1. Paying Bills on Time Will Improve My Score
That’s definitely a good start, but it’s not the only factor. Only 35% of the points on your score are directly tied to whether you’re making your payments on time. That leaves 65% of your score that has nothing to do with missed payments.
2. Carrying a Balance Is Good
Although carrying balances will cost you in interest and financing charges, from a credit score perspective, there’s nothing wrong with carrying a balance on your credit card. But very large balances will affect your “creditization” — the percentage of your credit limit that you’re carrying as a balance. Maxing out your credit cards will hurt your score. What you really want is a relatively low balance — never more than 15 percent of your overall limit.
3. My employer can see my credit score
Although a lot of people treat them as though they are interchangeable, credit reports and credit scores are two completely different things. Employers in most states can look up your credit report for pre-employment screening purposes and during your term of employment. They do not have access to your credit score.
Only approved agencies including lenders, insurance companies, and utility providers can buy your score from one of the three accredited credit report agencies. They use that score to determine the amount of risk they’re taking in doing business with you.
4. Foreclosures and Bankruptcies ruin your Credit Score for 7 Years
This one is only partially true. A short sale, a foreclosure or bankruptcy proceeding, will remain on your credit report for at least seven years. (A bankruptcy will actually be on there for 10.) But your credit score does improve as those items age. In fact, you can have a very solid credit score in three or four years depending on your use of credit going forward.
If you already have bad credit, a bankruptcy will eventually rebuild your credit by wiping the slate clean.
5. Short Sales Are Always Better than Foreclosures
The assumption is that a short sale is always better for your credit score than a foreclosure, but in reality, they may have the same effect. If you are more than 120 days past due on your mortgage payments, lenders may treat the ‘120 days late’ the same as they would a foreclosure. If you are less than 120 days past due and you are considering filing bankruptcy, you should file bankruptcy before the loan is more than 120 days past due. Otherwise, both the ‘discharged in bankruptcy’ and the ‘120 days late’ will show up on your credit report. The bankruptcy will prevent you from qualifying for a new loan for two (2) years. A foreclosure and/or ‘120 days late’ will disqualify you under most loan programs for four (4) years.
I hope you’ve found this helpful. Please let me know if I can help you or someone you know struggling with unsecured debt.