Credit reports can be hard to understand. Not only are there several credit bureaus tracking all your credit information, but each collects, analyzes and reports your data in different ways.
Because the credit reporting system is somewhat complicated, numerous credit report myths circulate. Here are the top nine you should be aware of. Knowing these myths will help you understand how your credit reports are truly affected.
1. Checking my credit is unnecessary if I pay my bills on time.
Many people think that just because they pay their bills on time, they don't need to check their credit reports. However, your credit information can become compromised due to an error or even fraud, and the fastest way to catch these issues is by regularly checking your reports.
Just because you pay your bills on time doesn't mean that there aren't inaccuracies ruining your credit; or worse, that someone else hasn't stolen your identity and opened numerous accounts in your name.
2. I'll hurt my credit score if I check my own reports.
The difference between a hard check and soft check is the reason why checking your own credit reports will not impact your score. A hard credit check is used by lenders and creditors to review all of your credit information; several hard pulls within a short period of time generally impacts your credit negatively. However, a soft pull does not — soft checks allow individuals to review their own reports, as well as lenders, employers, landlords and others to review limited data from them.
3. Paying off a debt will remove it from my credit reports.
Some borrowers are often frustrated to learn that after they've paid off a debt, it isn't automatically removed from their credit reports. Negative entries generally aren't removed for seven years, and as many as 10 years for serious delinquencies, foreclosure or bankruptcy (as long as the entry is correct, that is — errors will be taken off once identified with the bureau).
4. Only one entry per debt will display on my reports.
If you owe money to a company that has sold the debt to a collection agency, both accounts might show on your credit report. This means you could have two negative entries on a credit report for a single debt.
5. Canceling an old card will hurt my credit history.
One of the most prevalent credit myths out there, canceling your oldest credit card will not reduce your credit history or negatively impact your credit. Closed accounts will remain on your reports, often longer than negative entries. However, closing a card with a big limit when you have outstanding debt could affect your credit utilization ratio, so be sure to close accounts only when you have a small line of credit or zero balance among all your cards.
6. Hiring a credit repair company will fix my reports instantly.
While it is true that taking steps to work with a reputable credit repair agency can help improve your reports and score, especially if some information on your report is incorrect, a repair agency can't force a credit bureau to remove factual items that, by law, have every right to be there.
7. Bad debts will automatically fall off my reports in seven years.
Another misconception about credit reports is that after the typical reporting period of seven years, negative entries and accounts in collections will automatically be removed. While credit bureaus often remove the information after the seven-year period, there is no rule that says they must — and sometimes they don't. That's why it's always best to address outstanding debt immediately instead of hoping it will eventually disappear.
8. Little debts, like outstanding library fines and parking tickets, don't count.
If you have unpaid library fines and parking tickets, they could be turned over to collection agencies and end up as negative entries on your credit reports. Even some utility companies are now reporting regularly to credit bureaus. It pays to stay debt-free, no matter how small the bill.
9. All credit reports are the same.
Unfortunately, credit bureaus by no means include the same information on their credit reports. This makes keeping track of your credit information that much more complicated. However, this is not an excuse for not knowing what's going on with your reports because the three major bureaus (Equifax, Transunion and Experian) each provide a copy of your report for free once a year, by law, upon your request.
This article originally appeared on gobankingrates.com.
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