A Few Myths About Credit Reports

“Too many inquiries on my report will hurt my score”
I’ve always believed that this was a myth started by a mortgage broker who was afraid the competition would steal his/her potential borrower. The fact of the matter is, the computer systems that compute your score know enough that you’re shopping for a mortgage and won’t hold it against you if there are a few inquiries from mortgage companies (but don’t check with 15 companies).

“Collections and derogatory accounts come off in seven years”
Only after you’ve paid them off!!! I constantly hear clients say “That should be gone, it’s over seven years old” or “That should be gone soon, it’s been nearly seven years.” The fact of the matter is that the clock doesn’t start until the account is paid. Then it sits on your report for seven more years. Chapter 13 bankruptcy can be removed after seven years, but Chapter 7 stays on for ten years.

“Checking my own credit report can take points off my score”
There are two kinds of pulls. A hard pull and a soft pull. Calling a friend at the bank to check your credit for you is not the best way to check it. That’s a hard pull and can count against your credit. You can get your report, free of charge, either directly from one of the major credit reporting agencies, or from annualcreditreport.com.

“I pay my bills on time. I’m sure my credit score is good. I don’t need to check it”
Just recently, I had a borrower in my office who discovered a mortgage on his report that didn’t belong to him. When he called the lender, they admitted that there was an error and that the account belonged to someone else. A routine check of your credit is always a good idea.

“Closing dormant accounts will help my credit report”
It will actually hurt your score at the time you close those account(s). The reason is that your score is calculated based on the ratio of your total available credit as compared to your total actual balances. When you close out an account, you’ve lowered the total available credit without changing the total balance of your accounts, therefore reducing that ratio.