Credit reporting is one of the most mystifying components of adult life. Deciphering it and treating credit reports appropriately are things high on the list of things that we are not taught in school en route to the real world. In a world that runs so heavily on credit, this is a tragic deficiency that is causing many people very serious inconvenience.
It is often the case that people have no idea their credit report is damaging their purchasing power. It is also frequently over preventable events. Understanding this requires understanding what about credit reports is fact and what about them is fiction.
Do Debit Cards Help?
It’s not clear where the myth that debit cards assist with your credit report came from. Debit cards and pre-paid credit cards have no impact on your credit whatsoever on credit. They don’t involve lending or collateral of any form. There is never any debt to report to a credit agency. Properly managing a debit card is a great habit, but it won’t assist you with your credit in any fashion.
Is There any Difference Between Credit Bureaus?
Unfortunately there are big differences in operation between different credit bureaus. They produce distinct credit reports. The three bureaus to keep an eye on are Transunion, Experian and Equifax. They report on largely the same information but don’t yield the same numbers. Your effective credit rating is usually derived from consideration of all three credit bureaus. This means that you need to keep your eye on all three.
Fines, Fees and Tickets Don’t Count: Myth
This is overwhelmingly not true. Many local and state organizations are being forced to tighten their belts and budgets. More are becoming willing to sell their debts off to collection agencies. Even library fines can damage your credit if you leave them unpaid long enough. If something can be listed as a debt, it can be sold to a collection agency unless otherwise noted in a contract with the holder of that debt. This case is so rare as to be borderline-hypothetical.
Everything is Wiped Clean after Seven Years: Myth
It’s commonly stated that debts are removed from your credit report after seven years. This is not actually true. Seven years is the minimum amount of time a bankruptcy filing will remain on your credit report. This is largely where the myth comes from. The truth is that even after seven years you may still need to contact bureaus and dispute charges to have them removed. As nice as it would be it isn’t possible to wait out bad credit reports. You have to advocate for yourself and get your hands dirty on the phone, by e-mail and whatever else it takes to get your record clean when it should be.
Credit Repair Can Fix Everything Up, Right?
Credit repair is a very valuable tool. This is especially true for adults that are dealing with previous debt issues. It is not a quick fix, however, nor is it a silver bullet. Credit repair firms specialize in disputing marks that shouldn’t be on your report and disputing accounts that cannot be verified. Both result in the removal of the debt your report, but neither are 100% effective. Credit repair agencies promising 100% efficacy of their techniques should be regarded with suspicion. If it sounds too good to be true, it almost certainly is.
How Much Does Canceling Cards Help?
Canceling your credit cards can oftentimes harm your credit more than it will help it. Credit history is a very valuable element of your credit rating. Holding onto a single credit card for a long time tends to look good on a report. If you have a bad credit rating, canceling a credit card and scrubbing it from your report
A Debt can Only Hurt Once–Right?
This is unfortunately incorrect. Many people are of the belief that if you have a debt on your credit report from one organization that collection agencies can’t subsequently mark your credit report up with it. It becomes an effectively different debt that you can suffer an entirely different credit hit for unless you’re on top of it.
How Much Does Paying Off a Debt Help?
Many people believe that paying off a debt will remove the hit from your credit score. There’s no real reason for this myth to persist. Credit reports aren’t records of your outstanding debt. They’re records of your debt and credit history. Paying a debt is helpful. It allows you to remove bad marks on your credit report eventually. It does not, however, exonerate you. It is merely a prerequisite.
Doesn’t Checking Your Credit Score Hurt?
No! This is perhaps the most dangerous myth about credit reports. Many people believe that checking your credit report damages your credit. This is not the case. There are two kinds of credit checks. These are called “soft” and “hard” pulls. A soft pull is just a matter of a company looking at your open record. A soft pull does not yield as much data as a hard pull. It provides a snapshot. When you check your credit report online it is usually a soft pull. Hard pulls are used when an in-depth look is required for consideration of a new credit line. You will not generally be warned about a hard pull, which is why many people misunderstand how credit reports work. When in doubt, ask or do your own research independently.
I Pay on Time Every Time–I’m Safe!
No, you are not. The unfortunate truth is that credit reports are not infallible. Even if you are diligent unto perfection with your payments it is entirely possible for errors and infractions to wind up on your report. You may be saddled with the mistakes of someone with a similar name or with a report filed in error because one bureaucrat failed to communicate with another. You must check your credit report regularly for these errors so that you can dispute them vigilantly.
Credit reports are easy to misunderstand and difficult to interpret, but staying on top of your credit rating is a matter of responsibility. Understand the truth about how they work and check them regularly through a trustworthy avenue. If you are not relying on your credit now, you may well in the future when desire to lease or purchase a home, vehicle or office. Grooming your credit rating now will spare you needing to repair it later.