February 2006 :
Dispelling Credit and Debt Myths

There are many myths surrounding credit and debt – and if you believe them, they can get in the way of your overall financial progress. Learn the facts about commonly mistaken money matters before making any credit and debt decisions.
Myth: If credit issuers send me credit card applications, I must be able to afford the loan or line of credit they offer me.
Truth: Credit issuers don’t know what you can afford – you do. Only apply for loans or lines of credit that you need and charge amounts you can repay by the time the bill comes in.

Myth: I am not responsible for joint or co-signed accounts if I didn't make the purchases.
Truth: Both account holders are equally responsible for payment, even if one of you never charged a penny.
Myth: I need a credit card for emergencies.
Truth: Saved cash is for emergencies. Credit cards are payment tools.
Myth: Interest rates go up for no reason.
Truth: Interest rate hikes are not random. One missed payment or holding a balance near or at your credit limit can trigger a rate increase – not just for that account but for others as well.

Myth: It is hard/time-consuming to solve credit report errors.
Truth: In most cases correcting errors just takes filling out a simple dispute form. It’s important to do. Don’t put it off.

Myth: Checking my own credit report will lower my credit score.
Truth: Your credit score will only be affected if you actually apply for credit, and even then such inquiries only account for a relatively small portion of your score.
Myth: Every time a collection agency sells a debt to another agency, the seven-year time frame that it can be reported on a credit report is renewed.
Truth: Collection accounts can only be evident on a credit report for seven years from the date the original creditor charged the debt off (deemed it uncollectible). The time period cannot be renewed by future collection agencies that purchase the debt.
Myth: It takes forever to change a credit score.
Truth: Credit scores change with credit activity – so the faster and more you use credit wisely, the sooner your score will improve.
Myth: The credit bureau can deny a credit application.
Truth: Credit bureaus don’t accept or deny credit applications. They just collect and report data.
Myth: Debt Management Plans (DMPs) are the same as bankruptcy.
Truth: Unlike bankruptcy, with a DMP you are repaying 100 percent of your debt. Bankruptcies show up on the public record section of a credit report, while a DMP, if noted at all, it will be in the credit activity section. Participation in a DMP is not factored into a credit score either. Therefore, in general, bankruptcies have much more negative impact on a credit report than a DMP, and lenders and other businesses view them differently.