Why Its Important To Check Your Credit Reports
As many as one in three Americans dont check their credit reports. Are you one of them? Youre entitled by law to check your reports for free one time per year, and due to COVID-19, free weekly checks are now available. If youre not already checking your credit reports, heres what you need to know about why theyre important and how to access them.
How Often Should I Check My Credit Score
Paying your bills on time is just one part of maintaining a healthy credit profile. Routinely checking your credit score is a part of practicing good financial health. This number is just a glimpse into your credit health at that particular moment in time, but it can have a large impact on your finances.
Because your credit score can fluctuate frequently, financial experts recommend that you check it around once a month. However, you can check it yourself as often as you wish without hurting your score.
Negative Information In A Credit Report
Negative information in a can include public records–tax liens, judgments, bankruptcies–that provide insight into your financial status and obligations. A credit reporting company generally can report most negative information for seven years.
Information about a lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. Bankruptcies can be kept on your report for up to 10 years, and unpaid tax liens for 15 years.
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How Do I Fix Mistakes In My Credit Report
- Write a letter. Tell the credit reporting company that you have questions about information in your report.
- Explain which information is wrong and why you think so.
- Say that you want the information corrected or removed from your report.
- Send a copy of your credit report with the wrong information circled.
- Send copies of other papers that help you explain your opinion.
- Send this information Certified Mail. Ask the post office for a return receipt. The receipt is proof that the credit reporting company got your letter.
The credit reporting company must look into your complaint and answer you in writing.
What Is A Credit Scoring Model
Scoring calculations are based on payment record, frequency of payments, amount of debts, credit charge-offs and number of credit cards held. A weight is assigned to each factor considered in the models formula, and a credit score is assigned based on the evaluation.
Scores generally range from 300 to 850 .
Lenders use credit scores to help determine the risk involved in making a loan, the terms of the loan and the interest rate. The higher your score, the better the terms of a loan will be for you. There are different credit score models, which emphasize varying factors.
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Disputing A Credit Report
To correct an error on a credit report, take direct action by contacting the particular credit agency that has incorrect information. The agency usually has 30 days to investigate the information, and the information must be removed from a file if the credit reporting agency cannot verify a mistake or correct the errors.
The FTC offers a sample dispute letter to help you with this process. Youll find the sample here.
Something to keep in mind if youre house-hunting while disputing a credit reporting mistake. Many mortgage lenders will not allow you to get a loan with an active credit report dispute, says Todd Huettner, president of Huettner Capital, a Denver-based real estate lending firm.
Why A Credit Report Is Important
Your credit report is a record of your current and past debts, including your payment history. It’s important because it can impact so many areas of your life, such as your ability to rent an apartment, buy a house or car, get a loan, and even be hired for certain jobs.
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Take Advantage Of Your Good Credit
Once your scores near 700 or so, youre considered a good risk. When theyre over 760, youre golden. You should expect the best rates and terms lenders have to offer, since theyll be competing hard for your business.
Reconsider your auto insurance as well, especially if your credit has improved substantially since your policy was set up. Your current insurer may not check your credit at renewal time ask it to re-run your rates. Its a good time to shop around as well.
With all the money you save, you can make progress on important financial goals such as saving for retirement, boosting your emergency fund or getting out of debt faster.
Thats the real power of great credit scores. Instead of begging for loans, paying too much and trying to make do with whats left over, youll finally have some options to get ahead.
Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of Your Credit Score. Email: Twitter: .
This article was written by NerdWallet and was originally published by The Associated Press.
About the author:Liz Weston is a columnist at NerdWallet. She is a Certified Financial Planner and author of five money books, including “Your Credit Score.”Read more
What Is My Credit Report
Think of your credit report as your financial CV. It contains information that helps lenders confirm your identity and decide whether youre a reliable borrower.
This includes details of credit accounts youve held , your current and previous addresses, and any financial connections for example, the name of the person you share a joint account with.
There are likely to be three slightly different versions of your credit report, because lenders dont always share the same information with all three major credit reference agencies Experian, Equifax and TransUnion .
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Why Your Credit Score Matters
You can leverage great scores into great deals on loans, credit cards, insurance premiums, apartments and cell phone plans. Bad scores can hammer you into missing out or paying more.
The lifetime cost of higher interest rates from bad or mediocre credit can exceed six figures. For example, according to interest rates gathered by Informa Research Services:
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Someone with FICO scores in the 620 range would pay $65,000 more on a $200,000 mortgage than someone with FICOs over 760.
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On a five-year, $30,000 auto loan, the borrower with lower scores would pay $5,100 more.
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A 15-year home equity loan of $50,000 would cost a low scorer $22,500 more than someone with high scores.
Since credit scores have become such an integral part of our financial lives, it pays to keep track of yours and understand how your actions affect the numbers. You can build, defend and take advantage of great credit regardless of your age or income.
So When Should I Buy A Credit Score
If youre simply trying to ensure your credit report is accurate, stick with the report and dont worry about the score. If youre investigating possible identity theft, or recovering after being a victim, you should also stick to the report and dont pay for a score. If accuracy is what youre trying to ensure, dont waste money on a score.
But if youve already verified that your report is accurate and up to date, and you want to evaluate how good your credit really is, you can get a score to see where you stand. Its important to do this check well in advance of taking out a major loan. At least a few months before filling out that loan application, check your score, and if its not as good as it needs to be, take steps to improve your scorepay off overdue charges, pay down balances, make sure everything is accurate and up to date. It may take the creditors a few billing cycles to report the new balances and payments to the bureaus, so you need as much advance time as you can get to see how much your score improves.
See our article on 5 Actions You Can Take to Improve Your Credit Score for more advice on improving scores over time.
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What Are Your Legal Rights As A Job Applicant
Thanks to the Fair Credit Reporting Act , employers can’t go checking your credit history behind your back. They must have written consent before pulling an applicant’s credit history.
“Unlike every other credit reporting scenario, you must be given a separate notice indicating the employer is going to pull your credit reports,” Ulzheimer says. “And you have to give overt written permission.”
In some states, there are specific restrictions when it comes to employers using credit information for employment decisions.
Why Is My Credit Report Important
Businesses look at your credit report when you apply for:
- loans from a bank
- jobs
- insurance
If you apply for one of these, the business wants to know if you pay your bills. The business also wants to know if you owe money to someone else. The business uses the information in your credit report to decide whether to give you a loan, a credit card, a job, or insurance.
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Add Credit Checks To Your Screening Process
Every person you hire is another possible liability to your company. Running a more comprehensive pre-employment background check will give you insights beyond the interview. Gather all available information about a potential hire by making sure your screening process includes a credit check.
- Transparency for both employer and applicant
- Compliant reports generated on-demand in minutes
Creating an account with ShareAble for Hires is always free. Some screening services charge you money just too sign-up. They tack on costly membership fees, or layer in other less-obvious costs.
ShareAble for Hires is different in that there is no cost to sign-up, no volume commitments and no hidden fees. This software is built for small businesses and designed to be fast, efficient, and easy to use. There are three convenient screening packages to choose from, and you only pay when you screen.
Sign-up and start screening with ShareAble for Hires, today.
You Can Find Out If Someone Has Stolen Your Identity
All too often, fraudsters steal peopleâs identity, open up credit cards or take-out loans in their name, and start racking up debts. If you donât know this has happened, you may get a nasty surprise when you go to take out finance to buy a home, car or personal loan and find someone has assumed your identity and damaged your credit history. Checking your credit report will allow you to find out if this has happened so you can tell your lenders and also the authorities.
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It Can Save You Money
A good and accurate credit report means that you will have a good and accurate credit score. And having a good credit score is good for a number of reasons:
- Lenders will approve you for lower interest rates on credit cards and loans
- The best lenders will be more likely to approve you
- Lenders will give you higher credit limits
- Insurance companies will give you better insurance rates
- Landlords will approve you for rentals more easily
- You will have more negotiating power for loans and accounts
So whats considered a good credit score? The following brackets can help you decide how your creditworthiness is ranked:
- 800 to 850: Excellent credit
- 740 to 799: Very good credit
- 670 to 739: Good credit
- 580 to 669: Fair credit
- 300 to 579: Poor credit
The top rates are reserved for those with excellent credit and very good credit. The lower your score dips, the higher your interest rates will climb. All of this adds up to you saving money in the long run. Having a good credit score can help you secure a low car loan APR when you refinance your car loan. Better interest rates and payment terms can add up big over time. So it is vitally important to stay on top of your credit report and work to improve a bad credit score.
Why You Should Check Your Credit Score Regularly
Anthony Battle is a CERTIFIED FINANCIAL PLANNER professional. He earned the Chartered Financial Consultant® designation for advanced financial planning, the Chartered Life Underwriter® designation for advanced insurance specialization, the Accredited Financial Counselor® for Financial Counseling and both the Retirement Income Certified Professional®, and Certified Retirement Counselor designations for advance retirement planning.
If youre like most people, you probably dont think about your unless youre getting ready to apply for a credit card or loan. There are even people who’ve never checked their credit scores. It is easy to neglect your credit score. It’s not one of those “in your face” numbers, like your checking account or credit card balance, that you deal with frequently.
Some people avoid checking their credit scores because theyre afraid of what theyll find when they look. Also, some have a misconception that checking their credit score will affect their credit. Fortunately, as long as you use a credit scoring service to check your credit score, your credit wont be affected.
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Where Should I Go To Get My Score
If youre not sure youll be able to make sense of your credit report & score, you can get that through a , and have a certified financial coach review it with you. Thats the best option if you dont want to have to do any heavy lifting.
If youve got a good handle on how credit works and just want to see your score ahead of applying for a loan, stick with myFICO.com, or see if your credit card company offers a free FICO score.
And if you want the less expensive VantageScore, VantageScore.com is the place to start.
Finally, if you plan to get a free score through a web site membership or subscription, do your homework first and ensure you are doing business with a trustworthy company who wont misuse your personal data or sign you up for a subscription charge without your explicit consent.
Remember, you dont have to navigate these waters alone. If you need help understanding your credit, paying down debt, avoiding foreclosure, etc., then to talk to a certified financial coach.
About The Author
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over 19 years experience in the industry.
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When Should You Check Your Credit Score
As mentioned, its important to check your credit score regularly to maintain good financial health. There are also a few scenarios when you may want to check it more frequently than other times:
- Check before making any major purchases. Buying a car or a home? Applying for a personal loan? If youre going to need to borrow money, its a good idea to check your credit score before you start the purchase process. If there are any issues on your credit report, you can get them resolved beforehand.
- Check before opening and closing an account. Are your credit card payments or annual fees too high? Do you need to build some credit? It’s worth the consideration. Just remember to take some time and properly evaluate your credit health before making any clear-cut credit decisions like closing an account.
- Check before applying for a new job. Employers may check the credit history of anyone theyre considering hiring. A low score or an inaccurate credit report could cause issues in the hiring process. Its a good idea to check your credit before applying to make sure that you resolve any issues.
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It Will Alert You To Any Errors Or Mistakes
Checking your credit will alert you to any mistakes that may have been reported. Whether its a missed payment, late payment, or incorrect amount, these mistakes can chip away at your credit score.
A study by the Federal Trade Commission found that 25% of people who regularly checked their credit reports found errors that affected their scores.
Your report may even contain other peoples information, which is known as a mixed file. In this case someone elses financial issues may directly impact your credit report.
If you notice any mistakes or errors, it may take weeks if not months to sort out. Once you report an issue, the credit agency has 30 days to respond. The sooner you notice any issues, the sooner they can be amended and your score can be fixed.
What About Free Credit Scores
Heres where things can get tricky. If you can genuinely get free access to your credit score, then theres no reason not to check it. But a lot of free credit reports arent free at all, so you have to be careful.
Some credit card lenders offer a free report & score to their customers. This is the best way to get a free score. Your lenders are buying it on your behalf and giving it to you as a perk of being their customer. No tricks or gimmicks, just a free score. See CFPBs list of companies that offer free credit scores to their customers.
Then there are some services we talked about in our article The Real Path to a Free Credit Score, including Quizzle, CreditKarma, and CreditSesame. These services give you a free VantageScore in exchange for signing up and sharing data with them. They use your info to deliver targeted ads to you. If you dont have any privacy concerns with this kind of advertising model, then this is a good way to get a free credit score.
Another model for free credit scores isnt really free. Some companies offer a free credit score as an incentive to sign up for a monthly credit monitoring service. You do get your score for free up front, but quickly youll start seeing monthly charges that can be hard to cancel. There are good reasons for some people to buy credit monitoring, but we want people to enter this agreement willingly and with clear eyes, not tricked into it by the offer of a free credit score.
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