With 2020 behind us, many are looking at 2021 as an opportunity to usher in positive change. In the world of do-overs and make-overs, financial affairs are often center stage.
Make this the year you gain control of your finances for prosperity and success. No matter your starting point, money managers and bankruptcy attorneys advise it is possible to erase debt and begin building wealth.
Georgia bankruptcy attorneys suggest an essential first step to reaching your goals is understanding your credit history and the seven common misconceptions about credit reports. Once you pull your credit report and compare the information against popular credit report myths, you will have a clearer understanding of what you can do to build a stable financial future.
7 Common Misconceptions About Credit Reports
Understanding credit reports and how they are scored can be confusing. Because credit bureaus do not reveal their detailed methods for scoring reports, several myths must be dissected to better understand building a good credit report. Below are seven common myths explained:
1. You have only one credit score.
The credit and lending industries use multiple algorithms to determine your creditworthiness. Most of us focus on one, or maybe three, credit reports by the top credit bureaus, Experian, TransUnion, and Equifax. In reality, there may be hundreds of credit reports related to your credit and evaluated by lenders.
2. Your job and income directly affect your score.
Lending applications often ask for your employment and income information at the same time they pull your credit report. This has led many to believe that income and employment are directly tied to credit scores.
Although credit bureaus do not consider your income when calculating your credit score, it’s worth noting that your income might affect your debt management, which could indirectly impact your credit score.
3. Credit inquiries will impact your credit score.
Many people believe that checking their credit report will count as a negative credit inquiry, hurting their credit score. If you apply for a loan, a lender’s inquiry may negatively affect your score because it is assumed you will be adding debt. However, if you simply look at your credit report, your score will not be negatively impacted.
4. Limiting credit use to one account is best.
Credit bureaus examine your credit report for varied credit types and the percentage of use against available credit for each account. Using only one credit line and maintaining a high debt balance against the credit limit will negatively impact our score, even if timely payments are made.
5. Closing old credit accounts is a good idea.
Closing an old credit account will cause your credit score to drop. When you close an account, the ratio of your debt balances compared to your total available credit increases.
Also, the tendency to close older, unused accounts works against your credit score. The length of your credit history determines a portion of your credit score. Closing older accounts shorten your credit history.
6. Marriage and other relationships affect your score.
All credit scores are individual, not joint. This means if you are married, each of you has a credit score based on your individual accounts and habits.
However, if you and a partner share joint credit accounts, the accounts will show on both your and your partner’s credit reports. Any negative activity related to those accounts will impact your individual score.
7. Filing bankruptcy will devastate your credit forever.
For many burdened by overwhelming debt, one way to hit the restart button is to file bankruptcy. However, people often shy away from filing chapter 7 or 13 bankruptcy for fear of damaging their credit.
How detrimental is bankruptcy to your credit score? If you’re already struggling with high credit balances, late and missed payments, or loans in default, your credit score is probably relatively low. In that case, filing bankruptcy may not hurt your credit score at all
For example, if your credit score is around 600, you probably will not see any further damage to your score. If, however, you have maintained on-time payments and kept your accounts in good standing, you likely have a fairly decent credit score (750+). In that case, filing bankruptcy may drop your score only slightly.
The good news is bankruptcy will only reflect on your report for 7 years, and the relief of a fresh financial beginning can be the help you need to effectively manage your income and avoid debt in the future.
Get a Fresh Financial Start. Contact a Georgia Bankruptcy Attorney Today
We all manage money and debt differently. And, sometimes, we handle money differently at different times in our lives, depending on circumstances.
If you are struggling to overcome debt, you can change your financial patterns and build a secure financial future. By honestly evaluating where you stand today and making a firm decision about where you want to be tomorrow, you can eliminate debt and begin to build wealth.
If you live in Georgia and would like more information regarding credit reports and debt elimination, consult an experienced Georgia bankruptcy attorney. Contact our office today.