• Credit Report Myths

When we emerge from this recession, you may want to borrow money to start or expand your business. If  you do, the time to plan is now. Specifically, you’ll want to examine your credit history. These days, all personal lending and much of business financing considers your credit score as the leading indicator (and sometimes the only indicator) of your credit worthiness. Oddly, most people don’t give it much thought until they’re declined for a loan. How your credit score (also know as your FICO score) is actually calculated is a closely guarded secret, and unfortunately, there’s a lot of misinformation about the do’s and don’t's of improving it. Here are some of the more common myths and truths about your credit reports:

Myth 1: You have to pay to receive a copy of your own credit report. False
You are entitled to a free credit report once a year and whenever you are declined for credit. Go to AnnualCreditReport.com for more information.

Myth 2: The three major credit reporting agencies (TransUnion, Experian, Equifax) have the same information about you. False.
The information reported by one agency can vary greatly from what’s reported by another.  Since different lenders use different services, you need to get a copy of each report.

Myth 3: The information in the reports is correct and complete. False.
Credit reports are often loaded with mistakes that can include someone else’s credit information under your name, billing disputes that have been resolved, loans that were paid off but still show as outstanding, open credit lines that have since been canceled, and endless other black marks.

Myth 4: You have to hire someone to help you remove erroneous information from your credit report. False.
If you dispute a claim through the credit reporting agency and they company that posted the claim does not respond within a reasonable period of time, the Fair Credit Reporting Act requires that the reporting agency remove the claim (though the claimant may later add it back). Be sure to follow that correct procedure for filing a dispute.

Myth 5: There’s nothing you can do about negative information on your credit report if it is true. False.
If you can’t have a disputed or adverse entry removed from your credit report, you can and should add a statement correcting misleading information or explaining the issue from your point of view. You may also submit a voluntary statement at any time explaining any personal or business problems that may have damaged your credit history. A divorce, disaster, or extended illness, for example, would be worth noting.

Myth 6: Canceling credit cards can improve your credit score. False.
One of the biggest factors in your credit score is your credit history. If you cancel a credit card that has a lot of history, it can hurt your credit score.

Myth 7: Closing an account where you’ve had bad credit will remove it from your credit report. False
Negative information can stay on your report for up to 7 years.

Myth 8: In terms of your credit score, your better off having as little credit as possible. False for the same reason just stated.

Myth 9: Lots of credit is good as long as you pay on time. False.
Too much credit availability, even if you’re not using it can lower your credit score.

Myth 10: Rate shopping for a loan won’t hurt your credit score. Possibly false.
Frequent requests for credit can hurt your score particularly if you’re continually searching for credit.

Myth 11: You should try to keep all your transactions on one credit card. Possibly false.
Using too high a proportion of your available credit can hurt you. If you use more than 50% of your credit line, you may be better off spreading transactions over multiple cards.

Myth 12: Business loans and credit cards do not effect your credit score. False.
If they are reported on your personal credit report, as they often are for small businesses, they do effect your credit score.

A few other ways to improve your credit score include:

• Cleaning up judgments, liens, collections, or delinquencies that appear on your credit report.
• Settling disputes where possible.
• Paying your bills on time for at least 12 months.
• Applying for a loan and repaying it with every payment on time

For lots more advice about how to find financing for your business, visit our sister site: Finding Money Advice.com, or better yet, buy our 2009 eBook “Finding Money—The Small Business Guide to Financing.”