Credit reports are incredibly important to our daily lives, whether we realize it or not. But far too many people do not regularly check their reports, and it can have negative effects on their financial wellbeing. Whether you want to buy a home, refinance a vehicle, or take out a new credit card, your credit score can make all the difference.
Today we are talking about credit reports and why they are so important.
Before we get into why checking your credit report is so important, let’s first talk about what a credit report is.
A credit report is a detailed account of a person’s financial history. It may include some of the following:
A list of businesses and companies that have given you credit or loans
The total amount for each loan or credit limit for each credit card
Your payment history for each account, including the date and amount paid
Missed or late payments
A list of businesses and companies that have requested your report
Your personal information, including current and former names, addresses, and employers
Any bankruptcies or other public record information
Credit scores are calculated using the information in your credit report. A credit score is a number between 300–850 that is calculated to depict a consumer's creditworthiness. The higher the score, the better.
Credit reports (which result in credit scores) are incredibly important for our financial wellbeing. That’s why it’s important to check your credit report to make sure that you get the best financial opportunities possible.
Let’s take a closer look into why checking your credit report is so important.
Checking your credit will alert you to any mistakes that may have been reported. Whether it’s a missed payment, late payment, or incorrect amount, these mistakes can chip away at your credit score.
A study by the Federal Trade Commission found that 25% of people who regularly checked their credit reports found errors that affected their scores.
Your report may even contain other people’s information, which is known as a mixed file. In this case someone else’s financial issues may directly impact your credit report.
If you notice any mistakes or errors, it may take weeks if not months to sort out. Once you report an issue, the credit agency has 30 days to respond. The sooner you notice any issues, the sooner they can be amended and your score can be fixed.
Checking your report will also help you determine if anyone has taken out any accounts in your name. If someone has made inquiries using your Social Security Number, it will appear on your credit report. Catching these issues early is key – the earlier you report this, the quicker the accounts can be canceled and your report can be repaired. The following warning signs may alert you to a fraud issue:
Incorrect personal information. It can be a simple mistake, but it can also be an early warning sign of fraudulent activity.
Unrecognized public records. Tax liens, civil judgements, and bankruptcies are all listed on your credit report. If you do not recognize one of these records on your report, investigate it further and report it. These can drastically impact your credit report and credit score.
Unrecognized lender inquiries. Promotional inquiries and account review inquiries are nothing to worry about, but if you notice hard inquiries that are not familiar, you should investigate. Double check the names however before filing a complaint to make sure it was not authorized by a car dealership or mortgage broker who you are using.
Accounts that you never opened. If there are open accounts that you didn’t authorize, contact the lender immediately to have the accounts closed and investigated.
Increased credit utilization. If your credit utilization score suddenly increases while your spending habits have not, this may be a sign that someone is spending money on your accounts.
Your score drastically changes. Credit scores change for a number of reasons over time, but if you notice any drastic swings, be sure to investigate more.
If you do catch any fraudulent activity, be sure to contact the appropriate lenders as soon as possible and alert them to the situation.
A good and accurate credit report means that you will have a good and accurate credit score. And having a good credit score is good for a number of reasons:
Lenders will approve you for lower interest rates on credit cards and loans
The best lenders will be more likely to approve you
Lenders will give you higher credit limits
Insurance companies will give you better insurance rates
Landlords will approve you for rentals more easily
You will have more negotiating power for loans and accounts
So what’s considered a good credit score? The following brackets can help you decide how your creditworthiness is ranked:
800 to 850: Excellent credit
740 to 799: Very good credit
670 to 739: Good credit
580 to 669: Fair credit
300 to 579: Poor credit
The top rates are reserved for those with excellent credit and very good credit. The lower your score dips, the higher your interest rates will climb. All of this adds up to you saving money in the long run. Having a good credit score can help you secure a low car loan APR when you refinance your car loan. Better interest rates and payment terms can add up big over time. So it is vitally important to stay on top of your credit report and work to improve a bad credit score.
The Fair and Accurate Credit Transactions Act of 2003 made it possible for you to check your report at each of the three major credit agencies – Experian, Transunion, and Equifax – for free once per year. This means that you have three opportunities every year to get a free credit report. Pulling your own report takes about ten minutes and is super easy for anyone to do. And despite what you may have heard, pulling your report does NOT hurt your credit.
In addition to checking your credit report three times a year, you should routinely monitor your credit score. This will help alert you to any issues that may be worth inquiring about.
By catching mistakes and errors you can help your credit score a whole lot. And a healthy credit score means that you can qualify for a low car loan APR when you refinance your car with Auto Approve. Get a free quote today and find out just how much you can save!