When is a myth not a myth?
When you think it's the truth!
That's why on this week's Podcast, I correct a lot of financial misinformation, urban legends, and fake news by debunking the Top Ten Credit Repair myths!
Mark Twain once said, "A lie can travel halfway around the world before the truth puts on its shoes."
Only he didn't say that.
It turns out the internet is wrong—a lot. If you search for that quote, you will find it attributed to dozens of other famous people.
The truth is so difficult to come by that there's an internet law called "Cunningham's Law," which states "the best way to get the RIGHT answer on the internet is not to ask a question; it's to post the WRONG answer," and you'll be corrected.
The law is named after Ward Cunningham, the inventor of Wikipedia, and unfortunately, he's right.
Every day we're flooded with incorrect information, and it makes educating people about financial issues even more difficult because they first have to unlearn what they already think they know.
So, we need to debunk all the bad word-of-mouth advice and tell people the realities of Credit Repair.
How does this relate to us?
There are so many myths about Credit Repair it was hard to trim this list down to just ten. So, here are a few honorable mentions before we get to our Top Ten!
No. A perfect credit score doesn't matter. You just need a score within a specific range to convince lenders you're credit-worthy. The higher your score is, the better, but there are no additional products or benefits for having a perfect score.
Yes. "Good Debt" is a real thing. If you weigh your options and decide that borrowing a reasonable amount of money is a smart financial decision, like investing in yourself and in future success through education, equipment, etc. That's an example of good debt, and if you make the payments regularly and on time, it will improve your credit.
No. Bankruptcy is not a Get Out of Debt Free Card. It's an emergency parachute. Bankruptcy is a huge negative mark that stays on your credit report for up to ten years, and it should only be done after you consult a financial advisor or lawyer first.
Yes. Young people need to pay attention to their Credit. The length of your credit history is a factor in your score, the minimum age you can apply for credit is 18, and financial experts recommend people start building credit as soon as possible.
Here's the thing to remember…Some of these myths are created accidentally, like a game of telephone, some are holdovers from something that used to be accurate but times changed…and some are the result of intentionally withholding information so that people stay confused and discouraged from pursuing a financial education.
Here's why this is important…
We need to do the work of not only speaking the truth but dispelling lies, rumors, and falsehoods.
I can tell you from experience that one financial error can have an extreme and lasting effect on your life. In my case, one bank error not only ruined my life, but it completely changed the course of my life and even my profession. So I'm very sensitive to errors and misinformation around credit.
So without further delay…
Here are the TOP TEN CREDIT REPAIR MYTHS…DEBUNKED!!!
MYTH #1 - The Credit Bureaus are Part of the US Government
The word "Bureau" tricks people into believing that Equifax, TransUnion, and Experian are part of the government or a non-profit organization when they are NOT. In fact, they are for-profit, publicly-traded companies that make their money by selling your information and partnering with banks to justify charging you higher fees. To them, you are not a citizen that needs to be protected. You're a number, and you're a revenue stream.
MYTH #2 - Your Income & Education Impact Your Credit Score
Your credit scores are just measures of risk, whether you pay your bills on time and in full. A rich person who doesn't pay their bills can have a bad score, and a poor person who pays them can have a great score. Your demographic information doesn't appear on your credit report, so it doesn't influence your credit scores. Your education, salary, and how much money you have in the bank are not factored in.
MYTH #3 - The Amount of Debt You Have Matters
Neither the size of your debt nor your debt-to-income ratio directly affects your credit score. What matters here is the amount of debt vs. the amount of available credit you have. For that reason, you'll want to check your reports to make sure they are reporting the correct credit limits on all of your accounts.
MYTH #4 - Renting Hurts Your Credit
Renting doesn't hurt your credit, and the industry is quickly changing, so paying your rent every month will actually help your credit. Several key companies (Experian, Mastercard) have already released programs and apps that count monthly rental payments towards building your credit score.
MYTH #5 - Using a Debit Card Improves Your Credit
Debit cards are not a form of credit. Their activity is not reported to the Bureaus, they do not affect your credit history, they don't show up on your credit report, and they don't affect your credit score. It's the same as if you made a purchase with a pre-paid card or cash. But I DO believe that if you have a credit card addiction like I had and serious credit card debt like I had, the only way to cure it is to switch to only using a debit card. That's what I did, and by changing my patterns and slowly chipping away at the debt, my score began to rise. For that reason, I still don't use personal credit cards ever. I think they're evil.
MYTH #6 - Paying Off an Overdue Debt Removes it From Your Report
Paying off old debt does not erase its negative mark on your report or lower the impact of the late payment. These items can stay on your report for up to seven years. One way you can attempt to speed up the process is to contact the debt collecting agency first (before you pay off the past-due debt) to negotiate that the items be deleted from your report in exchange for a partial or full payment of the outstanding debt.
MYTH #7 - Closing a Credit Card Improves Your Credit Score
Closing a credit card never improves your credit score. In fact, the opposite is true. It usually lowers it. There are circumstances where it's in your long-term financial interest to switch to no annual fee cards or close your card, but it doesn't directly improve your credit. Closing an account can shorten your overall credit history and can increase your credit utilization, both of which negatively impact your score. Like I said earlier, I never use credit cards, but I never close the accounts. So on my reports, it looks like I've had them for decades.
MYTH #8 - Marriage and Divorce Affect Your Score
When you get married, you share everything except credit reports. Each person in that marriage has their own credit report. When it comes to applying for credit with your partner, like applying for a mortgage, each person's score is taken into consideration by the lenders, even if you have shared accounts. Divorce is similar in that it doesn't directly impact your credit score. However, Divorce often ruins people's credit. But that's because of the circumstances related to the divorce, not the divorce itself. If you are both financially responsible people and you have similar credit scores and histories, you shouldn't expect to see a change in your reports. But if you were married to someone who was financially irresponsible and you had a joint account, their charges and unpaid bills will affect your credit. Divorce is an emotional time, but credit needs to be a priority to make sure lasting damage isn't done to either person's finances.
MYTH #9 - Checking Your Score Hurts Your Score
This is probably the most common myth. Every American is entitled to a free annual Credit Report, but that free report doesn't contain scores. Checking your own reports and scores on a monthly basis with a credit monitoring account is a GOOD idea, and it will NEVER affect your score. However, applying for new credit, like a credit card, car loan, or mortgage, requires a "hard pull," which will always cause a ding to your credit score.
MYTH #10 - Credit Reports are Accurate
Errors on credit reports are way more common than people realize. Nearly 8 out of 10 people have errors on their credit reports, and most don't know it. A single piece of inaccurate or outdated information on a credit report can keep you from getting approved and affect the terms and interest rates – and they can cost you a lot of money. These errors can ruin lives. They need to be found and fixed. That's why it's important to check your reports and scores on a monthly basis.
At this point, it should be clear why consumers need to educate themselves and why Credit Repair Specialists need to inform their customers about these myths.
Myths might be fun entertainment, but we all need a healthy dose of reality when it comes to financial empowerment.
I’ll end by saying…
If you don’t already have a Credit Repair Cloud account, check it out. It’s the software that most Credit Repair businesses in America run on. Just sign up for a 30-Day Free Trial at CreditRepairCloud.com/freetrial
And If you’d like me to hold you by the hand as you launch your own credit repair business, check out our Credit Hero Challenge!
It’s an amazing program where you’ll learn the processes that have made millionaires, and it costs less than you'll spend taking your family to McDonald’s for dinner.
We’ve got another challenge starting in a few days, so grab your spot right now at CreditHeroChallenge.com!
Until then, remember, keep the facts on your side…
And keep changing lives!