Monday, May 14, 2012
It's Money Monday with Austin the Realtor - let's go!
Common Credit Myths...by Austin the Realtor
Hello my good people. Today we will discuss your credit. To make just about any large purchase, your credit will be a factor. Unless you are buying using only cash, buying a new home, a car or even furniture will entail some credit review when a loan is requested. Many guard their credit with their life; others don’t feel it’s that important. To clear the air, if you want to spend the least amount to borrow money, it is very important to understand how credit works. You control what goes into your report, so it’s wise to think twice about opening that 6th department store credit card. I read a few articles and I want to talk today about some misconceptions some have about our credit report.
Myth #1. Too many inquiries will hurt my score.
This is not totally accurate. You as the consumer can check your score every day if you choose, and this will have no effect on your score. However, when you give permission to a lender to access your credit report, this can affect your score. This is considered a hard inquiry. The good thing is the credit agencies are aware you may be shopping for a mortgage or a car loan, so if there are multiple inquiries in 30 days, they will count this as 1 hard inquiry.
Myth #2. If a debt in arrears is paid off in full, the missed payments will be removed from my report.
This would be great if it was true. The credit company will be thankful to have you off their books - but your history stays. It takes up to seven years to have one missed payment disappear from your credit report. If you file for Chapter 7 bankruptcy, this can take up to 7 years. Although you can dispute erroneous entries to have them removed, a valid negative entry will stay even if a credit repair company says they can get it removed.
Myth #3. When you get married, your credit report merges.
Thank goodness this one is not true. There would be a lot less marriages! Once you marry, your debt is still your debt. It's common practice to start opening credit cards together or applying for loans together, and this will appear on both reports. Both individuals will be equally responsible for the debt. Even in a divorce, unless the creditor agrees to remove one of the individuals, you are both still on the hook. The only time marriage gets you hooked is if you live in a community property state which will hold both spouses liable. States such as Idaho, California, Arizona, Nevada, Texas, Wisconsin, Louisiana and Washington are community property states - so be careful!
Myth #4. I’m never late on my bills and my credit score is good, so I don’t have to check.
Although you may never be late does not mean the information being reported is correct. It's always good practice to check your report at least 2 times a year to ensure no erroneous information has been posted. You don’t want t to find out there is an error on your report when you are applying for a mortgage or car loan. You may not be happy with the rate you qualify for - if you qualify at all.
One Final Note: They advertise free credit reports all the time. This is true. You can get your report for free - but your score is not free. The site: www.myfico.com can provide your score for about $20. It's good to have both - so don’t get upset when you get your report and your score is “missing”!
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24 comments:
First on my hubby's blog BITCHES
Of course you are! You always are!
This was good - I thought your spouse's credit affected your credit too once you got married. I guess that only applies on joint loans - Good to know!
So agencies that say they can fix your credit are actually lying? There's no such thing?
@stef - they are not lying, they are just going to do what you can do yourself. They will verify the transactions, dispute inaccuracies, request late payments be removed, instruct you on what to do so your credit will get better. There is no magic they can perform.
On the spouse credit topic, If you add your spouse to a credit card, you are now jointly responsible. If you divorce and the added spouse agrees to take on the debt, they have to open a new card and have the balance transaferred. You can not remove the primary card holder.
That only works if it's a spouse though right, not a boyfriend?
You can also go to annualcreditreport.com to get a copy of your report, and I think they charge only $8 for your score. But it's only one score per agency I think.
@stef - I believe this would be the same for anyone added to a credit card as an authorized user. I would probably stay away form adding anyone if not your spouse. Just my personal opinion.
Thanks Courtney. Please add any other ideas or debunked myths you can think of.
I have a question - I want to see if you'll answer it the Suze Orman way or not :) Besides, I think she changed her stance on this given the current credit situation.
Is it more important to build your savings, or pay down your debt? For example, if you come into a decent sum of money - let's say $10k from a bonus - should you save it (especially if you have no savings currently to speak of) or should you pay down your debt?
Good question.
My personal opinion...emergency savings comes first but you have to balance your personal situation. If you have no savings at all, hold on to the cash. If you have no saiving and you can't fulfill your current monthly obligations, you may have to do a bit of juggling. Its always best to pay down debt if you can but you can have a worst situation if you have no income and no cash to fall back on.
Do the numbers and pay down to where you can make the minimums and save the rest if you have enough cash to do so.
Brooke, I find it hard to believe you have no savings whatsoever :)
@Cable Guy,
What makes you think that? I was simply asking a question :)
As always a great blog and I didn't know about the spouse thing either! Good thing! Now I have a question, what if you're paying a bill on time and for some reason it falls off your credit report. Can I petition to get it back on my report?
@ Serena - ummm, I'm gonna have to say I have not heard of anyone trying to get someone to put information back on thier report. Was this debt fully paid off or is their still a balance?
I would assume the dispute method would be the same with one exception. Include a copy of your report that shows the debt when writing in to investigate. You may want to call first to see if there is any additional information you may need to include.
Its actually my car note! Yikes! I want to show it because it will be paid off this year so in the future when I go after additional loans I have this to show. I'll look into it further. Thanks.
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