Many people use the terms “credit score” and “credit report” interchangeably, but this is incorrect.
Think of your credit report as a detailed summary of your entire lifetime of credit use. Your credit score, on the other hand, distills all of this information down to a single number that shows how responsible you are with credit.
A lender can legally request a copy of your credit report any time you complete an application for credit. When you’re applying for a mortgage or auto loan, the lender will usually take the time to go through your entire credit report. For store credit cards and other situations where the lender needs to make a quick decision, they might rely on your score alone.
In many cases, lenders will look at both your credit score and your report before issuing credit.
How to Access Your Credit Report
Under Federal law, you’re entitled to receive a free copy of your credit report from each of the major reporting agencies (Experian®, Equifax®, and TransUnion®) once per year. To access this, you’ll simply need to visit annualcreditreport.com or call 1-877-322-8228 to request your copies.
You’re also entitled to see a free copy of your report within 60 days of being denied credit, if you’ve been a victim of fraud, you believe your report is incorrect, or if you’re on welfare or unemployed and seeking work.
It’s important to review all three of your reports, since there’s a good chance they won’t match. Discrepancies in reporting frequently exist.
Not all lenders report to all three agencies, and it’s possible that one agency could have entered your information incorrectly. Checking each of your credit reports once a year will help you catch any problems and correct them right away.
Note that your free credit report does not include access to your credit score. This is a critical distinction. It tells you all the information that affects your score, but not the score itself, which is a serious shortcoming.
Fortunately, several online services provide a simple, free solution. We’ll discuss two services with proven track records—Credit Karma and Credit Sesame—so you can decide what best fits your situation.
Why Check Your Credit Score?
When you check your credit report, you’re primarily going to be looking for anything that’s not accurate. This could include accounts you didn’t open, late payments or collection notes that aren’t correct, or incorrect reports of foreclosure or bankruptcy. If you find a problem, you’ll want to report it directly to the agency right away. It will take time for the agency to review your complaint, complete any necessary investigation, and make the correction, so the sooner you can get the ball rolling, the better off you’ll be.
The point is that reviewing your credit report is valuable and well worth doing to find errors and get them corrected, but it’s not enough. If you truly want to take control of your finances, you’ll also want to periodically check your credit score. Here are a few of the benefits you’ll receive from doing so.
1. Gain a Solid Understanding of Your Credit Status
Monitoring your credit score gives you the power to make adjustments on the fly and catch anything that doesn’t look right. You’re much better off proactively working on improving your score instead of waiting to find out you have a problem next time you need cash, want to buy a home, finance a vehicle, or start a business. There’s nothing worse than being blindsided by a bad credit score when you’re in a financially vulnerable position and tight on time. It’s smarter to be on top of it and correct any problems before you need to use it.
2. Easily View the Impact of Changes
If you’ve checked your credit score and aren’t happy with what you found, don’t despair! There are plenty of things you can do to improve your credit rating. That’s the value of being proactive. You can make adjustments by paying your bills on time, paying down as much debt as possible, avoiding opening any new credit accounts, and reporting any errors found on your credit report.
Regularly checking your credit score allows you to easily see if the changes you’re making are translating into score improvements. When your score starts to move in the right direction, you’ll know you’re on the right track. Conversely, if your score starts to go down, you can quickly assess what caused the change and take action to correct it.
3. Spot Signs of Identity Theft
Another advantage to checking your credit score regularly is you can spot potential identity theft right away. If you’re notified that a new account has been opened and you didn’t do it, you’ll be able to investigate the issue immediately. This can make a huge difference in minimizing the damage and getting your finances back on track.
If you don’t monitor your credit score regularly then there’s a risk that you won’t find out your identity has been compromised until multiple accounts have been opened and a large number of financial transactions have occurred. Once this happens, it’s much harder to correct the problem.