Owning a credit repair company, I am asked questions every day about the impact activity on credit reporting that result from credit myths. Over time certain misconceptions continue to manifest themselves repeatedly. I don’t fault the consumers and financial professionals for not understanding. Between the shrouds of privacy behind the credit reporting agencies, and the complexity of scoring in general it is easy to get confused.

So I thought I would take a few minutes to outline the top 5 myths that we consistently hear in our offices. Here we go!

Myth #5: I need a 740 FICO score to qualify for the mortgage I want.

Fact:  Although most Mortgage lenders use the FICO or Fair Isaac Corporation score model, just having a 740 score is not what they are looking for. Lenders use the middle score of all three major credit reporting agencies; Equifax, TransUnion and Experian. What borrowers really need is a MIDDLE FICO SCORE of 740 or higher.

Myth #4: I can pull my credit report to see what’s on it.

Fact: This one is a little tricky. Many of our clients consider a credit report as a file that is waiting for them whenever they want it. Well that is not entirely true. Our credit reports are not like tax returns sitting in a file that we can reference whenever we want. In fact your credit report is not anywhere right now. It is not until you actually order your credit report that the data is requested, compiled and your report is generated. You can liken it to taking your picture right now! Whatever you are wearing, where you are sitting and the look on your face will be generated in that picture!

Myth #3: I don’t have any credit and I don’t want any credit. That should mean I have a high credit score.

Fact: Okay this one is important. A LOT of our clients do not have open positive credit because of their previous credit challenges. When we suggest they open new secured cards or ask a family member to add them as an authorized user, the response is this: Credit is what got me in trouble, I am not getting more.

Although we can appreciate their concern, the reality is that it is a necessary evil for increasing credit scores. There is no exception to this rule. Our credit scores are actually risk scores. If we cannot show lenders that we can responsibly use credit over time, they have nothing to judge us by. How will they know we will pay them back? If a consumer has experienced an economic event that impacted their credit, it is even more important to add open positive credit and use it responsibly.

Myth #2: Closing all my accounts will increase my score.

Fact: As you read above, having open positive credit is vital to having optimum credit scores. Closing accounts does multiple negative things to your credit. First, by closing accounts you are lowering the amount of credit you have available to you. The less credit you have available the less information the bureaus have in order to assess your risk. Next, the longer you have accounts open, the longer they season. Seasoning is very important for building a strong credit profile. The longer you have accounts open, the longer your borrowing capacity can be tracked. Suggestion: Keep your oldest cards open. If you are going to close any, close your newest department store cards. Three revolving accounts is all you need!

Myth #1: I paid all my collections, now I will have a high credit score.

Fact: Okay here we go. As consumers this makes perfect sense. I just paid off what I owe; now I should be able to get my score back. Unfortunately that is just not true. In fact often score will drop after collections have been paid. The reality from a creditor and debt collector’s perspective is they see that you have just paid off old derogatory debt. They want to see that you can maintain a strong profile over time before they are willing to lend you money again. Ask yourself, if a friend just paid you $50.00 bucks back after a year, would you be willing to lend it back to them right away?

I hope I busted a myth or two for you. The next time you hear someone tell you what they “think” is true about credit scoring, do a little digging. You may be surprised by what you reveal!