Are You Afraid of Your Credit Report?By: Bill Rice
Even though it's pretty easy to get your credit report online for free, there are still a lot of people who refuse to check it.
To find out why, I did an informal survey: "Why don't you want to get your free credit report?" Ironically, the answers were all very similar. Almost everyone was afraid they might find something bad on their credit report.
Isn't that the point of getting your credit report? That's a rhetorical question. Yes it is!
Your credit report always needs to be in tip-top shape. If there are blemishes on it, you want to know about them as soon as possible so you can start your credit improvement plan.
Do you need more motivation? Here are 5 reasons to stop fearing your credit report:
1. Usually It's Not that Bad
There are tons of myths surrounding credit reports and scores. As a result, most people imagine scenarios and reasons why their credit score must be bad.
- "Boy, I don't know… I was late on my rent back in college."
- "Ugh! No, my credit stinks. I don't make a lot of money."
These are very typical excuses. The truth is, these kinds of things aren't even part of your credit report. You're probably imagining the worst, because you've never seen a credit report or have been misled about what is really tracked on your credit report.
2. Getting Your Credit Report Doesn't Hurt
Another common fear is that getting a copy of your credit report will somehow lower your credit score.
Fear no more. This is false.
You, as the consumer, are entitled to request a copy of your credit report and score whenever you want one - it's your right. When you request your own credit report and score, it is called a soft inquiry and does not get reported or used in the calculation of your credit score.
In fact, in 2003 the federal government made it your right to know what's on your credit report, passing the Fair and Accurate Credit Transactions Act (FACTA). This guarantees you one free credit report a year, which you can get by telephone, mail, or online at AnnualCreditReport.com.
Here's the difference...
When you apply for a credit card, auto loan, or a mortgage, your creditor or lender will make a hard inquiry on your credit report. This simply means that they are requesting your credit report and score from one or more of the credit bureaus and results in the bureau recording that inquiry and considering it in the calculation of your credit score.
The difference is easy to understand. When you're checking on your personal credit report, there is no risk to a creditor or lender that you are about to get more debt. In contrast, if you're applying for more credit cards, getting a new loan, or buying a home, the additional debt you may be taking on may make it a little more likely that you won't pay all of your bills.
3. Mistakes Are Common
Creditors are processing millions of consumer records every day - mistakes will happen. If you ignore your credit report, there's a really good chance a mistake will land on your credit report eventually.
What's worse is reporting mistakes almost always have a big negative impact on your score. Here are a few common errors I've seen over the years:
- A family member's credit card ends up getting reported on your credit report.
- A creditor incorrectly reports a late payment or closes an old account.
- A credit card or loan is opened in your name by an identity thief.
These mistakes can easily lower you credit score 10 to 20 points instantly.
True story here…
Before I was checking my credit report every month, an identity thief opened a credit account in my name. He cleverly had all of the correspondence go to his address and then after using the account, let it go into collections before I even knew about it. What a mess to unwind! In the interim, my credit score went from excellent to marginal overnight.
Check your credit score!
4. Bad Credit Only Gets Worse
If you have blemishes on your credit report, there's a problem. Whether it's a creditor's reporting mistake or your personal mistake, it's going to impact your life.
I say this over and over again, but it bears repeating:
In tough economic times, credit reports rule your life.
We all know they are used in approving credit cards, auto loans and mortgages. But, did you also know they are used in determining:
- Your insurance rates,
- If you qualify for cell phone plans,
- If you have to pay security deposits for utilities, and
- Even are increasingly common in job screenings?
Credit modelers and bureaus are continually trying to model and predict your behavior. Experian attempts to predict your income, Equifax is confident they can predict your discretionary spending and FICO even claims they can predict if you will take your medication.
All of these predictions are turned into models that are used by businesses. As a result, credit report information is used to:
- Determine if and how they will work with you,
- What they will charge you, and
- What level of service they will offer you.
If you want the best opportunities, the lowest price or rate, and the best service, you'd better be working toward an excellent credit score.
5. Credit Improvement Is Not that Hard
Even if there is bad stuff on your credit report, you can fix it. Credit improvement is easier than you think.
There are only five major factors that go into your FICO score:
- Payment history
- Amounts owned
- Length of credit history
- New credit
- Types of credit used
You can see which of these you are having trouble with and start working to improve it.
Why haven't you checked your credit report? I really am curious. Leave a comment.