Credit Reporting & Credit Ratings – 3 of the Worst Myths Debunked and Explained
By Julie Jaggernath
Credit reporting and credit ratings are two of the most asked about topics of personal finance that we encounter. Each week we hear countless questions about the credit bureaus and how credit ratings work. Some people share their personal struggles, others just ask a few questions. We’re of course always happy to help, and provide resources and guidance as needed. However, we’re also always surprised by how many “believable” myths exist about credit ratings, credit repair, credit scores and credit reports.
To separate the good from the bad and the ugly, here are 3 of the worst credit myths debunked and explained:
Myth #1: Pay Off a Bad Debt and It Disappears
Credit reports contain information about how you handle your debts. If you paid a bad debt off after it went to collections, it doesn’t magically disappear.
Your credit report will show the original debt, e.g. a store credit card, it will show the payments you made and the ones you missed, it will show how many times you were late with your payments and by how much you were late (30/60/90 days), and then it will show the debt being written off (moved) to the collection agency.
Once reported by the collection agency, they too will report your payments, or lack thereof, but in a more summarized manner. Once a debt goes to collections, the privilege of making monthly payments is actually revoked and the full amount is due and payable immediately.
Most people aren’t able to pay off a debt entirely with one payment to the collection agency, however, once the debt is paid off, that information will be reflected for another 6-7 years from the date that last payment was processed. A debt in collections that’s paid off looks much better than one left unpaid, but true and accurate information stays on a credit report until it’s time for it to be purged (erased).
3 Ways to Check Your Own Credit Report
Myth #2: If You’re Scared of Getting Into Debt, Pay Your Credit Card Off as Soon as You Use It
Credit cards must be used in order for them to help build a credit rating, however, part of using a credit card means waiting for the bill and then paying it off.
Using a card and paying it right away doesn’t build a credit rating because time is needed for the usage to be reported to the credit bureaus. Then the payments need to be reported as well. These two factors together make up your credit history for that credit card.
A better strategy would be to pre-authorize a certain bill payment or subscription fee to your credit card each month. That way the card is used without you having to carry it in your wallet. When the bill comes, pay it as usual and your good track record will start building.
Myth #3: The Older I Am, the Higher My Credit Score
It stands to reason that someone in their fifties might have a longer credit history than someone in their twenties, but that in no way guarantees the older person a higher credit score.
An established credit history is one factor that’s accounted for in a credit score, but all of the factors that make up a good credit score must still be present for the older person to have a higher score; there’s no resting on your laurels when it comes to credit reporting.
Making payments on time and not using more than about 75% of your available credit on a routine basis are two key factors that younger as well as older people can use to their advantage if they want to improve their overall rating.
Rebuild Your Credit Rating with Credit Repair Help
If you’re worried about your debts and want to improve your credit rating, we can help! Our Credit Counsellors are experts at helping people repair and rebuild their credit. We offer free, confidential appointments and the Credit Counsellor will help identify specific steps you can take to improve your credit score. If this is something you’d like to do, please contact us to make an appointment.
Get More Information About Credit, Debt & Money Management
If you’re not entirely sure what kind of help you need, we are still happy to book you a free appointment and one of our Credit Counsellors will be happy to answer your credit, debt and money related questions. You don’t need to be drowning in debt to access our services, but if you have questions, we have answers and we are always happy to help. Contact us now by phone, 1-888-527-8999, email, or anonymous online chat.