Life gets busy and things inadvertently get postponed, but getting your credit report should not be one of those items. However, you may find yourself asking, “Why should I care about my credit score or what’s on the report? I don’t like debt and I’m surely not getting a loan anytime soon!”
To better answer that question, it helps to understand what’s on the credit report and its relationship to your credit score.
Your credit report provides detailed information of more than just your credit history. Besides showing the way you handle your credit and debit accounts, it also reveals how much debt you’ve accumulated, how you pay your bills, where you have lived and a list of businesses that recently checked your credit. In fact, the report can be pages long and along with your credit score can help determine whether you get a job (some employers check credit reports as part of the hiring process), pay competitive auto insurance premiums, are able to rent, make a major purchase and get a good mortgage or other loan rates.
Your credit score is solely based on the information in your credit report and may reflect your financial health. According to FICO, a major analytics software company, generally 35% of the score is payment history, 30% is accounts owed and the rest is made up of credit history length, new credit and credit mix.1 You can increase your score by always paying off the full balance on your credit card, make other payments on time, automate your bill payments from your checking account or credit card and avoid applying for too many loans or credit cards.
Now that you have an idea of what the report contains, the first major reason to review your report is to catch errors. According to a 2012 Federal Trade Commission report, “21% of a representative group of American consumers discovered a “confirmed material error” in at least one of the credit reports issued by the Big Three credit reporting bureaus — Experian, Equifax, and TransUnion.”
These errors might be accounts that don’t or no longer belong to you, incorrectly entered personal information (e.g. spelling of your name, date of birth or social security number), out-of-date information, incorrect details about your payment history or even someone else’s information.
That last error mentioned above brings us to the second and really important reason to scrutinize your credit report: it alerts you to fraud, which is often the first indicator you are an identity theft victim. Javelin Research’s study showed that in 2017, 16.7 million Americans were victims of identity theft;3 you could be a one and not know it. Identity thieves count on the fact that relatively few people check their reports and then find out when it’s too late. They might even pay the minimum balance while making large purchases so you won’t be alerted until months down the road. Sad to say, that “thief” could even be a family member or others who have legitimate access to your credit.
While all identity theft cannot be prevented, prudent action will curtail much of the theft. It is important to shred unneeded important documents to dispose of sensitive information. (You can drop those documents off at our office if you don’t have a shredder at home.) Additionally, avoid unsecured websites, using public wifi without a good VPN (Virtual Private Network) on your device and/or repeatedly using the same password.
When reviewing your credit report, look for names, addresses, Social Security numbers, creditors, and accounts you don’t recognize. If an error or something suspicious is detected, act fast. You can dispute the information with the credit bureau, initiate a freeze on your credit (if the thief has opened a credit card, this will stop them from opening a second or third one) or get further help from the credit bureau. Companies like LifeLock can help monitor credit activity to help prevent problems and restore your good name.
By law, every person can obtain a free credit report once a year from each of the three credit reporting agencies. The best place to get a truly free credit report is AnnualCreditReport.com or by calling (877) 322-8228, a service provided by the federal government. The advantage of this service is that they provide you with a report from all three credit reporting bureaus, Experian, TransUnion, and Equifax. Various credit monitoring services offer “free” reports but only if you subscribe to their ongoing services.
In conclusion, annually studying your credit report ensures your credit profile remains accurate. Otherwise, significant problems can result from undetected errors or identity theft.
And just know it takes significant time and money to repair the damage so, as we say, it’s better to prepare than repair. Don’t let your busy life crowd out the important with the urgent.