If you think your credit report might contain bad news, do you check it? Or do you let it sit, out of sight and out of mind?
Although this may distract you in the moment, ignoring your credit report doesn’t make it go away.
When it comes to your credit, knowing all the relevant details is important. But there’s a lot more to checking credit scores than that.
Below, you’ll find a deep dive into credit reports, answering FAQs like:
- How many free credit reports are you legally entitled to each year?
- How often should you check your credit report?
- Does checking your credit score lower it?
But first, let’s see why checking your credit is so important in the first place. Here are five reasons why it’s a good idea to check your credit report.
1. It May be a Good Indicator of Financial Health
Your credit report is kind of like a litmus test for your finances. If your finances are on rocky ground, your report may contain a lower credit score. If your finances are solid, there’s a good chance it will contain a higher score.
One of the biggest benefits of checking your credit report is it lets you know where your credit stands. You may already have some idea of whether your credit is prime or subprime before you check it, but on the off chance you don’t know, checking your credit score with the major credit bureaus will clue you in.
Knowing your credit score is one facet of being financially responsible, like following a budget and putting aside savings.
2. You May Spot Errors Potentially Lowering Your Credit Score
One of the other benefits of credit checking is you may be able to catch any errors that may be dropping your score unjustly.
Generally, the information you find on your credit report will be accurate. The major credit agencies are careful when drawing financial information from your creditors.
But, every once in a while, there may be a mistake when reporting your information. Some of the most common errors include:
- Incorrect personal information, like the wrong address or Social Security Number (SSN)
- Duplicate accounts showing the same active credit twice
- Missing payment information or delinquent accounts
- Loans, credit cards, and lines of credit you didn’t open
Sometimes, it’s not the credit bureau reporting your information that’s at fault. Banks and other financial institutions that supply these agencies with data may report inaccurate information.
If you find an error on your credit report, contact the credit bureau that shows the mistake. You should also check with the other credit bureaus to make sure they aren’t showing the same error.
3. You May Catch the First Signs of Identity Theft
Sometimes, errors on your report are just that — honest mistakes made by the person or program that’s reporting your information.
Other times, an error points towards a more serious issue like identity theft. As data breaches and cyberattacks become more commonplace, the possibility of having your identity stolen is real.
You should alert a credit agency if you notice errors like:
- A hard credit inquiry for a credit product you didn’t apply for
- Any information about credit accounts you didn’t open, such as for an installment loan, a credit card, or a line of credit
Identity theft may come as a complete surprise to some people. But to others, there may be other things that tip them off.
Here are some of the warning signs that a criminal has compromised your credit:
- A change of address on your credit report
- Bills for items and services you didn’t purchase in your mail or email
- Unusual purchases on your line of credit or credit card
- A record of a cash advance you didn’t use was drawn from your credit card
- Statements and collection notices for an unknown line of credit or credit card in your mail or email
The benefit of credit checking for fraud is that you’ll be ready to fight back.
If you suspect you’ve been a victim of identity fraud, contact one of the major credit agencies right away. They’ll place a fraud alert on your profile, so it’s harder for an identity thief to open additional accounts in your name.
But don’t stop there.
You’ll want to file a report with IdentityTheft.gov. It simplifies your recovery plan by eliminating the need to file a report with the police in most cases, and it creates a personalized to-do list for you to follow.
One of the top tasks on this list is contacting banks, credit card companies, and other financial companies to let them know what’s happened.
IdentityTheft.gov has made it easy for you. It provides you with sample letters, so all you have to do is input your personal information before you send them off.
It may take some time to remove fraudulent charges and other activities from your profile. But don’t worry — you won’t be on the hook for the money they charged to your credit card.
There are laws in place to protect you and your credit card. You won’t have to pay any more than $50 towards credit card fraud — even if the bill costs much more than that.
In the meantime, get into the habit of checking your bank and credit card statements. Look through line by line to make sure there isn’t any new fraudulent activity.
4. You May Use it to Find the Right Loan or Line of Credit
In an emergency, you may need cash fast. The last thing you want is for a loan application to be denied because your credit score is too low.
Each lender has a set of criteria it expects borrowers to meet. However, many financial institutions require borrowers to have a fair credit score or above before they’re willing to issue a loan.
Without knowing your credit score, you may not realize you don’t meet these requirements and apply for it anyway. All this will do is waste time you may not have as you wait to hear back.
By knowing you don’t meet these standards, you can start to look for online loans that are specifically meant for people with bad credit. Online loans can also speed up the application process, as they generally provide a streamlined experience to help you apply for a loan quickly and conveniently. This might help you get the cash you need faster.
5. It May Help You Impact Your Credit Score
Your credit report is an excellent learning tool — whether you’re building your credit history from the ground up or you’re recovering from a credit problem.
Much like a school report card, your credit report may show you where you’ve gone wrong — but also where you’ve gone right. It’s a straightforward way to measure your progress as you build your credit history.
It also may give you a better understanding of how long it may take to impact your credit score. Some things simply take time to come off your credit history.
A bankruptcy, for example, may last either seven or ten years on your report. If you’re recovering from a past bankruptcy, you may have to wait a decade before it’s struck from the record.
How Many Free Credit Reports Are You Legally Entitled to Each Year?
Everyone in the U.S. is entitled to one free credit report from each of the major credit reporting agencies every year. That means you can get a total of three reports over the course of 12 months.
Rather than flying through these free reports all at once, try using them throughout the year. This lets you check in on your credit report periodically to make sure everything’s on track.
If you’re ready for your first credit check, visit AnnualCreditReport.com to get started. This website is authorized by Federal law.
How Often Should You Check Your Credit Report?
Generally, following the above strategy will be a simple, free, and effective way of keeping tabs on your score.
However, like most financial advice, this may not fit every unique situation, so there may be some exceptions to the rule.
The answer to the question — how often should you check your credit report? — depends on who’s asking it!
You may want to check your credit score more often if you’re:
- Building your credit history and want to monitor your progress
- Gearing up for a major purchase, like a home or car
- Recovering from identity theft
If you want to check your credit more often than three times a year, you’ll have to look beyond AnnualCreditReport.com for help.
But think twice about companies that make you pay for your credit report. This may be an unnecessary addition to your budget, especially when there are online services that can help check your credit report for free.
Does Checking Your Credit Score Lower it?
The million-dollar question — does checking your credit score lower it — has an answer: no! As long as you’re checking your credit score yourself, you won’t lower it. However, applying for a loan can sometimes trigger a financial institution to make a hard inquiry into your credit which may impact your credit score.
However, when you check your credit score, the major credit agencies use a soft inquiry or a soft check. A soft check is only visible to you and won’t impact your score.
Soft Checks vs. Hard Checks
Credit agencies aren’t the only ones to use soft credit checks. Employers, landlords, and some lenders may perform a soft credit check.
Some lenders, on the other hand, may perform a hard check. This provides a more detailed look into your full report. Anytime a lender uses a hard inquiry, the check will be recorded on your report, and it may impact your score.
How Long Do Hard Inquiries stay on Credit Report?
A hard inquiry typically lasts on your report for about two years, during which time it may affect your score for the first twelve months.
It depends on how often you’re undergoing these hard checks. Multiple hard inquiries during a short period of time may be a warning sign to financial institutions, as it suggests you may be facing difficulties.
Keep an Eye on Your Credit Score
While you may fear what you’ll see when you check your credit report, it’s important to get over the fear and make sure you’re keeping an eye on your score. Your credit score is an important part of your financial portfolio, and it’s up to you to make sure you have a good grasp on where you stand when it comes to the health of your finances.
Posted in: Credit Score