An FTC study reported that one in every five Americans has at least one error on their credit reports?
These errors could easily cost you thousands of dollars by having higher interest rates on your loans.
In some cases, the errors are minor like a misspelled name. In others, debt is still reported even though you’ve paid it off years ago. Or someone stole your identity and opened accounts in your name.
With any error, the impact ranges from a slightly lower credit score to a score that’s fallen off a cliff and wil take a decade to recover.
An easy way to defend against these errors is to check your credit report at least once a year. And if you’re planning to take out a major loan like a mortgage, you should make checking your credit report one of your first tasks.
What is an Annual Credit Report?
Your credit report contains information about your personal financial history. There are three credit bureaus that keep track of your info.
The financial bureaus get their information from lenders like credit card companies, banks, and other financial institutions. They pay closest attention to your payment history, debt owed, and other balances.
Each credit bureaus has its own credit report which means you have multiple credit reports. Multiple reports means multiple opportunities for errors. It’s important to check each of the three major credit reporting agencies at least once per year to make sure your credit information is up to date.
Your credit report can impact all sorts of areas in your life like your ability to qualify for loans, rentals, financing on cell phones, and getting jobs.
When you pull your credit report, you’ll see this information:
- Full name
- Current address and phone number
- Previous addresses and phone numbers
- Birth date
- Social security number
- Current credit accounts
- Past credit accounts
- Credit limits
- Loan amounts
- Account balances
- Payment history for each credit account
- Dates every account was opened and closed
- Late payments
- Civil suits
- Owed child support
- Credit inquiries
How to Get Your Annual Credit Report
The simplest (and cheapest) way is to contact one of the three major credit reporting bureaus:
Thanks to the Fair Credit Reporting Act, you have a legal right to access your credit report for free every year from each of the three major bureaus. You could access all three at once or opt to check a different one every four months, depending on your situation.
Instead of visiting each credit bureau website individually, head to annualcreditreport.com. You’ll need to fill out a detailed form (to protect your privacy) and then you can choose to access one or more of your free credit reports. If you don’t have access to the internet, you can request a copy of your report(s) at 1-877-322-8228.
When you access your credit report, make sure to download and/or print a copy for your records. You’ll only have access to the credit report for a limited time.
Alternatively, you could sign up for credit monitoring from one of the three credit reporting agencies. In addition to unlimited access to your credit report, you’ll receive alerts when there’s a change to your credit and you may even have access to your credit score.
The Difference Between Credit Bureaus
There are three major credit reporting bureaus: Transunion, Equifax, and Experian. While these three are not the only credit agencies, they are the largest. Most creditors will access your credit information from one of them.
Each of the bureaus operates independently and has their own systems.
So the information in your credit report can vary slightly from one to the next. Here’s what to expect from each:
Equifax is the easiest to read since it’s the only one that summarizes open and closed accounts in two separate sections. If you want to identify problem accounts, this may be the easiest option to look through first. Equifax reports offer an 81-month history (about 7 years) for all of your credit accounts.
The biggest feature that Experian offers is the “status details” listed with each credit account. The status detail shows when any information is scheduled to fall off of your report. If you have any bad credit information or inquiries, you can get a quick glance at when that information will drop off. All of your credit accounts are listed alphabetically on your Experian report.
Transunion features the most complete employment history of the three reporting agencies. In addition to the name of your previous employers, the report includes the position you held and when you were hired at the company. This information can be helpful when applying for new jobs or when you’re seeking a home loan.
Credit Report Vs. Credit Score
Your credit score and your credit report are two separate things.
Your credit score is a three-digit number. The number is calculated using the information in your credit report and a unique algorithm. Most credit scoring companies use FICO as their basis, but not all.
A credit scoring algorithm takes your credit report information and converts it to a three-digit number that tells creditors if you’re a high-risk borrower. The comparison is akin to a college report card versus your grade point average. The report card breaks down all of the classes you took and the grades you earned, where the GPA is a digital summary of your semester.
It’s basically a single number that summarizes your entire credit history.
Your credit score is not part of your credit report and isn’t always included when you request a free credit report.
Many credit card companies now let credit holders easily see their credit score whenever they like. Chase does this. Other companies like Credit Sesame and Credit Karma can get you access to it.
How to Take Full Advantage of The Annual Credit Report
Every month, there’s a new security breach that releases millions of passwords and accounts. Sooner or later, your info will be in one of them.
Then it’s a matter of time before someone uses it to steal your identity and take out loans they never intend to pay back. That will tank your credit score and make life much more difficult.
An easy way to stay on top of this is to check each of your credit reports once per year.
I recommend following these rules:
Review all three reports
Each of the credit reports has varying levels of information. Since they operate separately, it’s possible for one company to have outdated or incorrect information. It’s not even uncommon for credit reports to cross a spouse’s social security numbers. Make sure you check each report for accuracy.
Use this checklist
First, make sure all your personal information is accurate:
- Social security number
- Previous and current addresses
Next, review your accounts.
You’re looking for two things:
- Any account that doesn’t look familiar
- Accounts you know are paid but don’t show it yet
Those are the major problems that can cause problems. Also look for missed payments, inactive or settled statuses, collection accounts, and any lawsuits or judgments that shouldn’t be there.
Negative items, like late payments and collections, are most likely to negatively affect your credit. If there is incorrect information or items that are questionable, contact the credit reporting agency to correct the errors.
If you have a negative item that’s legitimate, you can still take action.
Each credit report has a section where consumers can supply a brief statement about a specific item. This will be shown to lenders when you apply for a loan. Statements are limited to 100 words.
Look for suspicious inquires
When you apply for loans or credit cards, the lender does a hard pull on your credit. This means that they request information from your credit report. These inquiries appear on your credit report and they can affect your credit score.
Look for any unusual inquiries that could indicate that someone has attempted to take out a credit card or loan in your name.
If you spot this inquiry early, you can change passwords, freeze your credit report, and prevent any further damage from occurring.