5 Common Credit Repair Myths

National Association of Consumer Bankruptcy Attorneys

5 Common Credit Repair Myths

Brian V. Lee

September 5, 2017

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Credit repair could be considered more of an art than a science. How you, individually, repair your credit depends on how it was damaged in the first place. Educating yourself about how you can repair your credit is smart, but don’t fall for the traps. Here are five common credit repair myths.ç

1. A credit repair company can do it all for you.

No service or company can repair your credit for you. You basically have to do it yourself. Getting guidance is important, and the advice of a professional can be invaluable. But you cannot simply pay a monthly fee and magically repair your credit. That’s not how it works.

2. Having available credit will help repair your credit.

The availability of credit is a major factor toward your credit score, accounting for as much as 30 percent. If you have been through a catastrophic credit event, then you should strongly consider obtaining (but not necessarily using) as much credit as possible to help repair your credit score. Over time, however, the sheer amount of your available credit becomes less important than the sources of that credit and your credit usage and history.

3. Paying down a mortgage or car loan will repair your credit.

You can default on a credit card without immediate repercussions. But if you default on your car loan, your vehicle will be repossessed. If you default on your mortgage, your home will be foreclosed. Mortgage and auto lenders have security for their loans, they have collateral. As such, paying down these loans will not much help your credit repair efforts. The balances of these kinds of loans are irrelevant.

4. You shouldn’t ever carry a credit balance.

When a credit card company reports a recent balance, and you pay in full the next month, it can have an excellent effect on your credit. Most months (10 out of 12) you should have a zero balance and pay off your cards every month. But to have a reported balance on your credit report also signals to the credit bureaus that you are using your credit. Be sure to pay off any revolving amounts within 60 days, and do not employ this credit repair technique more than once every 12 to 16 months.

5. Bankruptcy will kill your credit.

Quite the opposite, in fact. Bankruptcy could actually improve your credit. A bankruptcy filing will remain on your credit report for at least seven years. But the effects of the bankruptcy filing immediately begin to diminish once your file.