9 credit report myths you need to know

If you think the credit reporting process is complicated and too hard to understand, you're absolutely right.

With several different credit bureaus, countless credit reporting laws and rules, and more than a handful of websites advertising "free" credit reports and scores, it can be hard for the average consumer to fully comprehend what goes into a credit report, how the information is reported and how it can impact a credit score. As a result, you might turn to your friends and family members or personal finance websites to get your questions about credit reports answered.

That's fine, but be careful: Some of things you'll hear will be credit report myths that need to be debunked. In fact, here are nine of the most common myths you should be aware of:

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 credit 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 that someone else hasn't stolen your identity and opened numerous accounts in your name. Do yourself a favor, and check your credit report at least once a year.

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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 — also called a "hard inquiry" — 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 — also called a "soft inquiry" — does not. Soft checks allow individuals to review their own reports, as well as allow lenders, employers, landlords and others to review limited data.

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.

However, this applies to negative items that are correct. If you believe there are inaccurate negative items on your credit report, notify the credit reporting agency immediately. Once the errors have been identified, they should be taken off your credit report.

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. If you have questions about this, contact the credit bureau or speak to a credit repair professional.

Related: 7 Ways to Raise Your Credit Score in 2016

5. Canceling an old credit card will hurt my credit history.

This is 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 credit limit when you have outstanding debt could affect your credit utilization ratio. So, be sure to close credit card 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 working 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.

And while we're on the subject, there are a few more things about credit repair companies you should know. According to Forbes, credit repair companies also can't legally "make false statement about you or your credit history" or "make any changes in your identity which would prevent a valid search from being conducted," such as changing your Social Security number. If a credit repair company does either, that's a red flag it might be a scam.

7. When I get my free credit report, I'll also get a free credit score.

By law, you're entitled to one free credit report every year from each of the national credit bureaus — Equifax, Experian and TransUnion. Just visit AnnualCreditReport.com to order a free copy. But, don't expect to see your credit score in your report.

You have the right to ask for your credit score from the credit bureaus, but you're going to have to pay for it. The same is often true if you request your credit score from a third-party vendor, such as a website.

Each credit bureau has different products and pricing options for credit report and scoring services. If you want to obtain your Equifax credit report and score, for example, you'll have to pay $15.95. Meanwhile, the Experian Credit Tracker costs $4.95 for the first month and $19.95 for each additional month. But, this product includes an Experian credit report, your FICO credit score, alerts and more.

8. Little debts, like outstanding library fines and parking tickets, don't count.

Not paying your parking ticket or library fine can lead to some surprising, negative consequences for your credit score. 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. So pay all of your bills on time, and you should be fine.

9. All credit reports and credit scores are the same.

Unfortunately, credit bureaus by no means include the same information on their credit reports. As a result, that means you could have multiple different credit scores. 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 each provide a copy of your report for free once a year, by law, upon your request. It's up to you stay on top of credit report and finances.

Keep Reading:4 Credit Report Red Flags You Don't See — But Your Lender Does

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