4 Credit Myths Disproved

Dealing with an ample amount of debt can be hard, especially if you are unfamiliar or don’t understand many of the rules that are involved. Credit can also be a similar situation. There are a lot of rules and regulations when it comes to credit and not everyone has the time to memorize them all. Misinterpreting or not fully understanding a credit law can sorely affect the state of your credit and may even  influence your finances. It is important to dispel fact from fiction when understanding credit.
By disproving these credit myths you will be able to understand your finances a little better.

Paying off an old account will increase your credit score

One of the best ways to bring down your credit card balance is to make your minimum payments each month and if you can, toss a little extra cash its way too. Balances and debts are on your credit report for up to seven years. If it is younger than this timeframe, it will still remain on your credit report and you can in fact raise your credit score by paying off the debt. Many credit holders believe that if you pay off an old account, your credit score will go up. This can help you lessen your amount of debt, but it will not give your score a boost.

Experts say that if the debt is older than seven years, it should have technically come off your credit score, so repaying it will not necessarily affect your credit score. It is great to make payments on these accounts that are older than seven years, but they will not factor in to your credit score. Timing is important when it comes to your credit, but paying off a newer debt will help improve your credit score opposed to paying off an old one.

Making a payment stops collection agencies from calling

Getting into a great deal of debt may mean that your account will go into collection and this will be negatively reflected on your report. This may be a tough pill to swallow, but debt collections happen if you have been delinquent on your payments. You can continue to make payments on this type of account, but simply making a payment will not stop the phone calls or emails from debt collectors.

The best thing to do in this situation is to call the creditors and tell them that you will be making a payment. Alerting them beforehand can be the best line of defense if you want to prevent people form knocking on your door or calling you at all hours of the day.

Getting a divorce erases all debt

One of the most interesting areas of credit is joint accounts. When getting married, many couples may consider the option of combining their finances or taking a credit card out together. This can be a great way to keep a watchful eye on purchases, especially if you make many as a couple. But once the relationship ends, you may be confused as what happens to your debts. Some may think that a simple divorce decree will take care of everything, but that is far from the truth.

Simply getting a divorce will not erase a couple’s debt. A judge could divide out debt during a divorce, such as one party pays the credit card, while the other pays another form of debt, but each party is responsible to pay their debts after they break up. If one member of the couple forgets to pay the credit card payment for the month, your credit score could be hurt in the process. A good rule of thumb is to pay off the debt as much as possible before the divorce is finalized, set up a debt payment schedule or contact a creditor and put the debt solely in someone’s name.

Paying bills on time means you shouldn’t check your credit reports

Paying all your bills on time and avoiding late fees may mean you are a stand up citizen when it comes to credit. You may think because your balance is dwindling and you make all your payment on time, you wouldn’t have to pay attention to your credit report. But even if you are an upstanding citizen when it comes to credit, you still want to pay attention to how your report looks.

There are many components to credit reports and some negative aspects on them may be out of your hands to hold. BankRate said that 80 percent of credit reports have some form of misinformation on them. This can be as simple as a misplaced letter in your name to as big as a new account being opened. Even if you think that your credit is outstanding, you should still look at your credit report now and again.

Posted in Credit 101
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