In our last post, we addressed three of the most common myths about credit reporting. Today’s contribution will continue addressing the concerns that I have heard from students about their credit and shed light on the reality of what really takes place.
- Paying off a past due account will remove it from your credit report.
It is always best to pay off your delinquent balances for the benefit of your credit. Making that payment, unfortunately, will not erase the account or your payment history details from the credit file. Any past negative payments will remain on your credit report for the full credit-reporting time limit. Your account will show that you are up to date with the past due balance (okay or in good standing) but the prior missed payments will not drop off until they have aged past the statute of limitations for reporting which is typically seven years. If the account is still active, your future timely payments will be reported as ok. Generally, seven years from the negatively reported payments, the negative details will fall off the credit report automatically.
- Closing an account will remove it from your credit report.
Another common fallacy is that just closing an account will remove it and its information from your credit report. However, that is not the case. Upon closing an account, the only change to your credit report is that the account status shows as closed. If the account you closed is in bad standing or a charge off, the account information and the payment detail will stay on your credit report for the remainder of the credit-reporting time limit (generally seven years). In the case which an account in good standing is closed, it will show on your credit report based on the credit bureaus guidelines for reporting positive, closed accounts.
- Only credit cards and loans show up on your credit report.
Reading your credit report you will find numerous account types listed. Yes, you will find credit cards, loans, and student loans. You will also see medical bills, debt collections, and public records like bankruptcy or tax liens on the report. These are generally not credit accounts so they are not part of the regular reporting to the bureaus that occurs. You will see them reported to the credit agencies if they become severely delinquent and sent to collections. At that time, those accounts are reported on your credit file as collection accounts, which only stand to damage your file and score.
- Your credit report includes employment history and income.
In a study conducted by TransUnion in 2015, about 55 percent of people who recently checked their credit report believed a full employment history was on the report. In the same study 41 percent thought income is part of information listed. You might find your current employer listed but the bureaus do not keep a list of previous employers. The reports do not show your income. When you apply for credit or a loan, the application may ask for employment and income information to approve your application, but it will not be found in the actual credit report.
- Your credit report contains rental history.
The study about credit reports by TransUnion in 2015 also found that 49 percent of people with excellent credit believed that rental payments are included in credit reports. Rental accounts typically are not on your credit file (unless reported for negative information). So paying your rent may not improve credit or build good credit, but not paying can potentially hurt your credit. One exception currently exists. Rental payments to apartments that report to the Experian Rent Bureau will be included on the Experian credit report, but not on other reports.
I hope that this covered any questions you might have about things you have “heard” regarding your credit reports. Remember to pull your free copy of all three (TransUnion, Experian, Equifax) credit reports at least once every 12 months to verify everything is correct and reported properly. In my next posting, I will cover a couple more myths so you continue to have a clearer understanding of credit reporting.
Please feel free to contact me if you have any questions or need additional assistance. I can be reached at (904) 296-3440 extension 139, or [email protected].