What Are The Facts About Credit Reports?

 

You might have heard stories about credit and how credit reports work. There is a lot of good information and just as much bad information out there. It's important to separate fact from fiction. Here are some common myths about credit – and the facts:

Myth: You must give permission for your credit report to be issued.

Fact: Any credit grantor with a permissible purpose may access credit reports without the consumer's permission. Examples of those who can access your credit files are credit grantors, collection agencies, insurance companies, and employers.

Myth: The credit repository or reporting company can deny a credit application.

Fact: Credit repositories and credit reporting companies have no power to accept or deny credit. They only collect and report information.

Myth: After you pay off a debt, it disappears from your credit report.

Fact: A credit report shows the whole credit history on any debt that is reported – all debts – even if they're paid off. The bad news is that negative credit information can stay on your report for 7 to 10 years. But the good news is that credit grantors weigh new debts more heavily than old ones. So, a six-year-old bad debt will count for less than several recent years of good credit.

Myth: You're not responsible for debts on a joint account if you didn't make the purchases.

Fact: On a joint account, both parties are held completely responsible for payments. If you pay your share, but the other person doesn't, each of you receives the same negative credit rating. Co-signers, who guarantee loans, are also at risk if the primary person doesn't pay as agreed. That means, if someone has cosigned a loan for you, be sure to pay as promised to protect your credit and theirs!

Myth: A divorce decree separates joint accounts.

Fact: Divorce does not cause anything to happen automatically in your credit report. To protect your credit rating, pay off and close all joint accounts, then reopen new accounts as a single account holder.

Myth: Risk scores have replaced a credit report review.

Fact: Credit reports are still the number one tool used by creditors to determine your creditworthiness. Some credit grantors use "merged credit," which is the combined score from at least two of the credit depositories.

Myth: You can pay someone to "fix" your credit.

Fact: The only person who can repair your credit is you, and only by creating smart credit habits like paying your bills as agreed, on time, keeping your balance to credit limit ratios low and keeping open credit to a minimum. Over time your credit will improve. Beware of anyone telling you that they can repair your credit in order to help you get a mortgage. It could be a scam and will likely only cost you money. There are reputable credit counselors who can help you build a plan to pay off your debts but they don't "fix" credit.

Myth: There is nothing you can do about mistakes on your credit report.

Fact: By law, credit reporting agencies are required to fix mistakes on your credit report. You need to file a dispute letter with the credit reporting agency and request an investigation. The FTC has sample letters and additional information. There are some credit companies that charge to do this for you but you can do it yourself for free.

Myth: If my home is foreclosed on my credit is ruined forever.

Fact: The reality is that your credit is negatively affected by foreclosure but is it not forever. The negative information regarding a foreclosure on your credit report starts as early as when a mortgage payment is 30 days late so it is important to get help as soon as you have difficulty. Negative information such as a foreclosure means that you won't be eligible for the lowest interest rates available when you purchase things like a car, which can end up costing you thousands in interest. But as time goes by and you practice good credit habits such as paying bills on time and keeping your credit balances low your credit will improve.

Myth: A short sale will affect my credit less than a foreclosure.

Fact: According to FICO, it is not usually possible to tell the difference between a short sale, deed-in-lieu or foreclosure on a credit report. FICO scores treat each of these as serious delinquencies so they impact your credit score similarly to a tax lien or bankruptcy.

Myth: I cannot improve my credit score after a bankruptcy until it falls off my credit report.

Fact: A bankruptcy will stay on your credit report for up to 10 years and will be factored into your credit score while it remains on your credit report. However, you can begin to improve your credit before it is removed from your credit report by reestablishing good credit through on-time payments, low credit balances, etc.