Top 5 Credit Misconceptions

While the U.S. economy finally begins to recover, consumers are still dealing with the effects of lowered credit scores and subsequent attempts to raise them. Many factors affect the algorithm of a credit score, however, there are plenty of misconceptions out there intended to unnecessarily frighten the average consumer. Here are the top 5:

1. Your score will drop if you check your credit.

This is absolutely inaccurate, as checking your own score counts as a "soft inquiry' and therefore does not factor into your credit score. Only "hard inquiries" from a lender or creditor can damage your credit if done too often. However, many inquiries for the same purpose in a short amount of time (ie: Shopping for a loan) are grouped into another category with a far less damaging effect on your credit score.

2. Closing old accounts will improve your score.

This is one of those that comes from a misunderstanding of the credit algorithm. Age of your credit is one of the top factors, so when you close an old account in good standing, your credit drops because it is now newer. Remember, the longer you have credit (And take care of it), the higher your score will climb.

3. Paying off a negative record removes it from your credit report.

Untrue. Negative records, which include collection accounts, bankruptcies and charge-0ff's, remain on your credit report for 7-10 years after first being posted. Paying off a delinquent account before the set term ends will result in the account being marked as paid, but it will not be removed until the term ends. Still, it is a good idea to pay off these debts, as it does improve your credit score, but the major improvement won't show up until the items are finally removed.

4. Being a co-signer doesn't make you responsible for an account.

Opening a joint account or co-signing on a loan means you are taking legal responsibility for an account. All activity, positive and negative, will show up on the credit reports of everyone involved. If you co-sign for a friend or family member on a loan and they don't make the payments, they're hurting both your and their credit ratings. The only way to stop the double reporting is to either refinance the loan or have the creditor remove you from the account.

5. Paying off a debt will add 50 points to your credit score.

Your credit score is the result of a highly complicated algorithm that takes into account hundreds of varying factors. It is very hard to predict how many points you will jump, or fall, with your credit actions. Some people with very high credit ratings can drop significantly by missing only one payment, whereas someone with a low credit score might not see a drop at all. It is still highly recommended to pay off debts though, as some people have experienced noticeable increases in their score after paying off debt. There is not a magic wand for improving your credit score, however good financial behavior and time are the two most important factors.


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