Credit & Debt

CREDIT CENTER: Check Your Credit

When to Care About Your Credit

Shopping for a home or school loan? Been denied credit? Just curious about how the financial world judges you? All are great reasons to check up on your credit.

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By Dayana Yochim

How often should you check up on your credit? You'll read "once a year" in a lot of places. Certainly, more often than that is overkill for most people.

Still, the best answer for any individual will depend on a number of personal and financial variables. What are your future borrowing needs? How much capital do you have at risk? What's your current credit exposure? How much can you tolerate the unknown?

See if you identify with any of the following situations, then use it to base your credit-checking behavior.

I have not recently been denied credit and I have no near-term plans to borrow or open a credit card account.

Well, aren't you a goody-two-shoes? (We only jest because we're jealous.) Seriously, though, what you don't know can hurt you. It can take a while to clean up mistakes or establish credit if you need to. So if home-buying plans are on the horizon (even within a few years), you can't check your file too early. Successful home purchases rely heavily on timing. Better to check your credit file ahead of time, rather than wait for the verdict from the creditor.

Also, look ahead towards other possible loans (a car, perhaps?) and credit card needs. Major life changes, like divorce, can also be triggers for checking your credit history.

Perhaps the best reason for checking your credit files periodically is the potential for identity theft, an increasingly common problem.

Lastly, if you do truly lead a dull credit existence, the only reason to check it may be to appease your vanity. This is one of the few times in life you can see yourself (at least your financial self) exactly as others see you. (Well, Larry the Lender, anyways.) Heck, if you have a stellar report, print it out and brag about it at cocktail parties.

I have been denied credit.

If you have been denied credit, first, ignore the late-night TV spokesman offering to give you credit no matter what. (You'd think he'd be able to afford a better suit given his loan practices.)

Ask the lender who turned you down whether a credit report was used in making the decision. If one was, you get a free copy of your report. There may be a simple error and a simple correction.

For more on how to fix credit problems, including the ones that aren't there accidentally, see our article "How to Fix the Boo-Boos."

My credit file is free of errors and I still can't get credit.

First of all, seriously consider the possibility that the creditor has made a prudent decision. We preach about the burdens of debt elsewhere on the site and you probably wouldn't be reading this if you didn't have a compelling reason to borrow more. So we won't go into it here.

But ask yourself, honestly, how compelling your credit needs are and how much you are willing to pay to meet them... because you can usually get a loan or credit one way or another, if you really need it or want it badly enough. But such loans usually come with high fees and interest rates, a cruel irony given that many such borrowers are strapped with high debt payment loads already.

If you decide that you can wait, there are many groups that offer support in dealing with debt. Our own Foolish Credit Cards Discussion Board provides top-notch community support for folks struggling with the temptation of credit cards. Also, try to find a financial institution with whom you can develop a personal relationship. Small-town credit unions are often ideal candidates. Give them all your financial business and work hard to keep the slate clean.

Above all, steer way clear of any entity that advertises an ability to provide debt relief without pain. Almost without exception, it is not possible to back up such a claim. The sad truth is that people in dire financial straits to begin with are among the most common victims of scam artists.

The checkout clerk at the Piggly Wiggly is giving me weird looks and all the tellers at the bank titter when I walk by.

You may be a victim of credit fraud. (Or you may just be wearing a really ugly hat.) If you fear that you have become a victim of identity theft, the first place to turn is the credit bureaus. Your credit report will reveal any suspect activity that you might not know about. You can even request that the reporting agencies refuse new inquiries or alert you to any that are done, though these services cost extra. There are measures you can take (for free) to protect your identity.

Next up: Anatomy of a Credit Report