Myth: Higher Salaries Improve Credit Scores

Fact: Earning a higher salary will not help improve your credit scores. Neither will inheriting money, winning the lottery, or finding a pot of gold at the end of the rainbow. That's because credit scores do not factor income or net worth into the credit scoring calculation. What will help you improve your credit score is paying off your debt. If you cannot pay your debt off in full, paying it off over time and on time will improve your credit score.

Myth: My Credit Score Only Changes Every Six Months

Fact: Your credit score can change any time new information is reported to the credit reporting agency. Creditors report information at different intervals, and each credit bureau updates its respective database on its own schedule. Credit scores are dynamic. That means any new information—either positive or negative—will be reflected in your current credit score at each of the three big credit bureaus. What constitutes “new information?” New information could be data reported to the credit bureau regarding, timely payments, delinquencies, or collection activity by one or more of your creditors. It could also be the aging off of negative information.

Myth: Credit Counseling Will Wreck My Credit Score

Fact: The act of participating in credit counseling will not directly lower your credit score per se, since it is not considered a negative in figuring credit scores. However, it is up to each individual creditor to report the status of your account to the credit bureaus. If your credit counselor negotiates a lower monthly payment for you, the creditor can legally report the account as being in arrears. However, many creditors view the fact that an individual is getting credit counseling to be a sign of financial responsibility and will report the account as up-to-date. Still, even though credit counseling doesn't directly lower your credit score, and even if creditors report your accounts as up-to-date, some lenders do still view credit counseling dimly. You may end up being denied credit or paying higher interest rates as a result.

Paying Off a Collection Account Raises My Credit Score

Fact: Fact: While paying off a collection account is a responsible thing to do, it will not help boost your credit score in most situations. Most account information stays on your credit report for up to seven years. Certain bankruptcies stay on for up to ten years. That means that any account you held in the past seven years —open or closed, up-to-date or delinquent— will be listed on your credit report. The light at the end of the tunnel? Once negative records expire from your credit report after 7-10 years, your credit scores should improve significantly.

Myth: Comparison Shopping Damages My Credit Score

Fact: Applications for new credit and loan accounts can cause a small drop in your credit score. But you may still be able to comparison shop without causing major damage. Today's lenders understand that consumers comparison shop. If, for example, you are shopping for a new car or home, you may rate shop, which may result in multiple inquiries. Generally speaking, if there are multiple inquiries of the same type on your credit report within a 30-day window, they may be grouped together into one less-damaging "inquiry period. In fact, some lenders even consider like inquiries over broader timeframes to be for comparison shopping purposes and don't weigh them negatively. Still, it is best for your credit score if you limit the number of applications to only what is necessary and keep them all within a few days.

Myth: Checking My Own Credit Report Lowers My Credit Score

Fact: You should plan to check your credit report at least once every three months. You can receive paid copies by ordering directly through one or more of the big three credit bureaus. If you've been denied credit, you can receive a free copy from the bureau upon which the lender based its decision. Federal law also entitles you to one free copy per year from each of the big three credit bureaus. For more information, visit www.annualcreditreport.com. According to the Fair Credit Reporting Act, you may also qualify to receive a free credit report if: (1) you are unemployed and plan to look for a job within the coming 60 days, (2) you are receiving welfare, or (3) your credit report is inaccurate because you are the victim of fraud or identity theft, 4) or if the state where you live allows for free credit reports each year.

Myth: Credit Bureaus Make the Decisions

Fact: Wrong. Credit bureaus don't make any decisions regarding whether an individual is approved for or denied credit, employment, insurance, or any other goods or services. Potential creditors generally have multiple criteria that must be met before deciding to grant credit to an individual. Information contained in a credit report is usually just one of the factors upon which a creditor may base a decision. Many lenders also use a variety of predictive information to help determine an applicant's creditworthiness, such as household income, home ownership, and employment history. For example, if an applicant has met the lender's other criteria and the lender finds negative or questionable information in the credit report, the applicant may be asked to provide the lender a letter explaining the circumstances surrounding the negative information in the credit report. This is common during mortgage application processing.

Myth: My Divorce Decree Protects My Credit Score

Fact: Even if your divorce decree stipulates that your ex-spouse is financially responsible for debt that is held in both your names, you remain financially liable for that debt until it is paid in full. Both of you entered into a binding contract with the creditor. To change the terms of that contract requires agreement by and the signatures of all parties—including the creditor. Since creditors are not a party to divorce proceedings, the decree does not officially amend the terms of the initial credit agreement between the former spouses and the creditor. If your ex-spouse is named as the responsible party for a jointly held debt, you should monitor the account closely to make sure it is being paid in a timely manner. Otherwise, negative payment history information will appear on your credit report, likely resulting in a lower credit score.

Myth: I Only Have One Credit Score

Fact: You actually have three or more credit scores, including one each based on your Equifax, Experian and TransUnion credit reports. The scores can vary significantly, which can mean the difference between a lender approving or denying your credit application. It's a good idea to check your credit score with each of the bureaus at least once a year. Each offers convenient online ordering and offers products and services on an a la carte or package basis for a fee. You can also request a free credit report once each year from each of the three credit bureaus at www.annualcreditreport.com. Fair Isaac Corporation and the Consumer Federation of America have developed a brochure titled “Understanding Your FICO Score” that is aimed at helping consumers understand the credit scoring process, information contained in credit reports, and the relationship between the two. You can download a free copy of the brochure by visiting the Credit Education Documents page at myFICO.com.

Myth: A Credit Repair Service Can Fix My Credit Report

Fact: Credit repair services cannot “fix” a credit report or credit score. If there is incorrect information contained in your credit report, a credit improvement service can help you dispute that information. Of course, you can also save yourself the money and do it yourself for free. However, if there is factually correct negative information contained in your credit report, there is no long-term solution available to you through a credit repair service. Credit repair services will try to have information removed from your credit by filing disputing letters on your behalf. But accurate information cannot be removed from your credit reports this way and the process may cause more harm than good. If you believe your credit report contains incorrect information, visit the Federal Trade Commission's Web site and read the page titled “How to Dispute Credit Report Errors.” If your credit report contains accurate negative information, consider it a new day, and pay all your debt on time and in full from this day forward. Your credit score will gradually improve over time.