Your personal credit report is a much more important document than most people realize. From the perspective of the financial world, your credit report will be taken at face value as a reflection of your personal financial management skills and your credit worthiness as reflected in your credit score.
Unfortunately, credit reports can contain inaccurate information that can cost you real money.
How to Check Your Credit Score
Fortunately, it is easy to check your credit score to make sure that it is correct. To do that you need to get a free copy of your credit report. It is a good idea to request a copy of your credit report regularly, and maintain a file of old copies year after year. Contrary to some people’s beliefs, asking for a copy of your own credit report is considered a “soft inquiry”, and will not affect your credit score in the same way as would frequent so-called “hard inquiries” that you authorize lenders to initiate when seeking credit.
Fixing erroneous information on your credit report through the dispute processes all credit rating agencies make available may require a little time and effort, but leaving those errors undetected can make your day to day life more expensive. It could also place you in a compromised position if an unanticipated emergency creates an immediate need for cash or credit.
What to Look For When You Check Your Credit Score
When you check your credit score and credit report, problems to be on the lookout for include:
- Erroneous reports of late or missed payments, occasionally caused by data processing glitches on the part of a credit card company or other creditor.
- The reemergence of a fully paid loan showing an unpaid balance. This is especially like to happen when a loan has been been paid off early during a debt consolidation process.
- Fraudulent use of your name, Social Security Number, or other personal information to make purchases or open lines of credit.
- Home mortgages that still reflect an unpaid balance after the home has been sold and the mortgage paid off as part of the closing process.
Any of these errors can damage your credit score and make future financing costs higher than they would otherwise have been. Fraudulent use of your identity is especially dangerous. Unless you check your credit report regularly, fraudulent use can continue undetected for months or years. Not only does fraudulent use potentially damage your credit score, it also exposes you to the risk of having very large unpaid debts run up and abandoned by the identity thief after years of inactivity. This can make successful use of the dispute resolution process more time consuming, and potentially create additional problems.
Other Reasons to Check Your Credit Score and Credit Report
Detection of errors or fraudulent use are not the only reasons to check your credit score and credit report. Additional reasons include:
- Identifying records on your credit report that are negatively affecting your credit score, and developing intelligence strategies to address those factors to improve your score and lower your financing costs.
- Identifying and using inexpensive strategies such as applying for small installment loans, and maintaining small balances on old credit cards that you could pay off completely, both of which will strengthen your credit score – as long as you make all payments on time.
- Enhancing your understanding of the credit rating process to help you thoughtfully evaluate potential risky activities such as cosigning loans, applying for debt consolidation loans, or initiating debt management programs that may include third-party attempts to negotiate debt settlements without complete repayment.
- Discovering parties that may have made unauthorized “soft inquiries” regarding your credit score and history. While these unauthorized inquiries are most often initiated by third parties wishing to sell you something, and do not directly affect your credit score, they may nonetheless be considered an unwanted breach of your privacy. You have the option of contacting those parties directly, and asking that your name be removed from their lists of prospective customers.
- Knowing in advance that your credit score meets or exceeds the credit score threshold required to get the terms you want from a lender may reduce time wasted haggling with a loan officer, and shorten the overall approval process.
Your credit report contains important information that can directly affect your financial well-being and quality of life. Report information is compiled electronically over time from a wide variety of sources. The sources are not always accurate, and there is no provision for automatically notifying you when new information is added. When you check your credit score and the credit report upon which it is based for the first time, you may need to spend a significant amount of time and effort to make the report completely accurate and achieve the credit score you deserve. Be sure to save a copy of the “repaired” credit report. That completely correct report will make it easy to spot any errors that may accumulate between then and the next time you check your credit score and credit report, especially if you make it a practice to check your credit score on at least an annual basis.