It never ceases to surprise me how confused most people are about how the credit system works   This article is a quick summary of the top four myths of credit.

Myth One:  “Information in my credit file can’t be changed.”

Truth:  The Fair Credit Reporting Act requires that any data that is disputed by a consumer must be verified as 100% accurate. This means that if a creditor can’t prove that the disputed tradeline is accurate, it must be removed from your credit report.

Myth Two:  “I must pay off past due accounts to improve my credit rating.”

Truth:  While paying off a past due paid will result in the item showing as satisfied, the late payments will still be reflected.  In some cases, paying off an older item will actually lower your credit ranking. 

An item that is four or five years old doesn’t have as much influence on your score as something that happened last month. By paying off a balance, you will renew the date of last activity.  A paid collection with a recent date of last activity can be more damaging to your credit score than an unpaid collection that is very old.  Additionally, because items stay in your file for seven years from the date of last activity, paying this balance off will restart the clock.

This doesn’t mean that you shouldn’t pay off your collections.  What you will want to do is negotiate with the creditor as to how it will be reported to the bureau BEFORE you pay the account.  Be careful here: make sure you get everything in writing!

Myth Three: “Bankruptcy is my best option for starting over.”

Truth:  While in some cases, a bankruptcy is certainly the only solution, it shouldn’t be considered lightly.  While changes in the bankruptcy code have made it more difficult for many to file, those who still qualify should carefully consider their options.

A bankruptcy will stay on your credit report for at ten years.  You won’t be able to qualify for a home loan for between two and three years. (If you had a foreclosure, you can count on at least three years.) Additionally, you will pay higher rates for auto loans and credit cards, even after your credit is re-established.

Very often, lenders will be willing to re-negotiate when they hear that you are considering bankruptcy.  The bottom line:  it should be considered a last resort option.

Myth Four:  “If something is accurate, it can never be removed from my credit report.”

Truth:  The Fair Credit Reporting Act requires credit bureaus to verify the correctness of information when a consumer disputes an item.  If the credit bureau is unable to verify this information within 30 days, it must be deleted from your credit report.

This means that if the creditor misses the cut-off date, the disputed item must be removed, even if it is accurate!  The easiest items to take advantage of this are items that are older and things that were once past due but are now completely paid off.  The reason for this is that your information can be difficult for the lender to find and they are much less motivated to take the time to verify than they would be if the item was currently in collection or past due.

By arming yourself with credit facts, you are positioned to optimize your credit score.  For more information on credit repair and buying a home with less than perfect credit, please visit our website.

Wendy Polisi is Vice-President and Co-Founder of Finance the Dream, America’s Premier Lease Purchase, Lease Option, Rent to Own and Owner Finance Program. Finance the Dream offers the opportunity of homeownership to those with less than perfect credit. Their unique program offers credit reporting and credit repair. For more information on their program, please visit http://www.financethedream.com

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