Your financial health should be prioritized in a similar manner that you prioritize your physical and mental well-being. Similar to regular checkups for your physical and mental health, looking at your financial health needs to be a regular practice. Checking your credit report is an important part of that. Your file reveals a lot of data, from payment history to accounts you may or may not have opened.
Unlike your doctor’s office, no one will call to remind you to check your credit history; looking over your credit file takes personal effort. Through regular monitoring of your credit report, you can greatly optimize your finances.
Why is it important to check your credit report?
Your credit report is a dynamic source of information. As you make payments on loans and credit cards, as well as open new accounts, your credit file updates with new information. Credit reporting agencies typically update your file monthly, so staying on top of your report is advisable.
Errors are an unfortunate reality in your report. Moreover, data breaches may make your information accessible to fraudsters. Checking your credit report is an excellent way to confirm the accuracy of your information.
According to R.J. Weiss, CFP and founder of The Ways to Wealth, a personal finance website, “The big thing you’re looking for is inaccuracies. Are there any surprises on there, such as accounts you didn’t open or a collection you’re unfamiliar with?” Checking your credit report regularly can help you verify that your information is correct. If it isn’t, it’s important that you dispute inaccuracies as soon as possible to prevent further damage.
This verification is of utmost importance when you need to take out a significant loan, such as a mortgage or auto loan. Creditors want to see you have healthy credit, so clearing up potential inaccuracies is essential.
Can checking your credit report impact your credit score?
A common misconception many people have is that checking your credit report will hurt your credit score. That is not the case. In fact, it’s a good thing to look at your credit file.
Getting a copy of your credit report isn’t the same as requesting new credit. As such, it is considered a soft inquiry. Soft inquiries are not reflected on your credit report. According to Equifax, “Soft inquiries do not affect credit scores and are not visible to potential lenders that may review your credit reports. They are visible to you and will stay on your credit reports for 12 to 24 months, depending on the type.”
Alternatively, hard inquiries do impact your credit score. Such inquiries occur when you request a new credit card or a loan. If you’re merely looking at your report to verify accuracy, you have nothing to worry about when it comes to your credit score.
➤ SEE MORE:Why financial health matters more than a perfect credit score
How to handle inaccurate information on a credit report
You may ask yourself why it is important to check your credit report at least once a year and think it’s unnecessary, only to look at it and find an error. An error on your credit file can cause significant issues, especially if you’re planning on getting a new credit card or loan.
When you identify an error, don’t let it go. It’s vital to correct it. Weiss explains, “If you find an error on your credit report, you’ll want to contact the credit bureau directly… Make sure to provide as much evidence as possible to support your claim.”
The Federal Trade Commission (FTC) requires the respective credit agency and business in question to correct the information for free. Equifax, Experian, and TransUnion allow consumers to file disputes online, or you can mail in the dispute. If done via mail, include a letter explaining the error and why it needs to be corrected.
Here are the mailing addresses to send disputes to for each of the respective agencies:
Equifax Information Services
P.O. Box 740256
Atlanta, GA 30348
Experian
P.O. Box 4500
Allen, TX 75013
TransUnion LLC Consumer Dispute Center
P.O. Box 2000
Chester, PA 19106
If you find an error at one credit bureau, check all three. “If the error appears on multiple credit reports, you must contact each bureau separately,” recommends Weiss.
➤ SEE MORE:5 common credit report errors and how to fix them
Where to check your credit report
Checking your credit report isn’t difficult, thanks to federal law. You can request a free copy of your credit report once every 12 months from all three credit reporting bureaus at AnnualCreditReport.com.
That leads to the question of how often should you check your credit report. Recommendations vary from bi-annually to annually. Each situation is unique, but if you found no errors the last time you checked your report, you can request a report from another one of the agencies every four months and cover your bases.
Beyond the free annual report from the three agencies, the FTC lets you qualify for a free report in other instances. Those include:
- Being denied credit, employment, insurance, or another benefit
- You’re unemployed and plan to look for a job within 60 days
- You’re receiving public assistance
- Your report is inaccurate due to identity theft or other fraud
- You have a fraud alert on your credit report
Some paid services offer credit reports for free, but they’re often not worth the expense, especially given the ability to receive complimentary reports. If you’re concerned about your score and wonder how often can you check your credit score, many credit cards offer that for free as a cardholder perk.
Frequently asked questions about checking your credit report
Are you wondering, why is it important to check your credit report, and still have questions? Here are some common concerns consumers have.
Are there tools to help monitor my credit regularly?
Yes, there are credit monitoring services that can assist you in keeping an eye on your file. However, they may not be worth the investment. Beyond instances of free credit reports, there are many other tools that can help.
Weiss suggests looking no further than your bank, saying, “A lot of banks today provide credit alerts as a free service. These are helpful to catch anything inaccurate before it gets to be a huge problem.” It’s best to take advantage of what you can get for free instead of falling prey to a service that adds a monthly charge to your budget.
What are the worst things that could be on a credit report?
Routinely checking your credit report is the best way to confirm nothing is wrong. In your review, you may find some things that cause concern. Missing payments are an obvious problem. If you legitimately made on-time payments, it’s important to request them to be reflected.
Furthermore, any account you didn’t open or other errors require immediate attention. Simple misspellings of your name or accounts that don’t belong to you must also be addressed. For example, if you are a Jr., you want to confirm accounts from your parent don’t reflect on your credit report.
How is your credit score determined?
The exact credit scoring system isn’t proprietary information. Thankfully, credit scoring agencies do provide some guidance on how your score is calculated. Here is how a credit score is most commonly computed:
- Payment history = 35%
- Amounts owed = 30%
- Length of credit history = 15%
- Credit mix = 10%
- New credit = 10%
If you make timely payments, keep your credit utilization low, and avoid opening too many credit cards or loans, your credit score should be relatively healthy.
The bottom line
Information is power, especially with personal finance. Your credit report is a snapshot of your credit lines, outstanding debts, and payment history. Errors are an unfortunate reality with credit files. Regularly verifying that your information is accurate is not only free, but also the best way to protect yourself.
