Credit Repair

Clearing Up Misconceptions on Credit Scores

Separating fact from fiction around credit reporting is a key factor in improving your credit score.

The stakes are high when it comes to restoring credit health. According to a 2018 LendingTree study, boosting a credit score from “fair” (a FICO Score between 580 and 669) to “very good” (740 to 799) could save $45,283 in total interest paid over the course of a lifetime of loans for myriad household debts, including credit cards, auto loans, mortgages, and student and personal loans.

Recognizing the myths that permeate credit repair and knowing how to address common misconceptions can put you on a path to a strong credit score.

Common misconceptions about credit repair

Myth: Closing old, unused credit cards will help your credit score

The reality: Shutting credit cards that you don’t use could actually hurt your credit score. That may sound contradictory, since you’re reducing the number of credit cards you have and won’t risk taking on additional debt by using them. But you’re more likely to be hurting your credit score by curbing your plastic because credit utilization comprises 30% of your credit score.

Credit utilization is the denominator between your credit balance (what you owe) and your credit limit (what you’re allowed to spend.) When you deep-six a credit card, you’re potentially throwing your credit utilization number out of whack by shuttering an entire line of credit.

That could hurt your credit utilization ratio, as you’re reducing your available credit and crimping your credit score in the process.

The fix: The obvious move is to not close a credit card. Just keep it open and keep the balance low or nonexistent. Some experts recommend using a card once or twice a year for small purchases to keep the credit line open. However, if you must close a card, you can stabilize the situation by opening a new credit card, reducing your credit card spending or asking for a higher credit limit on the cards you intend to keep. Any of these steps should help improve your credit utilization ratio.

Myth: Checking your credit report will hurt your score

The reality: That’s not necessarily the case, and here’s why: Any time your credit report is checked, it’s noted as an inquiry on your report. However, there are different types of credit report inquiries, one of which impacts your credit score and one of which doesn’t.

A hard inquiry is when a business, organization or individual checks your credit report before granting you credit or a loan, such as a landlord or an auto financing company. In most cases, a hard inquiry shows up on your credit report and can hurt your credit score, at least temporarily.

In some cases, hard inquiries don’t have much of an impact on credit scores at all. Credit reporting agencies allow individuals shopping for the best credit deal (say, on a new mortgage or credit card) to treat multiple inquiries in a 30-day period as a single inquiry. That minimizes the impact on your credit score and gives you a chance to go interest rate shopping for the best deal.

A soft inquiry is different, and has little if any impact on your credit score. That’s when someone, like a potential employer, inspects your credit for a background check, or when you check your own credit report.

The fix: Since checking your own credit score is deemed a soft inquiry, go ahead and check your credit report often, with no risk to your credit score. It’s a good habit to track your credit report, and there’s no penalty for doing so.

You can obtain a free copy of your credit report once a year from each of the big three credit reporting agencies: Equifax, Experian or TransUnion.

You can order additional reports from each of the three credit bureaus at any time, but you may be charged a small fee.

Myth: You can only repair your credit if you work with a professional

The reality: While a reputable credit repair firm can help you improve your credit situation, it’s not the only way to go.

In fact, repairing your credit on your own is highly doable. There’s no reason you can’t file a dispute with a credit reporting agency to fix an error, or set up your own auto payments so you’re never late paying a bill (which will significantly boost your credit score, as payment history accounts for 35% of your total credit score.)

Yes, time is a commodity, and if you don’t have enough of it, you can hire a professional credit repair firm to take the task off your “to-do” list. However, the upside of handling your own credit repair campaign is significant. You can save money by not paying a firm, and you can learn a great deal about credit and debt.

The fix: Check your credit report for free once a year at Study it, look for errors and check for any suspicious activity or strange credit accounts. File a dispute with the credit bureaus if you see anything that looks wrong or off. That will give you a good start on your “do-it-yourself” credit repair campaign.

Myth: All credit repair agencies are out to scam you.

The reality: Yes, there are some bad apples in the credit repair industry.

But if you know the red flags that warn you a firm isn’t reputable, like a credit repair firm asking for a fee in advance or guaranteeing a specific result, you’ll likely find a strong, honest and dependable credit repair firm to go to bat for you with the major credit reporting agencies and help improve your credit score.

The fix: The Federal Trade Commission has a useful tutorial on credit repair companies and credit counselors, and what you can do to improve your credit.

The FTC also offers a way to contact your state’s attorney general office if you suspect you’ve been scammed by a credit repair firm, or issue a complaint directly to the FTC.

Myth: If you pay off a debt fully, it is entirely erased from your credit report

The reality: It’s always helpful to pay off a debt on your credit report, but it won’t necessarily wipe the debt from your report.

Negative items, such as outstanding debt to a creditor, can stay on your credit report for years, even if you pay the outstanding debt in full.

Here’s how long specific negative items stay on your credit report, even after you pay the total debt owed, according to Experian:

  • Collection accounts: Seven years after the delinquency was noted
  • Late payments: Seven years from the date the late payment was first noted, even if you made good and paid the debt off entirely
  • Chapter 13 bankruptcy: Seven years
  • Chapter 7 bankruptcy: 10 years
  • Tax liens: Due to credit scoring changes that took effect in 2018, tax liens no longer impact consumer credit scores

Over time, even negative items on your credit report have a diminishing impact on your credit score, especially if the debt is paid in full and the account in question is made current.

The fix: In most cases, don’t expect a paid account to disappear from your credit account immediately.

If you suspect the outstanding debt is in error, you can file a dispute with the credit reporting agency that listed the negative item. If it’s proven to be true, the item must be removed from your credit report.

It’s up to you to educate yourself so you can recognize and understand a credit report myth when you see one. Then you can adjust your course and choose the best strategy to fix the problem once and for all.


Looking for ways to increase your credit score? Get a free credit consultation today!

You can do something about your debt, right now.

  • Answer a few questions

  • We'll analyze your credit and debt

  • You'll receive instant, custom recommendations