Top Credit Report Myths with Neile Simon

This faith and finance podcast is underwritten in part by Christian Credit Counselors. If you're struggling with credit card debt but don't know where to start, our trusted partner Christian Credit Counselors offers a debt management program that can get you out of credit card debt 80% faster while honoring your debt in full. Contact them to get out of debt today at ChristianCreditCounselors.org. What do big foot 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 and 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. 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 nonprofit, 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 Christian credit counselors.org. Now, the next myth, Nealey, 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, Nealey, 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.

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 account 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 Nealey said, in a 45 day window. Nealey 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. If you enjoy this radio program, you're going to love all of the many different resources waiting for you at Faithfi.com and the Faithfi app. You'll find powerful wisdom, free podcasts, articles, videos and more from leading voices such as Randy Alcorn, Howard Dayton, Ron Blue and our own Rob West. Grow in wisdom and knowledge by connecting with a community of thousands of Christians striving to be good and faithful stewards at Faithfi.com or by downloading the Faithfi app. Do you feel like your hands are tied with debt preventing you from serving God? If you have credit card debt, Christian Credit Counselors can help through our debt management program.

We can get you out of credit card debt about 80% faster while honoring your debt in full. For more information on how Christian Credit Counselors can help, visit christiancreditcounselors.org. That's christiancreditcounselors.org or call 800-557-1985. 800-557-1985. 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. 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 payment 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, that 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, Nealey. 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 scores. 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, Nealey, 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. 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, Nealey. 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.

That's well said, Nealey. 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. Nealey, thanks for being here. Thank you so much for having me. That's Nealey Simon with Christian Credit Counselors. We're back with your questions after this.

Stick around. That's why we've created Look at the Sparrows, a 21-day devotional that'll help you find peace through Jesus's teachings. Replace your financial anxiety with peace today.

Visit faithbuy.com slash sparrows and start your journey today. We are grateful for support from Praxis Mutual Funds. Praxis Mutual Funds has seven impact strategies that are designed to create positive, real-world change. More information is available at praxismutualfunds.com. The fund's investment objectives, risks, charges, and expenses are contained in the prospectus and summary prospectus. This and other information is available at praxismutualfunds.com. Investments involve risk.

Principal loss is possible. Foresight Fund Services LLC. So glad to have you with us today on Faith and Finance.

I'm Rob West. Hey, before we head to the phones here in our final segment, let me mention if you have not connected with a certified Kingdom advisor in your area and you're looking for a professional financial advisor in either investments or financial planning, perhaps even estate planning, we'd recommend you connect with a CKA in your area. I would interview two or three before you make your final decision. What is a certified Kingdom advisor?

Well, these are 1500 now men and women across the US and Canada that have met high standards and character and competence. Had a background review, a regulatory review, a pastor and client reference submitted. They've also completed a 60-hour university-based training course and passed a proctored exam around the application of a biblical worldview to professional financial decision-making.

It's the only financial services industry accepted designation around biblically wise financial advice and you can find a CKA in your area when you go to faithfi.com. Just click find a professional. All right, let's head to the phones.

Tennessee is where Bryce is located. Go ahead, sir. Hey, yeah, so I was calling just because I have a home equity line of credit with about $40,000 that I owe on it. It's a $50,000 limit and I'm at 40 right now. I'm also in school for another year trying to push through and I have a family, four kids and everything. So every couple months or so, I kind of find myself having to pull a thousand or two from it and I'm getting towards the end of it. I do just have one more year of school left, but I was wondering if I could use my equity in my home to get rid of that debt and just get me some cash to kind of keep me safe while I finish school. But I wanted to make sure it's financially smart because my interest rate is like 2.6 right now. I have one of those COVID rates, but I do have a lot of equity. So I just wonder if there's something I could do.

I don't know who to really reach out to and ask, but I was just on the radio here on the drive and I'll let me call and ask. Well, I'm glad you did. You've come to the right place.

I have some thoughts as you might imagine, but let me just make sure I understand. So tell me about your first mortgage. You said you have an interest rate of 2.6%. Just somewhere right now, like 2.65 or something real good. I have about $280,000 left paying that off. That's like 10%.

What are you trying to accomplish? Yeah, I think that's probably it just to be a little on the safe side, just so I have some money to continue paying my bills. I have one more year of school.

I'm in dental hygiene school and one year away from finishing that. You have a new mortgage of what, like $320,000 or something? Is that what you're thinking? Yeah, I would not be in favor of that.

Here's why. I mean, you've got a great pre-2022 interest rate of 2.6% and you're not going to want to touch that because, I mean, if you look at rates today, you know, if you were to refinance the whole thing, you know, a new 30-year rate is going to jump up. I think rates around 6.75 today.

And that's on a refi. They're slightly lower for a new purchase. 15-year would be just above 6.

But that is a massive jump from 2.6 to 6.75. And so, you know, that would just not only would that payment go up significantly on the same amount, but you'd end up paying just a dramatic increase over the life of the loan in the amount of interest paid. I mean, hundreds of thousands of dollars. So I wouldn't do that. I would leave that alone.

I think the question is, what do you do with this $40,000, you know, on its way to $50,000? And, you know, because I'd love to get that paid off. I think the key is, you know, we've got to look at this just based on the need and run that out between now and when you get out of school and when you can, you know, start working and making more than you are now. So how long do you have left in the dental hygienist school? About 14 months. Okay.

Yeah, next spring. All right. And what are you running as a deficit every month right now? About $4,000 just between our budget, I guess. And you're $4,000 short or that's the total budget? Oh, no, that's the total.

Some months we make it, some months I need to come up with like $1,000. Yeah, okay. Yeah, I get it. I mean, is there any other options? I realize you're probably heads down studying trying to get through the next 14 months.

But are there any options? Because what I'd love to do is just let's just try to make it through the next 14 months. Let's keep, you know, the mortgages paid, both the home equity and the, you know, the mortgage.

Let's not touch it. And then as soon as you get out of school, get that job, we keep our lifestyle the same. And we just attack that home equity line of credit and just try to get that paid off as quickly as possible. But you trying to refinance that, you know, it's really not going to be beneficial. I mean, unless you're just looking to increase that line, you know, beyond the $50,000 that you have, which you probably could do.

I mean, that would be the only thing I would consider. But what I'd prefer you do is you guys really tighten the belt and just say, what does it look like for us to get through the next 14 months without adding anything to that line of credit? I'd be willing to help with that, just in the sense that we could offer to have a certified Christian financial counselor connect with you and your wife. It'd be virtual and they could give you some ideas on, you know, helping you think about your budget, where you could cut, how you can control the flow of money, maybe identifying places with discretionary spending that maybe you didn't realize because you're not tracking, perhaps. And maybe we could, you know, kind of close down some of the money that's going out the back door and just try to get through the next 14 months. But that would be my preference, just because any other way, the cost of the refi, just the expenses on either of them and giving up that 2.6 percent rate, I just think would be disastrous in the long haul.

Does that make sense? Yeah, I like that. Let's do that.

Would you be willing to work with one of our certified Christian financial counselors? Yes, sir. All right. Awesome. We'll cover the cost. It's our gift to you, Bryce.

Hang on the line. Our team will get your information. We'll get someone in touch with you. And I think that'll get you going in the right direction. You know, we can all benefit from a fresh perspective.

And this is somebody who's trained to do this every day. They can get you set up on the Faithfi app and maybe you guys will have a new sense of visibility into where the money's going. Stay on the line. Thanks for your call. Lord bless you. Folks, I'm so thankful to come alongside you each day. Thank you for inviting us into your story, for allowing us to serve you and encourage you. And above all else, lift the name of Jesus high as we go into God's word and uncover those truths, those principles, those passages that really speak to our role as stewards in managing God's money. It's an important calling we've been given and our goal. Well done, good and faithful servant. Let me say thanks to my team today. I certainly couldn't do this without them. The amazing Devin Patrick, my producer, Sandy Dickinson managing our phones so well.

Jim Henry providing great research today. And the entire team here at Faithfi just doing incredible work to reach more people to help them be wise and faithful stewards. If you'd like to learn more about what we do here at Faithfi, just head to our website, faithfi.com. Enjoy your day. Come back and join us tomorrow, Lord willing. We'll do it all over again. We'll see you then. Bye bye. Faith and Finance is provided by Faithfi and listeners like you.