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Refuting Common Credit Card Myths

By Karen Anderson
Published: Tuesday, December 1st, 2009

Most of us want to improve our credit standing or our credit score. After all, the better our standing, then the more likely that we are able to get approval for our loans or credit. There are so many credit report tips available that they sometimes give us conflicting advices and suggestions. In our attempt to improve our credit standing, we may unwittingly be committing errors that do just the opposite.

This is especially true with the use of credit cards. Most of us carry the misconception that credit cards are generally bad for our credit standing. Thus, the first blunder that many commit is the closing of their credit card accounts.

Contrary to popular opinion, closing credit card accounts will not necessarily lead to an increase in credit score. In fact, several consumers close their old credit card accounts. One of the key credit report tips is to maintain old credit accounts. Many are unaware of the fact that old credit card accounts contribute to a higher credit score. That is because long histories with an account are generally perceived positively.

Another myth has to do with settling past accounts with our lender. Accordingly, what happens is that the lenders settle for a lower amount than what we owe them. For instance, instead of paying $10,000 (which is the original amount we owe), we only pay $8,000. At face value, it seems like a good bargain for we pay less than the full amount.

However, there is an important fact that we are missing. The unpaid amount ($2000) is declared as a “deficiency balance”.  This would negatively affect our credit standing for about 7 years, the time that the information is reflected in our credit report.

Frequently shopping for credit is another mistake that consumers are prone to commit. Thus, another important advice from credit report tips is to limit our credit applications.  We must remember that whenever we apply for credit, we give our lenders access to our credit report. The problem is that each time lenders access our report, it reflects as an inquiry. The more inquiries in our credit report, the lower our credit standing will be. Moreover, credit inquiries are reflected on our report for about two years.

The final credit card myth to be disputed is not using credit. In our zeal to increase our credit score, we may commit this very serious blunder: not using credit at all. However, it does not work that way. The cardinal rule among credit report tips is to use credit responsibly.

If we refuse to use credit, we rob ourselves of the opportunity of building a good credit standing. More importantly, using zero credit also means zero credit score. This is because scoring models are developed in such a way that it generates score from our previous credit history.

These are but a few of the common mistakes that credit users make. By knowing the right credit report tips to follow, we are better able to make sound credit decisions.

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