In the wake of rampant data breaches, you hear it now more than ever: You need to check your credit report. And it’s true — periodically reviewing your credit report is necessary for catching fraud…
In the wake of rampant data breaches, you hear it now more than ever: You need to check your credit report. And it’s true — periodically reviewing your credit report is necessary for catching fraud and errors.
But how often do you actually need to check your credit? Once a year is the minimum, but you may want to check it more frequently than that depending on your circumstances.
The Importance of Checking Your Credit Report
If you want to get an idea of where you stand credit-wise, checking your credit report is a good place to start. Your credit report — or more accurately, reports, since each credit bureau produces its own report on you — is a documentation of all your past history with credit. Each includes a list of every account you’ve owned, including credit cards, loans and other forms of credit, along with their payment history, account status and other important details.
Though you should regularly check your credit reports to review your own behavior, an even more important reason is to catch errors and potential fraud, according to Mike Sullivan, a personal finance consultant with Take Charge America, a nonprofit credit counseling and debt management agency based in Phoenix.
“Without looking at your credit report, you cannot know if you have been a victim of identity theft or fraud,” Sullivan says. “Even honest mistakes by creditors or credit reporting agencies can affect your ability to borrow and your borrowing costs.”
That’s because the information contained in your credit reports is used to develop credit scores, explains Frederic Huynh, a former lead data scientist for FICO and the vice president of credit risk with Freedom Financial Asset Management, a company that provides financial services, products and solutions.
“The three main credit agencies (Experian, TransUnion and Equifax) rely on past payment history to gauge how borrowers will do in the future. If there are any errors on credit reports, scores may suffer,” Huynh says.
A poor credit score can significantly impact your ability to borrow money — whether it be for a house, a car or even a personal or business loan — as well as the interest rate you will pay.
However, even if you don’t plan to borrow any money, errors or fraudulent activity can impact other areas of your life. Huynh points out that your credit report is sometimes reviewed by potential employers, especially if the job requires handling large sums of money. Further, your credit score can affect your ability to rent an apartment, lease a car and get a low auto insurance rate, he says.
How Often Should You Check Your Credit Report?
The ideal frequency for reviewing your credit report depends on your current situation. However, at minimum, obtaining and reviewing your credit report once a year is a good rule of thumb, according to Huynh.
But there are situations when it makes sense to check more often. “If you have been consciously working to improve your credit, and perhaps have an eye on applying for a mortgage or another significant loan, you may want to check once every two to three months to make sure all data is accurate,” Huynh says. “If you are about to make a big purchase that requires a loan, it may be helpful to check reports a few months before so that there are no surprises.”
It also makes sense to check your credit report more often if you have been the victim of identity theft in the past, have had fraudulent charges on a credit card or had personal information compromised in a data breach.
“Some experts advise people who’ve recently gone through a divorce to check reports every few months,” Huynh notes.
Is It Bad to Check Your Own Credit Report?
When a third party pulls your credit report, resulting in what’s known as a hard credit inquiry, your credit score can be negatively impacted. “Hard inquiries are inquiries from a financial institution, when it is making a lending decision (such as approval for a mortgage or credit card),” Huynh says. He explains that hard inquiries can take a few points off your score, though the impact is generally minimal and only temporary.
However, if you’re worried about potentially harmful consequences of checking your own credit, don’t fret. “Checking your own credit score is considered a soft inquiry, and soft inquiries do not affect credit profiles,” Huynh says.
How to Check Your Credit Report
Everyone age 14 and older is allowed to check their credit reports from the three major bureaus for free once per year, but age 18 is a good time to check if there are no issues before then. The only website that’s federally authorized to provide official reports for free is AnnualCreditReport.com. You can also call 877-322-8228 to request your reports.
Since you can only request your reports once per year at no cost, it can make sense to use a rolling system when requesting your credit reports from each of the three major bureaus, according to Huynh. In other words, rather than requesting all three at once, request one every few months.
“Though the information is largely similar across the three credit reporting agencies, there can be variations across the reports,” says Huynh. “If you are checking reports for the first time, it can be a good idea to get all three at the same time.” Then, Huynh suggests to mark your calendar to get one every four months of the following year.
Additionally, if you apply for credit and are denied, you have the right to get a free copy of the report that was used to make the decision within 60 days.
Sullivan also notes that if a creditor has experienced a security breach, the company may provide free credit monitoring for a period of time following the breach. A good example is the Experian data breach in 2017. Following the breach, which compromised the sensitive personal information belonging to more than 143 million Americans, Experian offered free credit monitoring and alerts to anyone with a Social Security number. However, Sullivan warns credit monitoring services aren’t foolproof and it’s a good idea to freeze your credit immediately following a breach.
Is Your Credit Score Included?
Credit scores and credit reports are not the same thing. “Information from credit reports is used to develop credit scores,” Huynh says. Still, it’s a good idea to keep tabs on your credit score in addition to your credit report, since your score can give you a quick snapshot of your overall credit health.
Unfortunately, credit scores are not provided on free credit reports from annualcreditreport.com. You have to review your credit score separately. “Many financial institutions and lenders now provide credit scores to their customers in their monthly statements or online,” says Huynh. This is a good way to see your FICO score for free, which is the score used by most creditors when making lending decisions. Usually, your FICO score is updated monthly.
Sites including Credit Karma and Credit Sesame also provide free credit scores. However, these are not FICO scores and are often referred to as educational scores since it’s less likely they’ll be used by a creditor to approve or reject an application.
Be aware that there are companies that will provide you with your score for a subscription fee, though they will sometimes market themselves as a free service.
Whether or not these services are worth the cost is up for debate. Huynh notes that credit monitoring services, some of which are owned by the credit bureaus themselves, can be helpful for people with ongoing credit problems, such as identity theft.
“But they don’t correct errors,” he says. “They just notify the client if there is a suspected error or problem.” They also can be expensive. Huynh points out most consumers can get the same information on their credit reports, although that requires manually checking your report rather than getting an alert.
What If You Spot an Error on Your Credit Report?
If you do find an error on your credit report, it’s important to report it right away. If you’re reviewing your credit report online, there should be a button on the page to submit a dispute, according to Sullivan.
“However, this may not provide the consumer with proof that a transaction was contested,” he says. “It is best to also send a written letter to the agency so that you have proof.”
Huynh adds that under the Fair Credit Reporting Act, the credit bureaus must investigate any disputed items and correct the information if it cannot be verified.
How to Improve Your Credit
If upon reviewing your credit report, you find some negative items that could be dragging down your score, know that you can take steps to improve your overall credit.
Pay on time. If your credit report shows that you’ve missed payments on your accounts in the past, there’s a good chance your credit score has suffered as a result. Making payments on time (for credit cards, loans and other types of credit) is the most important factor in determining your credit, accounting for 35 percent of your FICO credit score. By committing to making all your payments on time going forward, you should see your credit score improve.
Get rid of debt. The second most important credit factor is how much you owe. If your credit report shows a lot of outstanding debt, it’s a good idea to prioritize paying some of that debt down. By lowering the amount of debt you have in comparison to your total available credit, known as your credit utilization ratio, your credit score will improve. According to Huynh, it can be helpful to perform a balance transfer for high-interest credit card debt. This involves moving the existing balance to a new card, often for a small fee, in order to take advantage of an introductory zero percent APR offer. With no interest accruing, it can be easier and faster to pay the balance down.
Keep your balances low. In addition to paying down debt, it’s a good idea to maintain low balances on your credit cards. As mentioned, your credit utilization heavily influences your score. But the balance you carry mid-month can still impact your utilization, even if you pay the whole balance each due date. Try to maintain a utilization ratio of less than 30 percent, both on individual cards and across the board.
Don’t apply for credit too often. At 10 percent of your FICO score, new credit is a less impactful, but still influential, factor in the overall health of your credit. Too many new accounts on your report will raise a red flag to lenders that you’re overextended and relying on credit to manage your expenses. Pace yourself when it comes to applying for new credit. Of course, you don’t want to go too far in the other direction, either. “The credit agencies rely on past payment history to gauge how borrowers will do in the future. If you don’t borrow, they have no information to rely on,” says Huynh. So don’t be afraid to use credit — just use it sparingly.
Mix it up. If your credit report shows that you only use one type of credit, such as credit cards, your score might take a dip. At 10 percent of your FICO credit score, having a diverse mix of accounts shows lenders you can handle a variety of credit types. Consider taking on other types of credit as needed, such as an auto loan, personal loan or even a mortgage.