Free Credit Report
Most credit reports originate from one of the three national credit bureaus. Experian, Equifax, and TransUnion are the largest consumer reporting agencies that acquire and sell financial information to those with a permissible purpose under federal statutes. They maintain credit files on millions of consumers, and generate reports that contain detailed information on your credit transactions and payment history. These include home mortgages, personal loans, student loans, home equity loans, and credit cards. The credit reports display account and payment status, as well as legal proceedings such as foreclosures, bankruptcies, and other monetary judgments. This allows potential lenders to rank borrowers based on their relative ability to pay their bills on time.
Entities with a permissible purpose may perform a credit check prior to loaning you money or granting you credit. They accomplish this by purchasing your credit report from one or more of the three credit bureaus. Each time this happens, it will show up as an inquiry on your credit report. It's best to keep these inquiries to a minimum since they can negatively affect your credit score.
How to Obtain Your Free Credit Report
You have the right to request an annual credit report from each of the three major credit bureaus: Experian, Equifax, and TransUnion. These companies are in the business of collecting financial information on millions of consumers for the benefit of customers who pay for their services. Their primary products are credit reports that contain comprehensive data and statistics that are used to calculate individual scores. There are several ways of doing a credit check that will provide you with a totally free credit report. The three credit bureaus all have websites and toll-free numbers where you can place your order directly. You can also elect to request your free credit report in writing, which may be preferred since personal information such as your Social Security number will be required.
There are other companies that advertise the availability of a totally free credit report, but make sure you read the fine print. While these companies provide credit reports, some of them also enroll you in other fee-based services that require you to opt out to avoid paying for them. When you apply for your free credit report and free credit score, read the application carefully and ask questions if necessary to confirm there are no hidden charges.
Top 5 Reasons to Obtain Your Credit Report
- You want to make sure the report is correct. If your credit score is wrong due to errors in the report, this will make it harder to get loans or qualify for a credit card. Your credit report should be reviewed in detail, and corrections should be submitted directly to the credit bureaus. Check for entries that may actually belong to someone else with the same or similar name.
- Review the report for any evidence of identity theft. If there are accounts listed that you didn't open, this is evidence that someone else has stolen your identity and used it for fraudulent purposes. Carefully look for any signs of unauthorized charges and other credit fraud. Identity theft has become a major crime problem that can be devastating if not caught early on.
- You should be aware of your credit score before applying for new credit, and monitor the change in your score over time. Under current federal law, you can obtain a free credit report on a yearly basis from each of the three major credit bureaus.
- Your credit report lists all persons and entities that have requested your report. The more inquiries you have, the greater the impact on your credit score since this is viewed negatively by potential lenders. You should check your report to verify the authenticity of the inquiries, and report any unauthorized access to your file.
- Track your payments and compare them to your account statements. Make sure that the credit history accurately reflects the information you have previously received.
Consequences of Identity Theft
The two most common ways that someone will steal your identity are known as "true name" and "account takeover." The first occurs when someone takes your personal information and opens new accounts in your name. These accounts could include a new cell phone, credit card, brokerage account, cable television, and checking account. The thief conducts business as though it were you doing it. If you receive unsolicited credit card offers in the mail, shred them before you toss them out to ensure that no one else can use them.
Understanding your credit score
When you request your free credit score, most often this refers to the FICO score created by the Fair Isaac Corporation. While there are different scoring models available, the FICO score is most commonly used by banks and other financial institutions. The credit score is based on a proprietary algorithm that ranks the data displayed in your annual credit report. The result is a range of scores, from a low of 300 to a high of 850. Historically, any credit score over 700 was considered good. However, with the meltdown in the mortgage industry, some lenders have tightened their standards and insist on scores exceeding 760.
Video: Understanding Your Credit Score
When lenders do a credit check, they can set the bar for scores wherever they want it, so it's important to maintain the highest credit score possible. As a general rule, a higher score will entitle you to better loan terms and a lower interest rate. This is why it's critical that you obtain your free credit score and verify all the entries in your annual credit report. If you detect errors or inconsistencies, take immediate action to correct them.
Video: Identity Theft
Account takeover occurs when a thief takes control of your existing accounts. This usually happens when a credit card is lost or stolen, or when your account passwords are compromised and access is gained illegally. Another common tactic is to change the mailing address on your credit card so that you stop receiving your monthly statements. Unauthorized transactions can go undetected for long periods, so always make sure your statements are current.
What happens when someone steals your identity? Your bank accounts can be emptied, your phone disconnected, and your cable television and internet turned off. Huge charges can suddenly appear on your credit card, and that new loan you applied for is disapproved. Buying real estate becomes impossible, and your application for health insurance is rejected. You could even appear on the Transportation Security Administration's "no-fly" list. The list of possible consequences is almost endless.
One of the best ways to combat identity theft is to get your totally free credit report every year from each of the three major bureaus. This may help you avoid the devastation and expense required to reestablish your identity should you become a victim. Simple things you take for granted, like renewing your driver's license, can become a huge chore if your personal identity is compromised.
Top 5 Reasons to Have Credit Protection
- Credit monitoring services offer weekly or daily monitoring of your credit file to catch errors and unauthorized transactions. This saves you the time and effort of doing this on your own and remembering to routinely order your free credit report.
- These services will assist you with correcting your credit report and resolving disputes.
- You are entitled to an annual credit report at no charge from each of the three major bureaus. You will have to pay for additional reports in order to monitor your file more frequently. Those costs are avoided by having credit protection in place.
- Most services will provide alerts whenever there's a substantive change to any credit report maintained by the national bureaus.
- Most services have dedicated specialists to identify fraud victims and offer reimbursement of expenses related to identity theft, subject to dollar limitations and other conditions.
Setting Up a Credit Monitoring System
Credit monitoring is available by subscription from many companies that do business online, as well as by telephone or mail. In exchange for your monthly fee, you will receive regular monitoring of all activity that may impact your credit report. They will be on the lookout for things such as suspicious entries, address changes, new accounts, credit inquiries, employment changes, negative information, public records, and late payments. You are kept apprised of the results and analysis through regular alerts, and have access to your credit report on a routine basis at no additional charge.
Video: Monitor Your Credit to Avoid ID Theft
Credit monitoring offers you some peace of mind without the time and complications of doing this yourself. It provides you with a measure of protection that could save you from drastic changes in your daily life should you become a victim of identity theft. It also acts as a protective shield to your credit rating and keeps you on top of anything that might affect your credit score.
In many states you also have the option of "locking" your credit report, making it impossible for anyone to get access to it. So if a thief tries to open a new account in your name, such as a credit card, the card issuer will not be able to do a credit check. Only you have the power to unlock your file when the need arises. In order to place a lock on your file, you must contact each of the credit bureaus individually. Check the rules for your state, as some require you to be a past victim of identity theft before you can accomplish this.