Would you lend money to a stranger? Banks and other creditors don’t like the idea of doing that either, that’s why they take the time to go through your credit report when you apply for a loan or any other line of credit.
What’s on Your Credit Report?
Your credit report is basically a summary of your financial past. It includes identifying information such as your name, date of birth, address, social security number and even your employer.
It then gets into the details of your credit history. Your credit report will list all the institutions you have loans with, the types of accounts held, the current balances outstanding and it will indicate if you have been late making payments.
Your credit report also has a section dedicated to public records. This data comes directly from the court system and debt collection agencies and will highlight if you have any judgments and liens against your name. It will also indicate if you have ever filed for bankruptcy or even if you have foreclosed on your home.
Additional information such as the number of times you have requested credit previously is also recorded since too many attempts to seek loans are generally frowned upon by the banking system as it is taken as a sign of potential delinquency.
Every financial action makes an appearance on your credit report and thus has an impact on your overall credit score. Positive actions such as making payments on-time increase your score while negative actions such as overdrawing accounts and transferring balances from one credit card to another reduce it. The end result is a figure somewhere between a low of 340 to a high of 850 that gives lenders an idea of the risk involved in extending further credit to you.
What are the Hazards of Not Checking Your Credit Report?
The mere fact that such a vast amount of information is being collected about you and will be made available to any person or company with a valid claim on your finances such as; the government, potential landlords, banks and other financial institutions and even employers, should be reason enough to spark some curiosity about what it says. But there two major dangers involved in not checking your credit report;
Allowing Identity Theft to Go Unchecked
Unscrupulous individuals can gain access to your sensitive information and use it to open false accounts in your name. Many people fall victim to this every year but the damage can be limited if detected early on. All new accounts are registered on your credit report, so reading your report can signal any unusual activity and you can report it before it gets out-of-hand. This can save you hundreds if not thousands of dollars depending on the types of false purchases that are made in your name.
Carrying Errors that Harm Your Chance of Future Credit
It is not uncommon to find errors on your credit report. Sometimes identification information may be incorrect or you may find that a loan that was paid off is reported as still outstanding. Reading your credit report gives you the opportunity to have corrections made before they damage your credit score and also avoids any unpleasant surprises when you apply for additional credit. Protecting your credit score can also save you money because banks can charge a higher interest rate if you are deemed to be high risk.
How Can You Get Your Credit Report?
You are entitled to a free credit report from each of the three major reporting bureaus (Equifax, Experian and TransUnion) every 12 months. You can request them online at www.annualcreditreport.com or you can write to each bureau individually. You will need to provide your name, address, date of birth and social security number for identification purposes so be sure to include this information to avoid any delay.
Remember that the responsibility of protecting your identity lies solely with you. By being aware of what is on your credit report you can ensure that you are always in control of the financial image you project. Reading your credit report also smoothes the process of capitalizing on additional lines of credit if you need to, because you will be able to factor in all the information your bank has access to before making your request. It is good practice to check your report once a year to make sure you know what’s being said about you.