your credit at all. Only "hard inquiries" from a lender or creditor, made when you apply for credit, can bring your credit score down a few points. Worried about damaging your credit while shopping around for a loan? Multiple inquiries for the same purpose within a short amount of time (a few weeks) are grouped together into a less damaging period of inquiry.

Closing old accounts is a good idea - To close or not to close, that is the question. Many people advocate closing old and inactive accounts as a means of managing their credit. But they should think twice before closing the oldest account on their credit reports. Canceling old credit accounts can lower a credit score by making the credit history appear shorter. If you want to reduce your levels of available credit, ask for your credit limits to be lowered or close newer accounts instead.

Once you pay off a negative record, it is removed from your credit report - Negative records, such as accounts in collections, bankruptcies, and late payments will remain on your credit reports for 7-10 years. Paying off the account before the end of the set term doesn't remove it from your credit report, but will cause the account to be marked as "paid." It is still a good idea to pay your debts, just be aware that the major change in your report won't come until the negative records expire.

Being a co-signer doesn't make you responsible for the account - When you open a joint account or co-sign on a loan, you are taking on legal responsibility for the account. Any activity on these shared accounts, good or bad, will show up on both people's credit reports. If you co-sign for a friend's auto loan and they don't make the payments, your credit profile will be hurt by their actions and vice versa. The only way to stop this double reporting is to refinance the loan or to have the creditor officially remove you from the account.

Paying off a debt will add 50 points to your credit score - Your credit score is calculated using a complex algorithm that takes into account hundreds of factors and values. It is very hard to predict how many points you can gain by changing one factor. For a person with a high credit score, just one late payment can cause a significant drop. If a person has a low credit score, it may not cause a large drop at all. Just keep paying your bills on time, reducing your debts, and removing negative inaccuracies from your credit report. Good financial behavior and time are the two most important factors for your credit score.

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Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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Hi,

I don't have a lot of debt but my credit is in the toilet.  My husband and I filed for bankruptcy two years ago.  He had health issues several years ago which put us behind on the mortgage.  The mortgage company refused to work with us.  In the middle of all of that I got breast cancer so bills accumulated again.  Bankruptcy was the only way to save the house. I have very little credit card debt and student loans in deferment. And yes I know, we must pay our bills on time! Any suggestions how to begin the journey back to financial health?

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I had a bankruptcy 10 yrs ago and was just notified it will drop off my credit reports in October of this year..I am curious how much my score will rise when this drops off..Its been a long 10 years.

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I have outstanding student loans but they are all on default and I was told it would not hurt me for 6m or a year and then I check my score and its the lowest its been since my bankurpty, so Im really confused on what I need to do to increase my low score. 

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I have not been working for about 12 months...Would that lower my credit score?

Reply by
sCex0wtN

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My opinion would be that it wouldn't lower your credit score but it would affect your debt to income ratio. That might affect a lender's decision to give you a loan. If you are able to pay your bills/credit cards on time, and you don't need additional credit I don't think your credit score would be lowered.

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I am constantly getting offers from Citi and Chase to get their credit cards. I do not need another card but would like to improve my rating. I believe having more accounts is a plus but hard inuiries is a minus. Also it would shorten my average lifespan of credit accounts which is a minus. So would the net effect be positive or negative?

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Multiple hard inquiries by the same lender or other lenders in the same category within a limited timeframe (30 days) only counts as one inquiry according to Fair Isaac Co.

Reply by
sheila75

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Thats not always true. When I bought my car Shottenkirk tried to get me the lowest interest rate. I couple years later I did it again for a different car, when i went to the bank they denied me because of my inquiries. They showed me my report and it said that a factor of my low score was too many credit inquiries. Shottenkirk told me since they were all done the same day then it would be 1 hit and it was more like 10 hits. My score went from 580 a few years ago to 679 now. I listen to my banker now not the salesman.

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There are three ratings agencies which have different scores. Which one does Creditkarma use or is it a composite or something else altogether?

We use TransRisk developed by TransUnion.

Review by
CK Moderator

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i have a 606 can i buy a house

Perhaps with a FHA loan

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CK Moderator

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Reply by
tattoo666

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They will look at your credit but you income to debt ratio is a big part of getting financing for a house. After what happened with the sub-prime lending market it is getting harder with a lower score unless they see a lot of money coming in and very low amount of reaccuring monthly bills like car payments.

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"Negative records such as collection accounts, bankruptcies and late payments will remain on your credit reports for 7-10 years."

But, I am in a peculiar Catch-22. A Federal Tax Lien was filed against me in 2002. It would normally drop off of my Credit Report in 2012. And it would have, if I had not settled it in 2007, converting it to "Paid, Released."

But, as I understand it, there is a "penalty" for settling the Lien, rather than just ignoring it. Now, instead of dropping off in 2012, it will remain until 2014--seven years from the 2007 Release Date.

Am I correct about this? It is surely not the intent of the law. Is there any way for me to request fair and rational treatment? From whom?

There is a distinction between staying on your credit report and affect your credit. You are generally better off by paying all past debts even if they may hurt in the short run.

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CK Moderator

Reply by
sheila75

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Thats right! When i went through my divorce and settled with the bank I was told that it was there for 10 years instead of 7 years. I was so mad that I asked them if i basically ****ed myself, and they said if that was the way i wanted to look at it. My ex got the truck I thought I was doing the right thing and it would help protect my credit. I WAS WRONG!

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Reply by
tattoo666

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From what I understand, 7 years from the last activity on the account. So if it was there for 5 years and then you paid it off there was activity and it will be 7 years from that point.

Reply by
jmills625

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Unfortunately, with the Fair Credit Reporting Act 7 years is the max amount of time for a charge off even if a State says otherwise such as 3 years, etc. The FCRA was the biggest rip off for consumers. In your case (seek legal advice if needed) whenever you pay after the typical 180 days delinquency date you would add 7 years from that date but if you settle or negotiate a payment etc. it will create a refresh on your credit report because it wouldn't become delinquent at that point. Always, always get it in writing from the collector as part of the contract to not report delinquent or derogatory material to the credit bureaus. And you want to keep negotiations with the original creditor because of multiple reporting in most cases. In your case of a Federal Tax Lien (not State) you really don't have much recourse. If it was a State or Local county lien you would have more probable use of your rights.

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I am currently at 610 and I am using a credit debt management program and it is paying my balances down at a lot faster rate than I could on my own. My score has actually gone up, I have a huge joint mortgage with my husband and it is killing me because my pay doesn't reflect what I make, which my husband pays the entire amount, i have never paid a penny on it. It is a second home and I want to remove my name from the mortgage.Would my score go up if I did this?

Reply by
sheila75

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1 Person Helped

Definetley, your debt to income ratio would change for the better if you did not have that mortgage showing up as your debt.

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