Your credit score matters when qualifying for the best loans, credit cards, or even renting an apartment. And there are many common misconceptions about what does and does not impact your credit.
Below are 10 of the most common credit score myths.
1. I’m no longer responsible for a debt per our divorce decree
False: Unfortunately, divorce is part of life, and debt is part of most marriages. But what happens when a judge orders that your spouse is responsible for the credit card payments? Are you still liable? Can collectors still come after you?
In short, the answer is that creditors can still try and collect and still harm your credit if your spouse doesn’t make the agreed-upon payment. *Unless the creditor releases you from the loan.
In simple terms, it works like this: Creditors say, “Hey, sorry your marriage didn’t work out, but you agreed to the terms. Therefore, it’s not our fault your marriage didn’t work out.”
2. I moved, and the creditor sent it to the wrong address, so they can’t report me late.
False: Even if you did give them the new address and the creditor sends your bill to the old address, you are still responsible for making the payment in full and on time.
Think of it this way. A bill is more of a courtesy than an obligation on the creditor’s behalf. It’s your responsibility to know when and how much is due.
3. If you make a payment on a collection, it will re-age the debt.
False: Collection agencies do not re-age debts; original creditors do. Even then, it’s rare unless you make new payment arrangements.
For example: If you’ve fallen behind on a credit card, it’s not uncommon for some companies to make deals with you. Something to the effect of “make a payment of 300.00 today, and we’ll offer you a new card.”
4. A Collection account will be removed once you pay it off.
According to the Fair credit reporting act (FCRA), you have the right to fair and accurate credit reporting.
In the case of a paid collection, fair and accurate would be noted as “Paid collection, zero balance.”
Note: If something about the paid collection still doesn’t look accurate (dates, dollar amounts, creditor name, etc.), you have the right to dispute it. From our experience, a collector rarely verifies paid collections, and they are removed.
5. Credit Repair Companies are all scams
False: Credit repair is legal per the FCRA whether you do it yourself or hire a credit repair company. Furthermore, credit repair companies are regulated under the Credit Repair Organization Act (CROA)
With that said, some credit repair companies, while operating legally, may not be worth paying for. Dispute mills, in my opinion, are worthless, and this is an instance where I’d say don’t waste your money.
A dispute mill is a company that sends a bunch of template dispute letters on your behalf, hoping something gets deleted with no regard for your credit profile.
I’ll include some dispute templates at the bottom of this page so you can do that yourself if you think it will help. Here’s a helpful article on How to avoid credit repair scams
6. A collection is past the statute of limitations in my state, so it must come off my credit report.
False: The statute of limitations on debts is often confusing for some consumers. Why? Because there are two different types of statutes.
a) State statutes on debts: This is the amount of time a collector can take legal action against you. This time frame differs from state to state and is calculated by adding 180 days from the last payment date.
b) Federal statute: This is how long a negative item can stay on your credit report, which is typically seven years except for bankruptcy which is ten years
7. You can be arrested for debts
False: You cannot be arrested for debts (auto, student, car loans, mortgages, credit cards, etc.)
It is illegal for a collection agent to say you’ll be arrested according to the Fair Debt Collection Practices Act (FDCPA)
There are a few exceptions like taxes, child support, etc. But in this context, we’re talking about your run-of-the-mill credit-type situations.
8. Closing accounts will help your credit score
False: I can’t think of any circumstance where closing an account (that’s in good standing ) will help your credit score.
It will likely harm your credit score for two reasons:
- It can increase your credit utilization. The utilization ratio is your current balances vs. your total available credit. If you close a credit line with available credit, you’ll be increasing your utilization which accounts for 30% of your FICO® score.
- Your overall length of history. Part of your credit score is your “length of history,” which accounts for 15% of your FICO® score. More on that here. What is a good credit score?
9. Leaving a small balance will improve your credit score
False: According to Equifax, Leaving a small proportion will not improve your credit score. You’ll incur more interest and risk accidentally making a late payment.
If you can afford to, it’s always best to pay your balances off each month.
10. Getting Married will merge our credit scores
False: At the consumer level, credit reports are individual. Now, if you apply for a joint account as a married couple, that’s different.
What is a good credit mix?
How to avoid credit repair scams
Fastest way to repair your credit