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Uh What do Bigfoot and credit reports have in common?
Well, they're each the subject of many myths. I am Rob West.
Well, we don't know much about eight-foot furry creatures, but we can dispel some of the folklore about credit and credit reports. Neely Simon is here to help us do that today, and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith and Finance, biblical wisdom for your financial decisions.
Well, we always enjoy having Neely Simon with us. She's a certified credit counselor with Christian Credit Counselors, an underwriter of this program. Neely, great to have you back. Thanks for having me on the show. I'm glad we're tackling this topic because there are certainly plenty of credit report myths out there that you're going to dispel today.
But why do you think this is so important?
Well, it's important because some people are scared of credit. They're afraid of debt or getting in too much debt, and they believe that credit is bad. But the reality is, is that credit can be a very useful tool And now more than ever, your credit score is important, especially when it comes to insurance companies and employers. Yeah, that's a good point. I mean, there are rules we talk about.
I know you follow them, Neely. We only want to use credit for budgeted items. We want to make sure you and your spouse are on the same page. And there are some dangers here. But as you point out, credit can be a very useful tool.
And your credit report is the key to that.
So let's dive into these myths today. The first one is that paying down your debts will make your credit report instantly pristine or perfect. Why is that a myth? That's because establishing a good credit score takes time because your credit score is a history of payments and it gives the lenders a snapshot in terms of how responsible you're using your debt. Keep in mind that improvements take time.
What's most important is that you keep paying your bills on time. Yeah, which is why anyone who says they can, quote, fix your credit overnight, you should stay far away from that person. That's right. All right. The next myth is that credit counseling destroys your credit score.
Score. Boy, we have so many listeners calling in asking this question.
So, clear this up for us. Sure.
So, credit counseling does not impact your score negatively. And in fact, it's a neutral mark on your credit score. And being involved in a credit counseling program alone isn't what negatively impacts your score. What impacts the score is closing the accounts.
So, what you need to be aware of is that when you're choosing a credit counseling agency, you want to make sure they're a non-profit and that they're accredited. And I encourage you: don't waste your money on fancy credit monitoring or identity protection. You can monitor your own credit for free. Yeah, that's a really great point. And it's important to note that debt management or credit counseling is my preferred way for you to get out of debt.
And that's why we're so delighted to be partnered with Christian Credit Counselors. You can learn more, of course, at ChristianCreditCounselors.org.
Now, the next myth, Neely, is that canceling credit cards boosts my credit score. Boy, a lot of folks are surprised by this one. Yeah, so creditors want to see at least two or three pieces of active credit. And closing credit card accounts won't help your score, but it actually hurts your score. And the reason for that is because the available credit will decrease and lower your score, not raise it.
I always tell people who have zero balance accounts, as long as the creditor is not charging you an annual fee, keep it open because it will help your score and improve it. Yeah.
Now, if you decide you need to close one because it does have a fee or you just have too many to keep up with, perhaps consider only closing a couple of them every six months. It will be temporary, that decline in your credit score, it will come back. But I think you make a great point here, Neale, that a lot of people just don't understand that closing that account will pull your score down slightly. All right, this next one needs some explanation, and that is that too many inquiries hurt my score. Tell us more about that.
that Sure.
So once upon a time, that statement was true. But now credit bureaus are recognizing that people are shopping, where you have multiple inquiries in a short period of time if you're shopping for like a car or a mortgage.
So you have a 45-day period where you can shop multiple creditors and it will only count for one pull. Yeah, this is a big deal because we really want you to be out there shopping. I mean, think about it. When you get a mortgage, last thing you want to do with your largest transaction ever is just get one bid. Let's get several.
And good news, the credit bureaus will see that all as one, as Neely said in a 45-day window. Neely Simon is here today. She's with Christian Credit Counselors, an underwriter of this program and a great partner. Back with much more after this. We're grateful for support from Guidestone, whose diversified suite of investment solutions align with Christian values to create positive change in the world.
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That's ChristianCreditCounselors.org. Yeah.
I'm so glad you're with us today on Faith and Finance. With me today, my friend Neely Simon. She's a certified credit counselor with Christian Credit Counselors, an underwriter of this program. Boy, Christian Credit Counselors has been a wonderful partner for a long time. Literally, hundreds, if not thousands, of our listeners have used them to get out of credit card debt once and for all.
Credit counseling is my preferred way. If you have more than about $4,000 in credit card debt, sliding those cards into this program, reducing the interest rates, paying one-level monthly payments, is going to help you pay this off 80% faster. You can learn more at ChristianCreditCounselors.org.
Now, today, Neely is tackling some top credit report myths. And boy, credit scores and credit reports are a frequent topic on this program.
So I'm glad you're clearing a lot of this up for us today, Neely. And just before the break, you were sharing around inquiries. And the impact that they have on our credit score. And you said something that a lot of people may not realize, and that is the agencies, the bureaus now recognize shopping.
So if you're out there looking with multiple lenders for the same type of loan, they're going to see that all as one in a 45-day window, which is going to help to keep your score higher during that shopping period. But the next one is a follow-up myth to that, and that is around checking your own credit report. The myth is that checking my own credit report harms my standing. Help us with that. Sure.
So, what's important to understand is that there's a difference between a soft pull and a hard pull.
So, a hard pull will impact your credit score, and it happens when you're applying for credit cards, loans, or mortgages.
Now, a soft pull will not impact your score. And so, what's important and what we recommend is that everyone should be pulling a soft credit report every six To 12 months to check for any errors or fraud.
Now, a credit counselor can help you achieve this by pulling a soft pull, but what you really want to do is avoid companies promising free reports. You want to go directly to the credit bureaus themselves, or you can go to annualcreditreport.com and run all three credit bureaus for free. Yeah, and that's a really important reminder, Neely. AnnualCreditReport.com is the only resource that's from the government that provides free credit reports. Everybody else would be a third party unless you go directly to the Bureau.
Again, annualcreditreport.com. All right, Neely, here's one myth that maybe is not quite so prevalent, and that is credit scores are locked in for six months. Right.
So a FICO score is very dynamic in the sense that it's always changing.
So scores change as credit reporting data changes.
So the score will recalculate each time a file is pulled.
Okay, yeah, that's helpful. All right, continuing to work our way through these credit report myths, and this next one sounds like it should actually be true, but it's definitely a myth, and that is I don't need to check my credit report if I pay my bills on time. Right.
Absolutely false. What's important for people to understand is that 80% of credit reports contain errors.
So by checking your reports once or twice a year, you can really make sure that you stay on top of it so that if there is fraud or if there is errors, you can address it right away because it usually takes up to 90 days to correct the report. Very good. All right. That's helpful.
Okay. Here's another myth: all credit reports are the same. Absolutely not.
So, what you need to understand is that the three major agencies, Equifax, Experian, and TransUnion, all use the FICO score, but the formula is a little bit different and it's different per category.
So, if you go and shop for a car, your score is going to be different from the car score than it would if you were going to shop for a mortgage loan. And also, what's important is that agencies update their records at different speeds. There's also inquiry activity used like addresses, phone numbers, and employment status, which are forever changing as well.
So, what's important is that when you pull your reports, make sure to pull all three so that you have a complete understanding of who and what you owe, and making sure you eliminate any errors. Yeah, that's exactly right. And depending upon which lender you use, they may use one bureau over another. They may use one credit score that's calculated an entirely different way than another. And so it's important to monitor all three.
That's great advice, Neely. All right, next up, and these are myths related to credit reports. This one is that a divorce decree automatically severs joint accounts. Right.
So, what's important to understand is that a court decision on dividing debts does not impact the creditor.
So, often we see at Christian Credit Counselors when people have gone through a divorce, the debts are split up. And what happens is, if both people are on the account, if one person falls delinquent, it's going to impact your score.
So, we always recommend if you're in this situation, make sure the accounts get closed. And if you're able to either refinance or, you know, if you have a car or a mortgage, it would require that you refinance it to get the other person off. But certainly, if you're an authorized user, make sure that the primary removes you from the account because too often you'll end up getting negative impacts based on someone else's behavior and decisions.
Okay. Yeah, that's very helpful. All right, Neely, this next one might surprise some folks, and that is that bad marks come off your reports automatically in seven years, but it's a bit more complicated. Isn't it That's correct. Only some bad news comes off in seven years.
So a Chapter 13 bankruptcy will stay on your report for seven years, and a Chapter 7 bankruptcy stays on your report for 10 years. Accounts in bankruptcy can be deleted after seven years after the first missed payment. But what's important too is that paid off or closed accounts without delinquencies will stay on your record for 10 years, which is great because positive information will stay on record longer than negative information, which benefits you as the consumer. Yeah, that's helpful. All right, our last credit report myth has cost folks a lot of money with very little gain, and that is I can always pay someone to fix or repair my credit.
Yeah, so there's really no such thing as credit repair. What's important to understand is that you, as the consumer, can do that on your own. Because what happens is if the information is factual, then it cannot be removed, such as a late payment. Credit repair companies send dispute letters to reporting agencies. Agencies can ask the creditors to verify or document the disputed information.
If the information is verified as inaccurate, the mistake will be corrected. But if it's accurate, then the information will remain on their credit report.
So the client still has to pay the credit repair company, even though they weren't able to produce any results.
So consumers themselves can write these dispute letters directly to the creditors. And at Christian Credit Counselors, we have a resource tab on our website. If you want to see template letters and provide you with some more tools in order to do this on your own. All right, very good.
Well, this has been so helpful, Neely. I know you've cleared a lot of this up for us. Tie a bow on this. Sure.
So, correcting credit myths sets the record straight on credit reports and scores. What's really important is that you educate yourself and you gain the knowledge so that you can manage your credit correctly. Learning how to manage your debt and repay credit helps achieve life and financial goals. Accurate information promotes financial success and freedom. Oh, that's well said, Neely.
Folks, if you are struggling with credit card debt, reach out to our friends at Christian Credit Counselors. You'll find them on the web, ChristianCreditCounselors.org, or call 800-557-1985. They've worked with hundreds of our listeners, and I'm so excited about the work they do. Go ahead and reach out to them today. Neely, thanks for being here.
Thank you so much for having me. That's Neely Simon with Christian Credit Counselors. We're back with your questions after this. Stick around. What if your money struggles aren't really about money at all, but about what your heart treasures most?
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You can call right now. Karina is in Texas waiting patiently. Karina, go ahead. Hi there. Thank you for answering my question.
Of course. I'm getting my call.
Well, I'm from Texas, and I have a small business here in my city at the department mall. Um that's the only mall here, but with the current economy right now, it just seems that Our business is failing, even with the location that we have relocated a few years back ago. And with that happening, many other department stores are closing as well.
So at this point, it just seems that we're losing money right now and we're kind of going under debt, something that we really haven't Um you know, been faced with yet. And, um Now it's kind of time that I'm thinking, you know, after so many years being in business as a brick and mortar, is it best that we close and sell the business and move on to a new venture or find a job so I can financially stable my family? Yeah.
Well, I know this is hard, but I appreciate the question because you're exactly right. You know, this is something you need to take a long and hard look at. And let me just give you some rules of thumb that I think will make this clear. And it sounds like you're already headed down this road anyway, even though this is a difficult decision to make because we get emotionally and financially invested in our small businesses, and they're hard to let go. And there's a grieving process, really, that comes with that.
But I would say, first of all, if the business can't pay you a living wage, you know, that's the first rule of thumb that signals it might be time to shut down. If after 10 years, you know, you can't reliably pay household expenses without debt and it's requiring personal credit cards or loans to survive, that's a strong signal the model isn't working. Even if it has in the past, it's not today. Second, you're subsidizing the business with family money. You know, it's draining your savings.
You're skipping retirement contributions. You're taking on personal. A healthy business needs to serve the family, not consume it. Third, the business has no clear path to profitability.
So I would ask, what specific changes might I expect in the next six to 12 months? More revenue, higher margins, fewer hours. And if the answers are vague, that's not a strategy I'd move on. Number four would be if the stress cost outweighs the financial benefit. Um, you know, it's causing anxiety or marital tension.
Um, you know, I would say that's another one. And then, you know, I would just say, lastly, you going out and getting a job, if that would stabilize the family, stop debt accumulation, restore predictable income, then you know, that's just wise stewardship. I mean, at the end of the day, the business is not part of your identity. And I think we need to reframe the conversation, you know, the question: it's not just can I hang on a little longer. It's, is this business serving my family, or is it slowly harming the family?
Because the business is a tool. To do that. And the moment it stops doing that without a clear path to changing that, then I think we need to think about that exit strategy.
So I feel like you're probably at that point. Just what I'm hearing. Obviously, you can't, you know, you need to be the one to make that decision. But just based on some of the things you're describing, I think if we're not there, we're close to there. And without a path forward, with some real confidence in turning this around, I would say it's start to think about unwinding it.
Ry, I am there and ready and looking for a buyer, but it is hard knowing that um God sends you this idea and this this feeling of opening this business for your community and then having to close years later and not providing for your community and following through what God wanted. But I hope that he gives me the strength to close and find a new passion. Yeah, I hear you in that. And I think that's right, and well said. And obviously, you know, God gave us work.
Uh, as a part of his creation, remember, Adam and Eve were to keep and cultivate the garden, and so work is a part of God's plan. Uh, we're to be productive, God is a worker, we see that on display in creation. We're to be workers, he creates out of nothing, we create out of the latent potential of his creation, and we use that to you know create human flourishing and to love our neighbor and to provide goods and services that are good and serve people. And that's a part of God's plan. But it could be that this business was for a season and he's now using this to redirect you to somebody else.
But you can be confident that as long as you're working as unto the Lord, you're fulfilling that responsibility that we all have to be workers and to bring God glory. And I think, in part, you could use this as saying God's closing this door, and therefore, He has something else in mind for me. And so, I'm going to pursue that and bring Him glory in that additional context. And so, I don't think you need to, for a moment, think God's disappointed, I'm letting people down. You're following.
The leading of the Lord. And one of the ways He redirects us is often through the financial story, the stewardship. And, you know, we know that you need to be a good steward as a part of God's plan.
So I hope that's helpful to you, Karina. I know this is not easy, but I'm confident the Lord will provide. James 1:5, if we lack wisdom, ask God, and He will provide it richly. And so make this a matter of prayer, and I'm confident God will direct you. Thanks for calling.
Let's go out to Virginia. Hi, Richard. Go ahead. Hi. I've just got a question.
I'm trying to balance out biblical priorities. We have always paid our tithe on the gross. And we got out of debt Saved for another primary home, but we ended up having to get into a small mortgage to get that primary home.
So we've been in it for a little while. And it's got some repairs that we have to get done to maintain the home. And it just dawned on me, I'm wondering, when we sold the other home and bought this home, there was a profit. It's not taxable. But I'm wondering if we should be paying a tithe on that.
I'm trying to balance that with Stewardship of maintaining the home because these repairs have to be done. And, you know, like I said, we still have a small mortgage.
So I'm also balancing that with the priority of paying off debt. And I'm just wondering with those three things, is it necessary to pay a tithe on that? Yeah, the two homes are unrelated when it comes to a tithe.
So I love the fact that you've been a consistent tither. That's great. A tithe is on the increase. The word tithe means a tenth, even though in the Old Testament there was multiple tithes, in fact, three of them. But if you want to honor the Old Testament tithe, and I like that as a starting point for your giving, giving systematic on the increase, it really wouldn't affect that new home purchase.
You would simply look at that prior home and you would say, what was the increase? And the true increase would be the selling price minus any improvements that increase the value of the home minus the selling price, or excuse me, minus the original purchase price.
So sale price minus improvements. Over the life of the home minus the original purchase price. That's going to be your increase. And if you wanted to tithe on it, that's what you would give on. Big thanks to my team today, Dev and Robert and Taylor.
We'll see you next time. Bye-bye. Faith in Finance is provided by FaithFi and listeners like you.
