This is one of my most favorite articles that I have written because it addresses so many questions that people have about credit. I love watching the eyes of my clients widen when they find out the truth about some of these most common myths.

You will be hearing some things that will most likely be the opposite of what you currently believe. Keep in mind that credit and credit reports are not widely understood, and even those in the financial and credit industry, often do not have a good understanding. With that in mind, let’s get started

Myth 1: Paying off (or “settling”) late payments, tax liens, collections or judgments will remove them from your credit reports.

This statement is not true. In fact, when you pay off an old collection account, in most cases, your creditors will update the trade line to show as a paid collection, but with a current date. This means that this trade line is now a current paid collection, instead of an old unpaid collection. They are both still negative, but a current negative item will cost you more points than an old one. I am not saying that you should not pay your delinquent accounts, but only that you need to understand the consequences.

Myth 2: If I pay my total credit card balance every month, I will raise my credit scores.

Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.

Myth 3: Credit repair is illegal.

This is far from the truth. In fact, credit repair is legal for you to do on your own, or hire anyone you choose to do it for you. Repairing your credit is a right protected under the Fair Credit Reporting Act (FCRA).

Myth 4: Consumer Credit Counseling will improve my credit.

Credit counseling programs will only harm your credit. The first thing that will happen as a result of enrolling in a CCCS or credit counseling program, is that your creditors will add the line “Account in CCCS” or “Account paid through credit counseling” to each of their trade lines. This will not affect your score, but does look very negative to lenders. The next thing that seems to always happen is that the credit counseling program will make the payments to your creditors late. Sometimes this is not their fault since they just setup the payment to be on your original due date. However, the credit card companies often adjust your due date, and since nobody, like yourself, is monitoring this, they began making your payments late. This will result in late pays on your credit, in addition to late fees.

Myth 5: The law requires that negative items stay listed on my credit for 7 years.

Completely false! There is no such law.

Myth 6: Making a lot of money will give you good credit.

Your income does not play any direct roll in determining your credit scores. In fact, statistics show that large percentage of high-income earners have sub prime credit. Your credit scores are made up of several factors including payment history, account balances, types of credit in use, etc.

Myth 7: I have never been late on my payments, I must have great credit.

Your timeliness of payments does make up 35% of your credit scores, but the other 65% is made up of other factors that are not related to making your payments on time. It is important to understand all those factors to maximize your scores.

Myth 8: Your credit report from each credit bureau will be the same.

Wrong again! Most, if not all the time, your credit report from each credit bureau, Equifax, Experian, and Transunion, will be different. Not all creditors report to all 3 credit bureaus, so it is perfectly normal to have different items on each report. Also, your scores will not be the same since each credit bureau uses their own scoring model.

Myth 9: If you are married, you will share the same credit reports as your spouse.

False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts.

Myth 10: If I close my old credit accounts, my scores will increase.

This is often a huge surprise for many. When you close old accounts, your scores will often drop substantially, sometimes by more than 100 points. Often a lender will ask you to close some old accounts to qualify for a loan, but once the accounts are closed, your scores may actually prohibit you from qualifying. This is good knowledge for to know so you understand the impact of this decision. Old good standing accounts carry more positive weight on your credit scores than newer accounts. When you open new credit, you may also see a temporary drop in scores until those accounts have seasoned (usually 6-12 months).

You are now armed with some very powerful information that will surely be able to use to your advantage.