Why You Should Review Your Credit Report

You are entitled to a free copy of your credit report from each of the three national consumer reporting companies every 12 months.

​Credit reports contain information that agencies and companies use to evaluate creditworthiness. Banks use them to know if they can trust you with a home mortgage or auto loan. Credit card companies use them to determine if they should approve your credit card application. Insurance companies use them in factoring your insurance premiums. The use of credit reports to evaluate your financial situation is even used by your potential employers partly as a measure of your job qualifications. Because of this reliance on credit reports, it is important for you to ensure that your credit report is accurate. The government has recognized this by making available free credit reports.

How to obtain a free annual credit report
Once per year, you may request from Equifax, Experian, and TransUnion an up-to-date print out of your credit history. The Fair Credit Reporting Act (FCRA) along with the Fair Debt Collection Practices Act (FDCPA) and the Fair and Accurate Credit Trasactions Act (FACTA) spell out your right to a free credit report once every 12 months. You may request a report from each of these national reporting bureaus by phone, mail or through the internet. You are required to provide your name, address, social security number and date of birth. Other information may be requested, such as your prior addresses, in order to verify your identity.

What is on your free credit report
​Credit reports contain detailed information about where you have lived and about whether or not you pay your bills on time. The report notes any accounts of yours that have fallen into bad standing and flags any past due debts or collection accounts. It's important to check your credit report once per year for accuracy. Unfortunately, it is common to find mistakes in the reports. And with identity theft on the rise it is more important than ever to keep a close eye on credit reports for credit accounts that weren't actually initiated by you.

Errors on your credit report
If you find errors on your credit report, you should alert the reporting agency immediately. Submit a written account of the items in question. Once your dispute is received the agency will start an investigation with the next 30 days. When the investigation is completed the agency will report the findings to you as required by law. If your dispute has been validated by the investigation, the agency will share its findings with the other two reporting agencies so that they may also correct your records. Removing errors or fraudulent accounts from your credit report will help companies who rely on the data in your credit report to see an accurate picture of your history. And that can make a huge difference if you are applying for a home mortgage, for example.

What can you do to improve your score?
Credit scoring systems are complex and vary among creditors or insurance companies and for different types of credit or insurance. If one factor changes, your score may change — but improvement generally depends on how that factor relates to others the system considers. Only the business using the system knows what might improve your score under the particular model they use to evaluate your application.
Nevertheless, scoring models usually consider the following types of information in your credit report to help compute your credit score:

• Have you paid your bills on time? You can count on payment history to be a significant factor. If your credit report indicates that you have paid bills late, had an account referred to collections, or declared bankruptcy, it is likely to affect your score negatively.
• Are you maxed out? Many scoring systems evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, it’s likely to have a negative effect on your score.
• How long have you had credit? Generally, scoring systems consider your credit track record. An insufficient credit history may affect your score negatively, but factors like timely payments and low balances can offset that.
• Have you applied for new credit lately? Many scoring systems consider whether you have applied for credit recently by looking at “inquiries” on your credit report. If you have applied for too many new accounts recently, it could have a negative effect on your score. Every inquiry isn’t counted: for example, inquiries by creditors who are monitoring your account or looking at credit reports to make “prescreened” credit offers are not considered liabilities.
• How many credit accounts do you have and what kinds of accounts are they? Although it is generally considered a plus to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many scoring systems consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may have a negative effect on your credit score.

Scoring models may be based on more than the information in your credit report. When you are applying for a mortgage loan, for example, the system may consider the amount of your down payment, your total debt, and your income, among other things.
​
Improving your score significantly is likely to take some time, but it can be done. To improve your credit score under most systems, focus on paying your bills in a timely way, paying down any outstanding balances, and staying away from new debt.