“If I pay off a debt, any associated missed payments can be removed as well.” This is just some of the misinformation floating around about how the credit-reporting industry works. Diane Moogalian, Vice President of Operations for Equifax Personal Solutions, gives insight into these common myths — and arms you with the knowledge you need to navigate your credit file.
Most of the questions I hear from consumers concern the information that appears on their credit report and how it affects their credit score. Unfortunately there’s also a lot of misinformation out there about how the credit-reporting industry works. Here are some of the top questions and myths we see on the Equifax Finance Blog.
1. I pay my bills on time, so I don’t need to check my credit report.
Many people have a general understanding of how to behave responsibly with money. Earn more than you spend, pay your bills on time and be careful about taking on debt. But too often people think this excuses them from checking their credit report. They then check their credit report right before making a major purchase, such as a car or a house. What they find sometimes is shocking: They don’t have much credit or find a new credit card account they had not applied for (a potential ID theft issue). Checking your credit regularly may help you avoid these surprises.
Tip: Did you know that you can access one credit report a year for free from each of the three credit reporting agencies? Go to annualcreditreport.com to pull your free report. You can also order your credit score for a nominal fee.
2. If I pay off a debt, any associated missed payments can be removed as well.
While it is generally a good idea to pay down debt, doing so doesn’t automatically erase any missed payments or delinquencies from your credit file. Missed and late payments are generally removed 7 years from the date of last activity or the date the missed payment was reported by the creditor.
3. I need to carry a balance on my credit cards or shut them down.
While you do want positive account activity, such as paying a credit card bill on time, there’s no need to carry a balance. Simply paying off a small purchase every month (or every few months) will typically trigger the credit company to report that behavior.
4. Credit bureaus are responsible for approving or denying credit.
Credit reporting bureaus do not approve or deny you credit and don’t make any credit recommendations to lenders. The lenders decide, based on their own criteria, to issue or deny credit to you based on your credit report and score, as well as plenty of other factors based on information that you provide to the lender.
5. I don’t have—and have never had—any debt or credit cards, so my credit is fine.
If you do not have any revolving credit cards (department store credit), installment loans (car loans, student loans) or a mortgage, then you probably do not have a credit file. Without a credit history, it is harder for creditors to determine your creditworthiness. You should consider whether it may help to establish credit if you intend to borrow money in the future. Continuing good habits like paying off your debt in a timely manner will help build your positive credit history.
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