The truth about 7 common credit report myths
Experts weigh on the most common credit report misconceptions
Most people have a credit report, but how
many actually know what goes into them? If you listen to educators at the top
three credit bureaus -- Experian, Equifax and TransUnion -- the answer is: not
"People don't understand what is
actually included in their credit report," says Demitra Wilson, director of
media relations at Equifax. Consumers will stress over details that aren't even
included and will get themselves into trouble over urban myths like the tale of
the magically disappearing delinquency.
It's a problem, agree educators. Here
are just seven of the most persistent myths that the top three credit bureaus say
they hear all the time.
1. Myth: Your credit report includes your credit score.
The truth: "Your
credit report does not contain your credit score," says Wilson.
Consumers often think that when they pull
a free copy of their report at AnnualCreditReport.com, they should also get a copy
of their score, she says. However, if you want a copy of your FICO credit score
(which is the most widely used score by lenders), you'll usually have to pay up
to $19.95 (at myFICO.com) to get it. The exception is if you are denied a loan or given higher rates
based on your credit score. In that case, a lender is required to send you a
free copy of the score they used to make their decision.
You can also access a free credit score
through a service such as CreditKarma.com. However, those scores aren't
necessarily going to be the scores that lenders use. That's because "there are
many different credit scores," says Rod Griffin, director of public education
at Experian, and the score that gets used depends on the lender and the type of
loan they are handing out.
The good news is that even though you can't
control the formulas that lenders use to calculate your many different credit scores,
you can influence the information that goes into them. "You as a consumer have
the ability to control the information in your report," says Griffin.
2. Myth: Intimate details, such as race, income or medical
history, are included on your credit report.
The truth: "Your credit report only
includes information that's debt-related," says Griffin. It doesn't include
your race or ethnicity, your income, your investments and assets or your
criminal record, he adds. (It does, however, include your address, your Social Security
number, your date of birth and possibly your place of employment.)
Some consumers also worry that late
payments to their doctor's office will appear on their reports. However, that's
false, says Griffin. "There's a law called HIPAA, the Health Insurance
Portability and Accountability Act. It prohibits or regulates the sharing of
medical information," he says. So credit reporting agencies are legally barred
from including any information about your recent doctor's visits, the kind of
treatment you received or the name of the health care provider that you visited.
Seven years is a rule of thumb that applies to late payments. The confusion comes in when that seven years actually starts.
That said, if you miss a payment on a
medical bill, your health care provider may send that uncollected debt to a
medical collection company and the name of that company could appear on your
personal credit report, says Griffin. Your lender, however, won't see the
medical company's name when they pull your report. They'll just see you have a
medical collection listed.
That's the confusing part, adds Griffin.
Consumers often don't realize that what they see on their personal credit
report isn't necessarily what a lender sees.
The same is true for soft inquiries, he
says. A soft inquiry is listed when someone such as a credit card lender who's
thinking about giving you a special deal or a potential employer asks to see
your report. However, unlike hard inquiries (which occur when you apply for a
new loan or credit and temporarily ding your credit score), soft inquiries
aren't shared with lenders -- and don't affect your credit score -- because you
haven't applied for any credit. "We don't share soft inquiries with anyone but
you, the consumer," says Griffin. "It's there so you know who's looked at that
3. Myth: Checking credit reports too often will hurt
your credit score.
The truth: "Viewing your own credit report has no impact on your credit score,"
says Cliff O'Neal, senior director for corporate communications at TransUnion.
"You could view your credit report every day and it will have no impact."
However, if you give a lender
permission to pull your credit report, that will affect your score, says Equifax's
Demitra Wilson. "Where people get confused is if you actually go into a
creditor or merchant and you apply for a loan or apply for credit and you give
them permission to access your credit report. That kind of inquiry is called a
hard inquiry and that kind of inquiry can impact your credit score," says
Luckily, credit agencies will give you
a break if you're shopping around at different dealers. "If you're shopping for
a loan and are concerned that will hurt a score, know that we realize that you
are shopping for a car or a mortgage or something of that nature," says O'Neal.
If the credit agency sees that your report has been pulled multiple times
within a 30-day period, they will group those inquiries together and count them
as just one hard inquiry.
4. Myth: If you pay off a delinquent debt, the missed
payment will be removed from your credit report.
The truth: The only thing that
clears a negative mark on your credit report is time.
"People think that if they pay off an
account, it automatically falls off their credit report," says Equifax's Wilson.
However, that's just magical thinking, she says.
Instead, it will take up to seven years
for a missed payment to disappear from your report and up to 10 years for a Chapter 7 bankruptcy to disappear.
Meanwhile, don't think that you can
just pay a credit repair company to clear those negative marks. Any credit
repair company that says they can scrub your credit report clean of accurate but negative information isn't telling
you the truth, say experts.
People think that if they get a divorce, that automatically severs joint accounts that are listed on a credit report, and it doesn't.
They may be able to assist you with
disputing negative information. However, the cost it takes to do that probably
isn't worth it, says TransUnion's O'Neal. "Anything that a credit repair
company promises, you can do yourself," he says. There are no quick fixes when
it comes to repairing your credit. "Just as it took time to damage your credit,
it's going to take time to improve your credit," he adds.
The amount of time you'll have to wait for
a black mark to disappear can also be a major source of confusion, adds
Experian's Rod Griffin. "Seven years is a rule of thumb that applies to late
payments. The confusion comes in when that seven years actually starts," he
The good news is if you only missed one
payment, the math should work in your favor. For example, if you miss a credit
card payment, the clock will start on your credit report as soon as the payment
is listed as late. Credit reporting companies call that your "original
If you fail to pay that debt off and
the account goes into collections, the clock will keep ticking and won't reset,
says Griffin. "Federal law requires that collection agencies carry over the
original delinquency date from the original account and report that" to a
credit reporting company.
Where it gets murky is if you make
payment arrangements to clear a debt on an overdue account and then later miss
another payment. Then the clock will start over from that second missed payment
instead of the first one, says Griffin. "It gets a little bit confusing because
an account can actually have more than one original delinquency date," says Griffin.
The first missed payment will be deleted seven years from the first time you
were late. The second missed payment will then be treated as separate and will
be deleted seven years after that one was reported as delinquent.
5. Myth: Your credit reports merge when you get married and split when you divorce.
The truth: "Getting married does not
cause your previous credit histories to be merged," says Griffin. "Everyone has
their own credit report even after they are married." So if your spouse has a
spotty credit history, it won't show up on your report.
That said, if you live in a community property state, loans that you accumulate while married may automatically be
joined together and show up on both reports.
Any loans that you co-sign with your
spouse will also appear, says TransUnion's O'Neal. "When you co-sign for a
loan, activity on that joint account will be displayed on your credit report as
well as the person you co-signed with," he says.
However, simply being married won't
make you financially liable for a spouse's loans (but it will if you co-signed)
-- unless you live in a community property state. States with community
property laws hold both spouses liable for debts accumulated during the
marriage. Arizona, California, Idaho, Louisiana, Nevada, Texas, Washington and Wisconsin are community property states; Alaska is an opt-in community property state. See "Compare states' community property laws" for more details.
Joint debts -- in which both of you sign a contract with a lender or credit card company -- do make you equally
responsible for repayment. Meanwhile, if you split up, the jointly held debt that
you acquired as a couple will stay put on both your reports, no matter what you
agreed to in the divorce. "People think that if they get a divorce, that
automatically severs joint accounts that are listed on a credit report, and it
doesn't," says Equifax's Wilson. You'll both still be on the hook for that
debt, unless your creditor agrees to take one of you off the account.
6. Myth: Credit agencies are responsible for granting or denying credit.
The truth: "We don't do that," says Experian's Rod Griffin. "We don't approve
or decline a person's credit application."
Instead, credit agencies gather your
information in one place so that lenders don't have to do it themselves. "The
role of the credit reporting company is to compile information about a person's
debts and put them in a form that lenders can use," says Griffin. "We don't
make any judgments about the information that is in the credit report."
7. Myth: If you pay all your bills on time, you don't need
to check your credit report.
The truth: "It's always important to look at your credit report from time to time and make sure it is up to date with the most current
information that reflects your credit history," says TransUnion's Cliff O'Neal.
After all, you may be surprised at
what's in there. "One of the main misconceptions is that people think that if
they pay their bills on time, they don't need to check their credit," says Demitra
Wilson. "Your credit report is changing all the time ... You want to make
sure that the information that is being reported is accurate and correct. Even
though you know that you're paying your bills on time, the data furnisher may
not be reporting it correctly."
It also helps to know how you're doing
with your money. "When you know what's in your credit file, you know your
financial standing," says Wilson. "You know your financial health so you're
able to take charge of your credit and know when is the best time to apply for
a loan or seek preapproval for a mortgage."
See related: 9 credit score myths do more harm than good, How to read, understand your credit report
Published: April 16, 2012
If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.
Three most recent Credit scores, credit reports stories:
- Cards with free credit scores – Cards are under regulatory pressure to provide free credit scores to customers. Here is a snapshot of programs at major card issuers ...
- CFPB calls for free credit scores – The Consumer Financial Protection Bureau has urged credit card issuers to make credit scores available to customers for free ...
- 'Jamming' cleans your credit -- temporarily – Some credit repair clinics clog the dispute system with bogus paperwork, challenging everything on clients' credit reports. The tactic works -- temporarily ...
Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!