Top 5 Credit Score Myths

12-Nov-2010 Your credit score is very important. It can determine if you are approved for a loan and will help determine what interest rate you pay on that loan. It's important to understand the factors that contribute to that score.

There are some common misconceptions surroudning credit scores and credit reports. For example, your credit score and report are not the same. The score is your actual number which you cannot obtain yourself without paying a fee. Your report outlines your current credit standing and you can access this information for free. This is an important difference to understand because when you apply for a job they may review your credit report, not your credit score.

There are some additional myths about credit scores and what you should and should not do to make sure they rise.

1. Bankrupcty is the end of my score.
True filing for chapter 7 or chapter 13 bankruptcy is going to be quite damaging to your credit score. The important thing to realize is that after the effect of bankrupcty hits your score, it's only going to go up. In fact, in as little as 4 years you could have a decent score again.

2. Staying free of all debt is best.
Ultimately you want to reach a point where you have little or no debt. Realistically this probably won't happen until you reach retirement age. It is not wise to try and avoid all debt in your 20's and 30's. Going into debt (taking out a loan or credit card) and then paying it off will help improve your credit score.  

3. Now that I'm divorced my spouse's credit won't effect me.
Sadly your credit scores will not be totally separated the day your divorce is final. The best way to speed up the process is to close all joint accounts opened while you were married however any debt on an old joint credit card still belongs to both of you.

4. I should always carry a credit card balance
Carrying a balance on your credit card is not the key to good credit. It can help however the people with the highest credit score only use approximately 10% of their total credit limits every month. Getting too close to your credit limits will not have a good affect on your credit.

5. If I pay on time I will have good credit.
This is definitely part of the puzzle but payment history only makes up 35% of your credit score. Credit history and the amount of debt you have will effect the remainder and will greatly affect your score.

If your struggling financially and you are considering bankruptcy or foreclosure contact a qualified attorney who can advise you on the best steps to take to cause the least amount of damage to your credit score and get you back on your feet as soon as possible.

Chang and Carlin Disclaimer
The content found on the Chang & Carlin site is not legal advice and is purely for informational purposes. The information contained herein is not a substitute for the advice of an attorney and does not create an attorney-client relationship. If you are interested in obtaining information about chapter 7 bankruptcy, chapter 13 bankruptcy, foreclosure services, real estate legal services, you are encouraged to call our law firm at 866-790-8601 or Request a Free Legal Evaluation. Chang and Carlin serves clients in Chicago, Schaumburg, Joliet, Warrenville, Waukegan, Illinois.