Financial institutions request copies of credit reports to help them decide whether to approve loan and credit card applications. Reviewing your credit reports regularly can help you correct any errors and better understand your overall financial situation.
Find Inaccurate Data
Sometimes the information contained in credit reports is inaccurate or out of date. One person’s data may wind up in another person’s credit report if the two individuals have the same or similar names. Identity thieves may create fraudulent accounts using stolen personal data. Credit reports may list closed accounts as active or may not include up-to-date information on payments that have been made. Derogatory information, such as a bankruptcy, may still be included in a credit report when it should have been removed. If lenders base their decisions on inaccurate or outdated information, you may be denied a loan or credit card that you deserve.
Get a Better Handle on Your Finances
In your credit reports, you will see all the debt you have. If your credit utilization ratio— the percentage of your total available credit that you’re using—is too high, you may be denied credit.
Credit reports usually don’t contain credit scores, but you may be able to request them when you check your credit reports. Monitoring your credit regularly can help you spot trends. If you consistently make payments on time and keep your credit utilization ratio down, you may see your credit scores climb. If you make late payments or let your debt get too high, your credit scores may decrease. That information can help you figure out if you need to make changes to your spending habits.
Prepare for a Major Purchase
Many people don’t give much thought to their creditworthiness until they want to buy a house or a car. If you want to take out a loan, but your credit isn’t good, you may be denied. If you happen to get approved, you may have to pay a high interest rate. Keeping track of your credit standing will give you time to address any problems and get your credit in shape before you need to borrow money.
How to Get Copies of Your Credit Reports
The three credit bureaus (Equifax, Experian and TransUnion) compile their own credit reports. Companies that you do business with don’t necessarily report information about you to all of them. Your three reports may contain different information, which is why it’s important to check them all.
You can go to annualcreditreport.com to request free copies of your credit reports from each of the three bureaus once a year. You can get them all at once or at different times. Requesting copies of your own credit reports won’t lower your credit scores.
Beware of other websites that claim to offer free credit reports. In many cases, you’ll be required to provide credit card information and will be billed monthly fees if you don’t cancel your membership.