First Independence Bank says, ‘It’s important for consumers to know the 10 biggest myths about credit’
Could American consumers survive without many of the items and services that are purchased on credit? The answer is “Yes,” but life would not be so pleasant and comfortable. Case-in-point. How many consumers are able to pay cash for a new car or that dream house? Those multiple state-of-the- art flat-screen televisions that adorn consumers’ homes… how many of these items could be purchased without credit?
What about that new top-of-the line washer and dryer that would well serve the growing family…how many households can shell out cash for these needed items? And that dream vacation to Disney World in Orlando, Florida for a family of five…can the family’s breadwinners set out thousands of dollars in cash to take happy faces to the happiest place on earth?
In essence, few people are able to pay cash for many of life’s items, especially ones that cost thousands of dollars. Thus, the ability to get credit, and the task of maintaining and improving credit scores are vital to the purchasing power that consumers need to obtain “want or need” items or services. First Independence Bank understands the misconceptions and myths of achieving, maintaining, and improving good credit scores, which in many cases determine whether a consumer is allowed or denied the opportunity to “get now, but pay later.” Therefore, the following are 10 myths about credit/cred- it scores that First Independence wants every consumer to know and understand.
Myth 1 – Paying a debt will remove it from my credit report… Late payments, delinquent accounts, tax liens and collections will normally stay on one’s credit report for seven years from the date of the delinquency. Even if the debt has been paid, it will remain for seven years. Such delinquent accounts will show up on credit reports, and can substantially lower one’s credit score. However, the more remote and further in the past the delinquent account is, the less it’s likely to have a huge impact on your credit score, if it’s reported as paid. Unpaid accounts will continue to negatively impact your overall credit score.
Myth 2 – Canceling credit cards will improve my credit score… Not true. Approximately 15% of one’s credit score is predicated on the length of time you have had credit reported. Closing a long-holding credit card in order to keep a newer one open is essentially shortening your credit history. Additionally, 30% of one’s credit score is based on the amount owed in relationship to the total lines of credit. In essence, it’s wise to keep a credit card open, even if it has a zero balance, because it can help you keep your total available credit high which can help your credit score rise.
Myth 3 – My credit score is the same at all three credit bureaus… Not so true. Equifax, Experian, and Trans Union compute their own respective scores based on the information that is reported to them. A classic example is that if a particular creditor only reports to Experian, your score at Equifax and Trans Union won’t be determined by that creditor’s information. Additionally, each credit bureau weighs each credit item differently.
Myth 4 – I should routinely check my credit report which will lower my score… One’s credit score isn’t negatively impacted by inquiries that are made for marketing purposes, or that are initiated by you for the purpose of verifying the accuracy of your credit report. While marketing inquiries are reported on your credit report, one’s own request for a copy is not noted, or reported to your creditors. The only inquiries that are evaluated are those that you initiate to obtain new credit.
Myth 5 – Shopping around for a loan can damage my cred- it score… Rate shopping should not damage credit scores, because inquiries will be made for a particular type of credit during a short period of time. If the same types of inquiries are made within a one month period, they only count as one inquiry on your credit report. However, this only applies to mortgage loans, not credit card inquiries.
Myth 6 – Paying cash helps increase my credit score… While paying cash is an excellent way to stay out of debt, it can hurt your overall credit score. How is this possible? You credit score is determined by your credit history, which is one’s pattern and the length of time having and using credit.
Myth 7 – Marrying someone with bad credit will also hurt my credit score… While getting married brings together many things, such as combining finances, the credit reports are not united. However, if the married couple opens a joint account, the credit information – for better or worse – will appear on both reports. Yet, your or your spouse’s past negative credit history will not reflect on the other person’s credit report, unless the respective spouse is added to the account that has a negative history.
Myth 8 – Co-signing for credit does not make me responsible for the loan… Short answer: Wrong. When the primary loan recipient is not able to pay, the co-signer is responsible for making the loan payments. In the case of a car purchase, it doesn’t matter who has the vehicle, because if the primary loan recipient can’t pay, the creditor looks for the co-signer to make good on the deal.
Myth 9 – Negotiating a settlement on a debt won’t hurt my credit score… It’s good to always pay off the debt as agreed. However, in a debt settlement agreement the collector has the right to report the debt as “charged off” or “paid a negotiated amount.” Politely talking with a creditor at the time of settlement discussions, could result in the creditor reporting the item as “paid as agreed.” However, always get this type of settlement language in writing.
Myth 10 – Making a late payment won’t affect my other credit accounts… Making a late payment on one’s account should not negatively impact other credit accounts. However, the universal default clause that’s included in most credit card agreements allows a creditor to raise your interest rate if you make late payments on other credit accounts.
At First Independence Bank, it is our strong belief that consumers should be knowledgeable of all information that impacts them financially, inclusive of credit matters. Established in 1970 as a community development financial institution, First Independence Bank continues to make dreams become realities for its community, citizens and businesses. First Independence Bank is an equal opportunity lender and member of the Federal Deposit Insurance Corporation.
For more information about all banking and financial products and services offered by First Independence Bank at its three area branches, call 313.256.8400, or log on to www.firstindependence.com.