Your Credit Reports
ABOUT CREDIT REPORTS
Collection Accounts. When an account is referred to collections because of delinquency or because of a bad check, this appears on the credit report as a collection account. Collection accounts can appear as paid or unpaid accounts. Any type of collection account, whether paid or not, is considered very negative by all credit grantors.
Court Records. Court records include bankruptcies, judgments, liens, divorce, satisfied judgments, and satisfied liens. All court records, including satisfactions, are considered negative by all credit grantors.
Inquiries. Every time a potential credit grantor looks at your credit file, a credit inquiry appears on at least one of your credit bureau reports. If the numbers of inquiries are few over the last two years, then there may be no negative effect on your credit worthiness. However, if there are many recent inquiries showing on your credit report, credit grantors may become nervous and deny you credit.
Here are some common myths and misconceptions:
$$$$$ Paying cash for everything will help your credit rating. Using cash for all your transactions does not have an effect on your credit (other than you are not using loans, lines of credit or credit cards.)
$$$$$ Paying off collections, tax liens and late payments will remove them from your credit report. Resolving these items is no guarantee that they will be removed from your report. You must continue to monitor the situation until the items are truly removed.
$$$$$ All of your credit reports and credit scores will be the same. It’s not unusual for reports to differ from credit bureau to bureau. Plus, major banks and creditors often have their own method of determining your credit score.
$$$$$ Making a lot of money will improve your credit report and scores. Income is not used for calculating your credit score. More important is how you spend your money in terms of using credit to do so.
$$$$$ Divorce will absolve you of your credit responsibilities. The effect on your credit depends on your divorce decree, settlement and your history of sharing credit accounts with your spouse. The Equal Credit Opportunity Act states that married couples have the right to request separate credit reports and histories, even for joint accounts. And, if an account is listed under only one spouse’s name, the other spouse has the right to rely on that credit history.
$$$$$ Closing credit card accounts will improve your credit scores. This is not recommended because part of your credit score is the length of credit history in your file. Closing a credit card account with a long, positive history will normally result in a decline in your credit score.
$$$$$ The proper and responsible use of check (debit) cards can help your credit reports and scores. Most check (debit) cards do not get reported to the credit bureaus and therefore would have no impact on your credit status. Secured credit cards on the other hand are just like debit cards except that they do get reported to credit bureaus. That is why establishing at least three (but no more than five) secured cards is a terrific way to improve your credit score. The credit score model gives greater weight to secured cards with credit limits greater than $1,000.