Before renting an apartment or applying for a loan, you should give your credit score a pulse check. Checking your credit score can provide you with some helpful insight into your financial health, and it is a valuable way to gauge your creditworthiness. In this article, we will walk through how you can easily check your credit report and discuss the importance of monitoring your credit score regularly.
Understanding Credit Reports
What is a Credit Report?
A credit report is a detailed summary that includes information about your credit activity and current credit situation such as loan paying history and the status of your credit accounts. A credit reporting agency can then sell your information to companies that may want to screen your credit history, provided they have a valid reason and proper authorization.
Credit Reporting Companies
In the United States, there are several different credit bureaus, but there are only three major agencies. Equifax, Experian, and TransUnion, known as “The Big Three.” They are responsible for collecting, analyzing, and disbursing information about consumers in the credit markets. It is important to note that while The Big Three may collect a lot of the same information (e.g. credit account, credit amount, age of the account, etc.), creditors might not report to all three credit reporting agencies. For that reason, it is possible that your report and score vary between agencies.
Importance of Credit Reports
Your credit report shows critical pieces of information that are important in understanding your overall financial health. You should review your credit reports regularly to understand your current credit position. By monitoring your credit reports, you are aware of the information businesses (lenders, landlords, employers, or others) may have access to upon their request. You can then be prepared to proactively address any concerns that may arise or any errors that may need to be disputed.
Disputing a Credit Report
In the event that you need to dispute any inaccurate information that you’ve found in your credit report, you’ll need to contact the credit agency directly. According to a study conducted by the Federal Trade Commission, one in five people have an error on at least one of their credit reports. Errors on your credit reports can lower your credit score. These errors could be very costly or hurt your ability to get new lines of credit.
Understanding Credit Scores
What is a Credit Score
A credit score is a quick snapshot that predicts how likely you are to pay back a loan on time. A scoring model uses information from your credit report to pay generate a credit score. This rating showcases the amount of risk you may pose to lenders, landlords, or others.
Types of Scores
FICO® Score and VantageScore Solutions are two separate, competing companies. They both create and sell credit scores to lenders and other businesses.
FICO® Score: Introduced in 1989, the The Fair Isaac Corporation’s FICO introduced the FICO® scoring model which is used by ~90% of the top lenders to make lending decisions.
VantageScore: Introduced in 2006, the Vantage Score was developed by the three major consumer credit bureaus – Equifax, Experian and TransUnion. Their mission? Create a “more predictive scoring model that is easy to understand and apply.”
Factors Impacting Your Credit Score
Factors impacting your credit score can be grouped into five main categories:
- Payment History
- Credit Usage
- Length of Credit History
- Types of Accounts
- Recent Activity
Credit Scores vs. Credit Reports
As previously mentioned, your credit score is a number that is intended to suggest your creditworthiness. Your credit score is generated from a model that takes a formulaic approach to indicate how good your credit is and how likely you are to pay back a loan on time. The score is generated from information detailed in your credit report. That information in the credit report is a summary of credit history and activity that can be systematically analyzed by credit agencies.
Free Credit Reports
Requesting Your Free Credit Report
Federal law gives you the right to receive a free copy of your credit report once every 12 months. Receiving your free report can be completed in four simple steps:
1. Visit annualcreditreport.com and click “Request Your Credit Reports”
2. Complete the Online Form
3. Select the reports you would like to receive (TransUnion, Equifax, and/or Experian).
4. Review your report(s) online. Be sure to print or save a copy before closing the browser. You will not be able to receive the report after closing the window, so you will want to retain a copy for your own records.
Questions about your rights? Visit consumer.ftc.gov
Coronavirus & Impact on Credit
Due to the circumstances individuals encountered throughout the coronavirus pandemic, everyone in the United States was eligible to receive a free credit report each week through April 20, 2022. Furthermore, in connection with various settlements, Equifax will make permit U.S. consumers to receive at least six additional free Equifax credit reports each year through December 31, 2026.