Do you really need to check your credit report?
A credit report is something that many people never give a second thought to until they must. Your credit report is a reflection of your financial history, and it contains sensitive private personal information. It can be a bit overwhelming the first time you look at it, and learning to decipher the financial jargon can make your head spin. Your credit report contains your credit score and information related to how timely you’ve paid your bills, whether you currently have outstanding debts and if you’ve ever filed bankruptcy. It also contains previously known addresses, various spellings of your name and possibly even your employer. It is a brief synopsis of your entire financial life and related creditworthiness.
Who sees a credit report and what is it used for?
In a nutshell, your credit report is used to determine your creditworthiness, and it is becoming a more common reference every day. If you need to finance a large item, such as a car, they will check your credit report. Your interest rate will then be dictated by your creditworthiness. When you purchase a home, your credit report will be an influencing factor. Again, your credit score will determine the interest rate on your mortgage. Many landlords check credit reports before deciding to rent or lease to an individual. Even some employers want to see your credit report before hiring you. A bank, for instance, won’t hire an individual with collection accounts on their credit report because they would be considered a liability. Insurance companies also pull your credit report and base your rates on your credit score. The better your credit score is, the lower your interest rates will be, and the less you will pay for things such as auto insurance.
Reasons to check your credit report regularly
Multiple credit reporting bodies report to the credit bureaus about your financial habits. If you make a late car payment on a vehicle that has been financed, it will be reported to the credit bureaus. If you file bankruptcy or pay off a credit card, it will also be reported to the credit bureaus.
With so many different entities reporting financial information on your behalf, mistakes happen pretty regularly. Someone else’s debt can affect you negatively. Additionally, it is a good way to protect yourself from the implications of identity theft.
How to check your credit report and what to do about mistakes
The government has set up a website so you can get a free copy of your credit report from each of the three bureaus annually. Take advantage of this free resource. You are entitled to a copy of your report any time you submit a written request along with the required information to verify your identity, but there is a small fee associated. Additionally, any time you are turned down for credit, you are entitled to a copy of the report on which the decision was based. If you apply for an unsecured credit card and are denied, the denial letter provides you with the necessary means to obtain a free copy of your report.
Once you have a copy of your credit report, you should check it for accuracy. Make sure that every account on there belongs to you. If there are old debts that have been paid, make sure they report as such. If you find information on there that doesn’t belong to you or appears to be inaccurate, submit a dispute to have the matter investigated. The credit bureau must take steps to verify that the debt is yours or remove it. Although there are some exceptions, most information is eligible to be removed after seven years of inactivity, even if it has not been paid. Unfortunately, this is not always done automatically. Many times, you will have to submit a request to have it removed.
Credit updates and changes to your report typically occur at the beginning of the month. This means if you pay off your car in January, it probably won’t appear on your credit report until the beginning of February. This is important for those who are building or repairing their credit. If you have negative information removed from your report or pay off debts, the following month is the best time to shop for car insurance because your new rates will be based on your updated credit score. Just don’t expect it to happen right on the first day of the month. There are only three major credit bureaus, and it can take up to 10 days from the beginning of the month to reflect positive changes.