What is a credit report?
A credit report is a statement containing information about your credit history and overall financial situation. The US Consumer Financial Protection Bureau explains what’s going on with your credit report, including your personal history, credit accounts, and public records such as bankruptcies, foreclosures, liens, civil lawsuits, and judgments .
Credit reports from each of the three bureaus may not be the same as some lenders can only report to one bureau. Therefore, your credit scores from each of the agencies may be different. There are also independent rating companies such as FICO. FICO scores are calculated from your credit report and presented as a three-digit number indicating your creditworthiness. The higher the number, the better your credit. You can get your FICO score directly from the company for a range of annual fees.
Checking your credit report and credit score
To check your credit report, request a copy from Experian, Equifax and/or TransUnion. These credit bureaus are required to provide you with a free copy once a year. “It’s important to routinely check your credit reports to make sure there’s no unauthorized activity,” says Allie Wadley, senior vice president and chief credit officer at North Dallas Bank and Trust Company.
In addition to contacting the three major credit bureaus individually, you can request and view your free credit report online each year at AnnualCreditReport.com. “All three reports can be requested at the same time, or you can order one report at a time, making it easier to track your credit throughout the year,” says Wadley.
The Federal Trade Commission has a wealth of information about credit reports on its consumer advice website, including how to request and read a credit report. The FTC warns against requesting your credit report from anyone other than the credit bureaus or annualcreditreport.com because the information may not be accurate, or it may even be a scam.
You should also monitor your credit score, a three-digit number that represents your ability to repay a loan. It is calculated from your credit file. A complication is that there is no single credit score, as scores are calculated by several different organizations, each using their own methods. Still, monitoring your credit score from one or more sources is essential to help detect errors and prevent identity theft, says Wadley.
To check your credit rating:
Visit Free Credit Reporting Websites
Each of the three credit reporting agencies can provide a credit score based on their data. If you want to see an overall score that includes all three for free, visit Credit Karma or Credit Sesame.
Additionally, several websites offer free credit score information, which is not free. Each site will ask for personal information such as your name, address, and social security number. These sites will also provide links to credit cards and other offers for which you may be eligible.
Ask your credit card provider
A growing number of credit card companies provide credit scores as a service, according to the Consumer Financial Protection Bureau (CFPB). The CFPB website offers guidelines and suggestions on these credit scores, as well as links to request your credit reports.
Consult a non-profit credit counselor
A nonprofit credit counselor can provide your credit score and a copy of your credit report, as well as a number of other financial services. However, not all companies posing as credit counselors are legitimate. The FTC provides tips for choosing a credit counselor, including ways to tell if the company offering these services is trustworthy.
The US Department of Justice (DOJ) maintains a list of licensed credit counselors, primarily for those seeking bankruptcy. The DOJ also offers the list for those who simply need credit counseling.
Other nonprofits, including AARP and the National Foundation for Credit Counseling, can also help you find credit counselors. Just be aware that according to the FTC, nonprofit status does not guarantee that the services are free, affordable, or even legitimate. In fact, some credit counseling agencies charge high fees, which they can hide. Others might urge their clients to make “voluntary” contributions which can result in more debt.
If you identify incorrect information on your credit report, you can request corrections from the credit bureau where the inaccurate information appears. Each website will ask you for basic information such as your name and address, social security number, and email address.
What is a good credit score?
What constitutes a good credit score depends on who you ask and how you use the score. myFICO provides a chart listing credit scores ranging from below 580 to above 800. Above 670 is considered “good.” Credit.org, a nonprofit financial advisory agency, says “good” scores start at 680, while a bad credit score is below 619.
Most people know the importance of a good credit rating. “Everyone is trying to find the perfect 850 credit score,” says Kristy Kim, CEO and Founder of TomoCredit. “However, many companies consider a good credit score to be between 680 and 700. Any score in the 700s is what most lenders are comfortable with.
How a score is calculated depends on a number of factors. There is no single formula, even within the same credit bureau. For example, FICO takes into account payment history, amounts owed, length of credit history, new credit, and credit mix. The weight given to each factor may vary from one individual to another. Other credit bureaus and rating agencies use similar but different methods.
FICO points out that interest rates are highly dependent on credit scores. Generally, having good credit will get you a lower rate. “The fact is, a good FICO score can save you thousands of dollars in interest and fees because lenders are more likely to charge lower rates if you pose less risk to them,” says FICO. A good credit history can increase your available credit or your credit limit.
In summary, having good credit is one of the most important things you can do to keep your financial life in order.
Why is it important to check your credit report and score?
Checking your credit report and score is important for several reasons, including to determine if you qualify for a loan, improve your score if necessary, compare financial products, and check for possible fraud.
Check if you qualify for a loan
Check your credit report and score to see if you qualify for a loan. “If your credit score is low, it will be harder for you to get the loan you need, and you may not even be considered,” Kim says. “You want to be prepared, so knowing where you stand in the eyes of lenders is important.
Improve your score and benefit from better loan rates
A 41-point change in a credit score can raise or lower an interest rate on a loan by more than 1%, says Richard Barrington, financial analyst at Credit Sesame. A better score can save thousands of dollars over the life of a loan.
Compare financial products based on eligibility criteria
Lenders may have specific eligibility criteria based on credit scores, even if they do not publish them. For example, mortgage lender FannieMae says a credit score of 620 is required for one of its loans.
Check for possible fraud
A reliable way to spot identity theft is to pay close attention to your credit report. Look for suspicious activity, such as charges you don’t recognize.
“If you notice unusual activity on your account and your accounts are suddenly frozen, it’s definitely fraud,” Kim says. “Be sure to check your statements and accounts to see if everything is in order. If there are business names you don’t recognize or you’re suddenly denied credit, you’re probably compromised and need to address this immediately. I always suggest signing up with a continuous credit monitoring company that can find discrepancies much sooner than you can most of the time.
How to Dispute Something on Your Credit Report
If you see something that you don’t think belongs on your credit file:
- Confirm that the suspicious information is in fact an error. This may require contacting the merchant or other business that reported the item. Your credit report includes contact information for this purpose.
- Dispute the entry. The FTC provides detailed instructions on how to dispute an incorrect entry. In short, you should contact the credit bureau that reported the information online, by phone, or by sending a physical letter. Also contact the company that provided the information.
If an incorrect entry appears to be the result of identity theft, report the issue to the FTC. Other steps to take include contacting the company that reported the fraudulent entry, filing a police report, and reporting the identity theft to each of the credit bureaus.
Finally, if you believe you have been the victim of identity theft, place a security freeze on your credit at each of the bureaus. Contact each office to request a freeze. You may need to fill out a form, but recently all three credit bureaus have been accepting security freeze requests by phone or online. Placing and removing a security freeze is free, but you will need to provide information to the credit bureau to confirm your identity.
Guides from 360 reviews
Why you can trust us
At US News & World Report, we rank the best hospitals, the best colleges, and the best cars to guide readers through some of life’s most complicated decisions. Our 360 Reviews team uses this same unbiased approach to evaluate the tech products you use every day. The team does not keep samples, gifts, or loans of products or services we review. Additionally, we maintain a separate sales team that has no influence over our methodology or recommendations.