3 “Facts” about Fixing Your Credit Score that Are Completely False
Everyone seems to have advice on how you can fix your credit. They throw facts at you and act like they are obvious. However, the average consumer knows very little about how their credit score is determined and how to improve it. To help separate facts from fiction, we tackle a few of the most common myths below.
False Fact #1: Credit Reports from the Major Credit Bureaus Are All the Same
We can almost guarantee the opposite to be true. The credit reports (and therefore the credit scores) are likely to be slightly different for all three of the credit bureaus. The main reasons for this are:
The accounts on credit reports are rarely updated simultaneously. For instance, an account at Equifax may be updated today, but the same info may take one or two days to appear in the TransUnion and Experian reports.
Credit score formulas can be different based on the companies’ computer systems.
Not all lenders report to all three credit-reporting agencies since reporting is voluntary.
False Fact #2: You Can Fix Your Credit by Paying off All Your Debts and Closing Your Accounts
Okay, so maybe this one is not completely false. One of the fastest ways to rehabilitate your credit score is to pay off all of your debt. On the other hand, you can hurt your credit score by closing your accounts. The proportion of total balances to credit limits is a key element in calculating your credit score. That proportion lowers when you pay off debt. Yet, the balances look like they are higher compared to the overall limits when you close accounts and eliminate some of the available credit limits.
False Fact #3: Credit Repair Organizations Are the Only Way to Fix Your Credit
Credit repair companies may be helpful, but they are by no means the only way to fix your credit. There are many reputable credit repair agencies in existence, but consumers must also be careful to look out for scam artists. For example, the FTC recently cracked down on the operators of an illegal credit repair scheme that was bilking student loan borrowers out of millions.
The best way to fix your credit is to change your behavior, but first, you need to increase your financial IQ. One way to do this is to meet with a non-profit credit counselor. You can find one by visiting the website for the National Foundation for Credit Counseling.