Nothing hits quite like the sucker punch of receiving a phone call from a collection agency. Not only does that call mean you owe money, it means you’re late at repaying that loan. Late repayment doesn’t take too long to catch up with you in the form of a bad credit score.
You may be wondering what you can do to get back on track and bring that credit score back up. Here are ten myths and facts about credit repair that you should know.
Myth #1: Consolidating your loans will improve your credit rating.
Fact: . Consolidation loans tout lower interest and lower payments, luring consumers with their false promises. The plain truth is that consolidating is simply a fancy term used to describe the act of “borrowing from Peter to pay Paul.” Your debts simply move from their various current locations to one central location.
While consolidating may offer the quick fix of reducing your monthly payments, you’ll be left with a couple long-term consequences. First, to be approved for a consolidation loan, a credit check must be run, which will have an effect on your credit score. Second, the amortization period on a consolidation loan is often nearly that of a home mortgage. By the time you’ve paid those debts off, you may have paid double what you owed.
Myth #2: Once you finally get your credit card paid off, you should close the account.
Fact: If your credit report shows a revolving credit account that was closed, the assumption is that you were unable to handle the responsibility. Frequently, account closure will be listed on your credit report with no accompanying information – not even the word “paid.”
Your credit is built by having credit available to you that is not maxed out and is being paid down regularly and on time. Your credit is hurt by late payments and defaulting, but also by having maxed out accounts and/or account closures.
Myth #3: If your credit is terrible, it’s better to declare bankruptcy and start fresh.
Fact: Bankruptcy is NOT a fresh start! Rather, filing for bankruptcy marks the beginning of years of financial struggles. A bankruptcy judgement will stay on your credit report and on the National Personal Insolvency Index indefinitely.
Many people file for bankruptcy with the assumption that all debts will be left unrecovered, meaning that they are freed from the burden of payments. There are exceptions to every rule, though, and bankruptcy has a few. For example, back payments on child maintenance, government fines, taxes, and the like are not covered through bankruptcy.
Don’t forget, any joint credit holders or guarantors will be help responsible for the full amount of the debt if you are bankrupt.
Myth #4: If there’s something bad on your credit report, you’re stuck with it forever.
Fact: It IS possible to have your credit report changed. Not only can you request that errors are corrected, but you can request that verified bad reports are removed. First, call the credit reporting agency (or search their website) to find out their requirements. Often, a well-written letter is all you need to start out on the road to better credit.
Myth #5: Paying off your past-due accounts will fix your credit score.
Fact: Past-due payments are reported to your credit bureau, and they stay there. Getting caught up on payments will assure you of good reports in the future, but it will not cause your past bad reports to be deleted.
Myth #6: The concept of “credit repair” is a myth; you just have to wait it out.
Fact: It is impossible to simply wait for bad credit to go away. You’ve likely heard that magic number – seven years – and think that after a few bad credit reports, all that’s left to do is nothing for seven years in order to receive a good report.
The thing is, information does not always magically disappear with the passage of time. For various reasons, certain accounts may remain on your credit report indefinitely. The only way to change your credit score is to work at repairing you credit.
Myth #7: You can’t possibly repair your credit without the help of a professional.
Fact: Of course you can! Like any DIY (do-it-yourself) project, the key is research. You can re-tile your bathroom, saving yourself hundreds of dollars on labour, but you first have to learn as much as you can about the art of tiling. The same is true of credit repair. If you become a student of the art of credit repair, you can learn how to DIY.
Myth #8: Credit repair agencies are all scams.
Fact: If you need professional help to repair your credit, there are some highly knowledgeable, skilled, and reputable agencies that can help you. There are also a number of scam artists out to make a living by playing on peoples’ vulnerabilities. Avoid promises of quick fixes and help that sounds “too good to be true.”
Myth #9: If you owe money, the collection agency has the right to call you anytime they want.
Fact: While you are undergoing the gruelling process of repaying creditors and repairing your credit, you have the right to ask collection agencies to “cease and desist.” You typically need to make your request in writing, and it’s best to demonstrate that you have a payment plan in place. But ultimately, no one has the right to harass you…Even if you do owe them money.
Myth #10: I can hire someone to erase my credit record altogether.
Fact: While there are probably people out there who do this type of work for a living, they are criminals. If you hire them, that makes you a criminal, too. Better to have bad credit and be free than a sparkling clean credit report and a dirty rap sheet.
There’s a lot of information floating around about credit, credit scores, and repairing your credit. This list will help you weed out the facts from the fiction and get you on the right track to restoring your good credit.
Cathy is part of the team that manages Credit Card Finder, a complimentary credit card comparison service and a personal finance blog based in Sydney, Australia. Before she joined CCF, she was a staff nurse at Clark Airbase Hospital and conducted lectures on First Aid, Bio-terrorism and Disaster Management.
- Credit Repair Loans (debt-consolidation-2u.com)
- All you Need to Know about Credit Card Bankruptcy (debt-consolidation-2u.com)