Everyday we talk with customers who "know" something about credit. It's amazing how after you've believed something long enough it "must be true." Well, we've put together a few of the most common myths we've heard about credit. This information comes from viewing tens of thousands of credit reports and studying what information is actually in your report.

"No credit is better than bad credit." This is not entirely true. Although some credit card companies will give a card (usually not with very good terms) to someone with no credit, when you start talking about larger purchases, such as a house, some bad credit is not altogether unusual and is typically taken into consideration when combined with some good credit history.

"Paying cash for everything is the best solution." Paying cash is okay, but unless you wish to pay cash for large purchases such as cars and homes, the only (and best) choice is to finance. Credit of that type and size is not granted unless there is credit history. No one enjoys being in debt, and the choice to pay cash is understood, however in today's world it is not a real option for most. Having several open credit cards (used or unused) and at least an installment loan or two in your past will give you the best chance at obtaining credit when ready to make a large purchase, such as a house.

"I can build my credit by getting a loan and paying it off in a couple months." Typically you want to keep any installment loan for at least 14-16 months. We believe that any account with less than a 12 month history on your credit report is treated as a new account and does not help as much as an established account. We do know that in most mortgage lending, a minimum of 12 months payment history is required to count an item as positive credit history. Remember, it is not how long you actually have the loan, but how many months your creditor reports to the credit bureau. For this reason we suggest a few extra months just in case they don't report 1 or 2.

"Keeping a balance on my credit cards is better than paying them off each month." This is definitely not true. Having a balance does not increase your scores, and can actually hurt them if the balance is over aprox. 40% of the available credit. You want to use your credit card to make sure the company continues to report each month, building the number of months reported, however simply putting gas in your car once a month and paying it off is enough to keep it active.

"Paying more than the minimum payment gives a better score." This is also definitely not true. When you request a credit line increase from a credit bureau, they may look at your payment history and favor someone who pays more than the minimum payment, however this is the only time that information will be beneficial. There is nothing on your credit report that shows how much of a payment you make. In fact, it doesn't even show late payments until you become more than 30 days past due.

"Certain types of bad accounts affect your score x number of points." Anyone that tells you a certain type of account (such as collection or late payment) will affect your score a set number of points is lying to you! This is a highly guarded secret kept by the credit bureaus and you should be skeptical of anyone or company that tries to tell you they have this secret knowledge. The credit bureaus have even won lawsuits against the government about keeping this information secret! How do we know this for sure? EVERY company we have seen claiming to know this information we can disprove with actual credit reports that don't follow their "rules." Our only claim is that after looking at tens of thousands of credit reports we can give "general ideas" of how much certain items may help to remove or pay down.