One of the most important things you can do for your credit’s health is reviewing your credit report on an annual basis. A credit report is a record of your personal credit history compiled by credit bureaus using data submitted by your creditors.
Before creditors approve a new loan or line of credit, a landlord approves your application or an insurance company offers you coverage they will review your past borrowing and repayment habits to determine if they want to extend you credit and, if so, how much.
Importance of an Annual Review
The information on your credit report can affect how much money you can borrow and the interest rate applied to the loan. Additionally, you should review your report for the following reasons:
- To identify any errors and dispute them. A study conducted by Consumer Reports found that 34% of study participants had at least one error on their credit reports. So it’s wise to check yours for mistakes.
- To identify theft or credit card fraud. If someone has been using your name and Social Security number to apply for credit or is making purchases with your existing credit information, you may not become aware of it unless you review your credit report.
- Credit summary: This section provides a summary of your open credit accounts including your credit limits, how much you currently owe and payment history.
- Accounts:A summary of credit accounts including credit cards, home loans and auto loans.
- Debt by account type: Here, you will find your debt broken down into different categories. One account type may be “Installment" loans, for example, a car or home loan, where you make payments typically in regular and equal installments. The other is “Revolving” debt, which is a debt balance that may vary from month to month.
- Account age: This section shows how long you have maintained credit with different lenders. Ideally, you should have a longer credit history with a few creditors rather than shorter durations with many creditors. It’s wise to keep your oldest accounts open.
- Inquiries: This is how many times you have applied for new credit in the past few years. Sudden increases in this number may cause lenders to think you are too risky, so only seek new credit when you truly need it.
- Potentially negative information: Here you could see a snapshot of adverse information including the number of instances of late payments, negative accounts and collection information.
How to Get Your Free Credit Report
Obtaining your free credit report is easy! Just go to annualcreditreport.com, a federally authorized website. You can get reports from the three main reporting agencies: Equifax, Experian and TransUnion.
The Fair and Accurate Credit Transactions Act of 2003 (FACTA) gives you the right to view your credit report from each major credit bureaus for free once every 12 months. Now is the perfect time to keep a close eye on your credit.
What to Look For
Above all, you should review your credit report for errors or inaccuracies. If you discover an error or mistake, you should contact the credit agency that is reporting the inaccuracy as soon as possible.
Reports prepared by different credit bureaus may provide the same basic information in different formats. The components you will likely see and should review on your credit report, include:
Ready to learn more about your credit score? Stop by our Financial Training Ground for more valuable resources to learn what factors impact your score and steps you can take to improve it. Click here to get started!