Last week we looked at the definition of credit and at reasons to have credit (even for individuals who strive to live debt free). Today we’ll continue our look at the finer details of credit.
Requesting a credit report
The Fair and Accurate Credit Transactions Act is a federal law that entitles each consumer to one copy of his or her credit report from each of the 3 credit reporting agencies (Experian®, Equifax® and TransUnion®) every 12 months. The reports can be obtained from the Annual Credit Report Request Service, which is a central source that was established by Congress. Reports can be requested through the Service’s website, by phone, or by mail. All of the details needed to make the request are available at the Service’s website: https://www.annualcreditreport.com. Note: There are a number of imposter websites that claim to offer “free credit reports.” However, only annualcreditreport.com is authorized to fill orders for the free annual credit report you are entitled to under law. For your safety, steer clear of imposter sites and keep in mind that the legitimate Service will not send you an email asking for your personal information, it does not use pop-up ads, and it will not call you on the phone. Do not reply to or click on any link in these types of communications. They are likely scams.
Remember that you can get one report from each of the 3 agencies annually. When you complete a request, you can designate if you want your reports from all 3 agencies or if you want a report from a given agency. What’s best? Should you get all your reports at once or get them one at a time? The advantage of requesting all three at once is that you can compare them. (Just remember that you will not be able to get another free credit report for 12 months.) The advantage of ordering them one at a time (such as one report every four months) is that you can track changes over time. You can carry out do-it-yourself credit monitoring. (My husband and I have taken this approach. If inaccuracies or signs of fraudulent activity or identity theft develop, we feel that getting one report every four months gives us the best chance of catching it.)
Information on a credit report
- Personal identifying information. Your name, address, Social Security number, date of birth, and employment information are featured to identify you. The reporting agency gets updates on this information from information you supply to lenders.
- Credit accounts. For each account you have, the lenders report the type of account (credit card, personal loan, mortgage, etc.), the date you opened it, your credit limit/loan amount, the account balance, and your payment history.
- Credit inquiries. A list of everyone who accessed your credit report within the last two years is featured on the report.
- Public record and collection items. The reporting agencies record information from state and county courts and collection agencies. Information about overdue payments, bankruptcies, foreclosures, suits, wage attachments, liens and judgments will be included.
I was surprised to learn that credit scores (numbers that quantify your creditworthiness) are not included in all credit reports. Moreover, there isn’t a way to accurately calculate a credit score from the reports because the mathematical formulas used by the reporting agencies are proprietary. However, it is still beneficial to obtain your credit report and review it!
As noted earlier, you can examine the report for inaccuracies or signs of fraud or identity theft. Because humans are responsible for transcribing your information, inaccuracies in reports are not uncommon. You’ll also be able to see the number of accounts you have, your balances, and your payment history. This can help in identifying trouble spots, such as carrying high balances or habitually making late payments.
Next week we’ll look at how to build good credit. In the meanwhile, if you’re looking for more information you can visit my sources: FICO and Annual Credit Report Request Service.
Do you monitor your credit reports regularly? How has it benefited you?
My husband and I used to pay for credit monitoring through our bank. We stopped that some time back because of the cost, but I like the idea of doing your own credit monitoring by getting the reports that are available to you for free already.
We’ve considered paying for a service. However, there is not really room for it in our budget, so we think this is the next best thing.
As Shannon knows, I have been in the business of mortgage lending for 30+years. Credit scoring came into our lives some 12? years ago. To say that it is not an exact science is an understatement. Keeping an eye on your credit, especially when purchasing or refinancing a home is imperative. We mortgage lenders will pull a “tri-merge” credit report when looking at an a persons credit for a mortgage loan. We look at all three scores and use the “mid score” for determining the rate and mortgage insurance rate ( if necessary). The higher your scores, the lower the rates on both your loan and your mortgage insurance. The credit scoring seems, at times, to be a mystery. The things I do know…..keep your credit cards below 1/2 ,better 1/3 of your allotted credit allowance if possible. Over 1/3 your scores drop….over 1/2 they really drop. Payoff all collections. They DO NOT GO AWAY! Most importantly, if you have a Judgment pay it off or make arrangement to pay to get it paid off. If you have a Judgment it could encumber title for the purchase of a new home. Thanks Shannon for all you do!
As Shannon knows, I have been in mortgage lending for 30+ years. Credit scoring came into our lives some 12+? years ago and to say it is an exact science an exaggeration. I try very hard to council folks on how to correct their credit in an effort to better prepare them for the purchase or refinance of a home. We, as lenders, pull a “tri-merge” credit report looking at all three bureaus. We use the “mid-score” to determine the mortgage interest rate and mortgage insurance rate (if necessary). The higher your scores the lower your rate on both of the above. Again, this is not a science…..What I do know is your scores will be better if you keep your revolving credit (credit cards) at less than 1/2 (better 1/3) of the available balance. At 1/2 your scores will be better, 1/3 better still. Pay off any collections. THEY DO NOT JUST GO AWAY! Pay off or make arrangements to pay any judgments. We will not be able to do a mortgage loan with an outstanding judgment. They can encumber the title of the property you are purchasing since they are a recorded document. Thanks Shannon for this opportunity!