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The truth about credit reports: What you need to know

There is a lot of misinformation out there regarding which activities adversely affect a consumer's credit rating. For instance, some erroneously believe that checking their own credit reports will lower their score.

While there are numerous actions (and inactions) which can lead to a lowered credit rating, auto-checking your credit score is not one of them. In fact, routinely checking one's credit rating can help consumers detect and report any unauthorized charges on their credit card accounts.

What actions are harmful to credit scores?

Asking for extensions from utility companies or other creditors and filing for bankruptcy are two adverse actions that can lower a credit score. Failing to timely make payments on open accounts is another credit no-no.

But even if you do have a few black marks against you, they will not remain there forever. While bankruptcies remain for 10 years, other deleterious information will be off your credit report within seven years.

Also, older information still affecting your score has less sway than any newer activities and information. This is due to the cyclical nature of personal finances — an individual may go through a slump because of a job loss or other unavoidable blow. But, then they rebound and get back onto more solid financial footing once again, making newer changes more relevant to their present fiscal status.

Only the positive remains

Unlike negative entries on your credit report that are deleted over time, your positive information remains forever on your credit report. In other words, paying your bills on time improves your credit score.

Not all credit reporting is accurate

Consumers should check their credit reports for free every year with the top three credit reporting agencies — Experian, TransUnion and Equifax. If you spot an inaccuracy, you have the option of contacting the reporting agencies and/or the creditor and disputing the charge.

Still confused? The below short list should be helpful when calculating the major dings to your credit score.

  • Chapter 13 bankruptcies - seven years
  • Chapter 7 bankruptcies - 10 years
  • Collections - seven years for most
  • Foreclosures - seven years
  • Late payments - seven years
  • Public records - seven years
  • Tax liens - indefinitely

Some late payments matter more

Your bill-paying history comprises about 35 percent of your credit score, making it a significant factor when determining consumer creditworthiness. But one thing of which many consumers are unaware is that late payments affect credit scores in varying degrees.

A recent payment that is one to two months behind will have the most major impact during the months of delinquency and shortly thereafter. Then, if the fiscal ship is righted and payments get caught up and resume being timely paid, the consumer's score will begin improving.

Take charge of your finances in 2019

Good people can, and often do, make bad financial decisions. The good news is that there is help available by filing for Chapter 7 or 13 bankruptcy. Start the new year off on a positive note by wiping out debt and beginning anew.

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