Step one of repairing credit and attaining financial freedom is educating yourself on the truth and myths of credit. With the internet being an easily available source of information, the masses rely on it for knowledge. However, sometimes misinformation runs boundless on the surface net that can lead to financial misguidance and ultimately, create problems.
Read on, as we debunk 7 credit repair scams and myths that you shouldn’t fall for in 2023!
Debunking Common Credit Repair Myths
There is a lot of pressure on us to maintain perfect credit, but in reality, it isn’t true for most people. When you’re on the journey to repairing your credit, you must understand why credit repair scams exist. Credit repair scams allowed fraudulent credit repair companies to prey on your miseries and earn extra bucks. This is where DIY credit repair can help . Here’s why you shouldn’t believe in these common credit repair myths.
#1 Credit Reports are Always Accurate
One of the most commonly believed myths is that credit reports are the ultimate truth of your finances, however, errors are more common than you would realize. According to the Federal Trade Commission, one in five Americans generally find errors on their credit report.
It is, therefore, essential that you review all the charges on your monthly credit card statements, as well as the information on your credit report so that you do not have any incorrect or damaging data on them.
#2 You Can’t Improve Your Credit on Your Own
This is completely untrue! DIY credit repair is always an option. Firstly, it’s important to responsibly pay off your credit card and accounts punctually to avoid falling into the debt trap.
In case of erroneous information on your credit reports, you can make removal requests, and upon proper documentation that prove you either repaid the debt or did not incur it, the misinformation will be removed.
But here’s the truth about DIY credit repair. It has several pros and cons of DIY credit repair. You can always gather information, file requests, etc. but they are often time consuming processes. In these cases, relying on credit repair companies may be the right solution. Make sure to research the authenticity of the credit repair companies. Then choose one that aligns with your goals, while avoiding credit repair scams.
#3 Closing your Accounts Improves Credit Score
While closing your accounts may seem like a great idea to avoid overspending and boosting credit, it does more harm than good. It eliminates credit history after 7 years, and the length of your credit history is an important aspect of your credit score. Furthermore, the borrower’s ability to handle debt is partially responsible for credit score, and closing accounts hinders that information.
The best way to deal with this is to pay off the accounts and leave them open. Alternatively, you might want to switch to utilizing only one card or perhaps choosing a balance transfer card.
#4 Adding a Statement to Your Credit Report Boosts your Credit Score
Adding a statement in case you cannot get the three major credit bureaus to remove inaccurate information may seem a good idea, but FICO doesn’t actually see or use it to determine your credit score.
#5 Opening Multiple Lines of Credit will Boost Your Score
This is an unnecessary risk that does nothing to boost your score. When you apply for a new loan or credit, the bank proceeds with an official credit inquiry or “hard pull” on your credit report. The record of this is reflected for up to 2 years, and too many hard pulls in a short time period may cause lenders to believe you are over extending yourself.
Furthermore, multiple lines of credit act as a temptation to overspend, which may ultimately hamper your utilization ratio.
#6 Removing Delinquent Accounts will Improve your Credit Score
While partly true that removing collections accounts or accounts with late payment has a positive impact on your score, there is no possible way to completely remove a legitimate account.
Even if you pay off the bills to collection agencies, the information remains on your credit report for next 7 years. In such cases, your best bet is to responsibly pay off your monthly dues while slowly eliminating the debt that have gone to collection agencies.
#7 Paying Off Loans Early will Improve Credit Score
This is one of the credit repair scams that isn’t entirely true. The credit reporting system doesn’t actually give extra-credit for prepayment.
However, there is one situation in which an early credit card payment may increase your credit score.
Paying a substantial portion or all of your credit card balance before your billing cycle ends, causes the balance on your next billing cycle to be reflected as $0 or close to it. This reduces your credit utilization ratio, thus increasing your credit score.
Building a good credit score or repairing it takes time. There are no shortcuts to being responsible about your finances. Ensure that you stay away from credit repair companies that offer the prospects of such shortcuts and keep tackling your financial duties responsibly and with complete knowledge.
Want help with repairing your credit? Trust reliable credit repair companies like Xander Financial for expert financial guidance to avoid credit repair scams.