(Last Updated On: November 28, 2017)
Credit reports, though confusing and sometimes dreaded, are a major component of your financial life. If you are unfamiliar with this important document, it can literally cost you! In this article, we’ll help you obtain your free credit report, analyze it and correct any mistakes that may be on it.
What is a credit report?
Basically, credit reports help potential lenders (and even landlords and bosses) evaluate whether or not they can trust you to make wise financial decisions based on your past behavior. A good credit report can work wonders in your favor… but a negative credit report can be very damaging.
Every credit report has four parts:
Personal information, such as your former names, addresses and employers, are listed near the top of your report.
Credit history make up the bulk of the report. This section includes your payment history on your current (and past) credit accounts. Any auto loans, credit cards and other similar debts will be listed here. You’ll also see your credit limit for those accounts, how long the account has been open, the current balance, and other pertinent information.
Public records are also listed on the credit report. This information lists any public records, such as collections, judgement, liens and bankruptcies. These records can be extremely damaging to your credit report and can linger on your report for seven years (or up to 10 years for bankruptcies).
Recent credit inquiries are usually listed last on the report. This information is provided so that anyone who pulls your credit can see a history of who has looked at your report. This allows potential lenders to see if you are trying to obtain many credit cards or engaging in other financially insecure behavior.
Who keeps track of all this information?
Whether you like it or not, your credit information is always tracked by three main credit bureaus: Experian, Equifax and TransUnion. You don’t have to sign up, you don’t opt-in and you certainly can’t opt-out. (That’s what makes things like the recent Equifax hack so very dangerous.)
These three companies receive information from the companies you do business with and use public records, such as bankruptcies, to create your report. However, the information provided by each bureau may vary.
For example, one particular company you do business with may only report to one of the bureaus. This can result in either a positive or negative change on that one bureau’s report but it won’t affect the other two who do not receive that information.
Similarly, when you apply for credit, the company can choose to pull all three credit reports or just one. It’s usually cheaper to just check one, so usually small companies will opt for this. Larger companies or those processing larger credit applications, such as mortgage loans, will usually look at all three reports to get a clearer picture of your credit worthiness.
Where and when can I get a FREE Credit Report?
There are a few ways that you can see a FREE credit report:
AnnualCreditReport.com is the ONLY website to obtain a free annual credit report.
The first and easiest way to see your free credit report is to visit AnnualCreditReport.com. This site will provide you with a free copy of your report from each bureau every 12 months. You will not be asked for your credit card number or other payment information. This is the ONLY site recommended by the Federal Trade Commission.
Please beware that signing up for a free credit report on ANY other site can be very dangerous. There are many lookalike sites and many duplicates that will try to scam you. You should *never* provide your credit card or other information in exchange for your free credit report. Sites that ask for it can and will charge you later!
Make a request after being denied credit.
If you apply for credit and you are denied, you’ll receive a letter of explanation in the mail. This letter will include the reasons why you were denied and tell you how to get a copy of the report that the company used when making their decision. If you follow those instructions, you can receive a free copy of your credit report even if you have used your free credit report from AnnualCreditReport.com within the last 12 months.
Please be aware that applying for credit can damage your credit score and make it harder to obtain credit in the future. Checking your own credit through AnnualCreditReport.com will not harm your score, though.
Why should I check my report?
There are many reasons you should check your credit report regularly. Unfortunately, I’ve learned from some of these mistakes firsthand.
Many years ago, I found a small house for rent. It was cheaper than my apartment and I was thrilled to finally be able to rent an actual house. A few hours after I completed the application, I received a call from a clearly confused employee of the rental company. She said, “I’m not sure what to do. It looks like you’ve been the victim of identity theft… or maybe you stole someone’s Social?”
I was shocked! I immediately stopped by the rental company to investigate. When I finally realized what had happened, I literally laughed out loud.
See, my sister-in-law and I share the same first and last name… and at one point, we both lived at the same address (although it was at different times). Two of the three credit bureaus had then decided that we were one and the same person… so they had merged our reports. The report listed two radically different social security numbers and anyone who pulled our credit was very skeptical of us!
Even if you don’t use credit, your credit report may be checked when you apply for a job or apartment, obtain insurance, establish a new utility account or rent a car. If your credit report is negative, you will likely to have to pay a larger deposit or premium (and you may not get that job)!
Checking your free credit report regularly can protect you against identity theft, ensure that your information is accurate and help you get better rates when you do need to apply for credit.
Don’t worry about checking your credit score.
There is a lot of confusion between credit reports and credit scores. A credit report shows all the pertinent information about your credit history. The score is just a number that is based on that information.
Honestly, it’s your report that matters. The score itself is almost worthless.
The credit score you see is not the same credit score your lender will see.
There are several different scoring algorithms that can be used to calculate a credit score and different lenders use different models. The score you see is probably not the same score your lender will see.
The most commonly used models are FICO scores, which range from 300 to 850. A FICO score is based on several factors, including your payment history (35%), amounts owed (30%), length of credit history (15%), new credit inquiries (10%) and types of credit used (10%).
Even still, there are more than 50 different FICO credit score models that are used for different types of credit applications! For example, FICO 9 was recently introduced to ensure that unpaid medical bills carry less weight than other types of outstanding debt since the individual may be waiting for insurance to pay the debt.
Sometimes, lenders use proprietary models you can’t check anywhere else… but even if you’re using the same model, Forbes indicates that your score could be 5-50 points different than what the lender will see.
Most often, the credit scores you’ll obtain online are not the FICO scores that will be used by potential lenders. For example, Credit Karma is a free service that provides you with a VantageScore model that is based on TransUnion and Equifax reports only. They don’t even evaluate your Experian scores. While a free credit score is neat this isn’t as useful as an actual FICO score.
It’s the report that matters, anyway.
The credit score is built around the credit report. If you obtain your credit report and fix it up, your score will rise automatically.
You’ll have to pay to see a score that matters – and it’s not worth it.
The free credit reports do not include your credit scores. You will have to pay extra for that information and, as the other two reasons have proven, it’s just not worth it.
Again, while there are free services like Credit Karma, they do not use the same scoring models as most banks. Their scores may help you evaluate your general credit risk level but they won’t help you see a meaningful score.