Okay, maybe “lies” is a bit strong of a word to use here, but how else were we supposed to draw you in with a twist on the “Two Truths and a Lie” game?
Now that we have your attention, let’s talk less about outright lies and more about common misconceptions about credit. Because in the realm of personal finance, few things wield as much influence as your credit score.
![CredEvolv Blog - Main Image - Clearing Up Common Credit Misconceptions](https://credevolv.com/wp-content/uploads/2024/07/CredEvolv-Blog-Main-Image-Clearing-Up-Common-Credit-Misconceptions-1024x512.png)
Whether you’re applying for a mortgage, wanting to finance a solar energy system for a home you already own, seeking a new credit card, or even attempting to rent an apartment, your credit score can often be the determining factor in your ability to successfully move forward. Unfortunately, misinformation about credit abounds, leading many consumers to make decisions based on myths rather than facts.
That’s one of the biggest reasons why we at CredEvolv don’t recommend searching for “best credit repair company” or “top credit repair companies” on Google or otherwise DIYing your credit fixes (more on that later). But we do believe in sharing knowledge and information, so let’s debunk some of the most pervasive credit misconceptions to help you navigate your financial journey more effectively.
1. High income automatically means a high credit score. FALSE!
One of the most widespread misconceptions is that a high income guarantees a stellar credit score. This assumption stems from the belief that more money equals better financial responsibility. However, credit scores are based on factors that do not include income (more on that later, too). Also, high earners can be susceptible to late debt payments or taking on too much debt, just as lower-income individuals can have immaculate credit. So, while a higher income might help you manage debt more effectively, it does not directly impact your credit score.
2. Mistakes on credit reports are rare. FALSE!
It’s easy to assume that credit reporting agencies maintain error-free records, but in reality, that’s not always the case. According to a recent watchdog report, nearly half of all credit reports may contain errors, and some of them can be costly to a credit score calculation. These errors can range from incorrect personal information and inaccurately reported account statuses to fraudulent accounts opened in your name. Monitoring your credit report regularly (with the guidance of a credit counselor, if needed) allows you to notice and dispute errors promptly, ensuring your credit score accurately reflects your financial profile.
3. Negative accounts from bankruptcy do not impact credit scores. FALSE!
Another misconception is that negative information, such as accounts included in bankruptcy, stops affecting your credit score once the delinquent debt is settled. In fact, negative information like bankruptcies, foreclosures, and late payments can remain on your credit report for up to seven years or more, depending on the type of information. While the impact of these negative marks does lessen over time, it can still influence your ability to obtain credit and may affect the interest rates offered to you in the short term
In the realm of personal finance,
few things wield as much influence as your credit score.
4. Paying a collection account improves your credit score. FALSE!
Many consumers believe that paying off a collection account will immediately boost their credit score. Unfortunately, this is a myth. Collection accounts, whether paid or unpaid, can remain on your credit report for up to seven years from the date of delinquency. While some lenders may view a paid collection more favorably than an unpaid one, paying off a collection account does not remove it from your credit report or improve your credit score directly. So, don’t focus on how to remove paid collections from your credit report. Instead, concentrate on establishing positive credit behaviors moving forward to demonstrate financial responsibility, which may mean leaving a past collection account unpaid and putting your money toward your current debt burden. This is an example of a situation where you can absolutely benefit from working with a reputable credit counselor to determine the best course of action.
5. There is more to establishing good credit than paying bills on time. TRUE!
While timely bill payments are crucial for a healthy credit score, they are just one piece of the puzzle. Credit scoring models consider multiple factors to gauge your creditworthiness. These include the length of your credit history, the types of credit you use (such as credit cards and loans), your credit utilization ratio (the amount of credit you’re using compared to your total available credit), and recent credit inquiries. Building a strong credit profile requires attention to each of these areas, not just making on-time payments.
Conclusion
Understanding the truth behind common credit misconceptions is essential for making informed financial decisions. Your credit score impacts your ability to secure favorable interest rates, your access to loans and other credit products, and even your ability to land your dream job. By delving deeper into these myths and arming yourself with accurate information, you can take proactive steps to manage and improve your credit health effectively.
Here’s the best part: you don’t have to do it alone. In fact, we don’t recommend the do-it-yourself approach, especially if you’ve had credit challenges in the past or you have no credit history at all and are looking for the best way to get started. At CredEvolv, we only work with certified, nonprofit credit counselors who can help you get better results than for-profit credit repair companies – and it’s all done legally and in compliance with the Consumer Financial Protection Bureau (CFPB) and the Telemarketing Sales Rule (TSR).
Remember, maintaining good credit is a discipline that requires vigilance, knowledge, and responsible financial habits. Stay informed, monitor your credit regularly, and when needed, seek professional guidance from CredEvolv’s counselor partners to navigate the complexities of credit confidently!