With identity theft and credit-related fraud running rampant, you have to protect yourself. In response to this growing problem, Congress enacted the Fair and Accurate Credit Transactions Act, or FACT Act, in 2003. With its numerous provisions designed to give you access to your credit information, FACT gives you a powerful arsenal that allows you to be proactive in managing your credit, far beyond just checking your monthly credit card statements for items you didn't buy.

Free credit reports
For years before FACT became law, you could exercise your rights under the Fair Credit Reporting Act to obtain a credit report. However, that law allowed the three major credit-reporting companies -- Experian, TransUnion, and Equifax (NYSE:EFX) -- to charge a reasonable fee in most cases. Because Congress feared that even a small fee would deter consumers from regularly checking their credit reports, FACT changed the law to allow consumers free access to their credit information.

Under FACT, you can request a free credit report from each of the three credit-reporting companies every year. How you choose to time your request for your credit information is up to you, so you have a couple options in how you monitor your credit reports. If you get all three of your credit reports at the same time, you can compare them to make sure that each has consistent information about your credit. On the other hand, if you choose to request your credit reports one at a time and spread them out evenly, then you can keep an eye on your credit information throughout the year without ever having to pay for a report.

To facilitate requests for free credit reports, the three credit-reporting companies established a website for consumers to use. Unfortunately, a number of other websites with similar names that are unaffiliated with the major credit reporting companies use the promise of free credit reports to gather potential customers for additional credit-monitoring services, for which they collect fees. The official website will give you your full credit report without asking you to sign up for an ongoing service or pay any money.

What about credit scores?
FACT also includes a provision about credit scores, but it doesn't make the scores free. Instead, the law states that consumers have the right to obtain a score from the credit-reporting companies and allows the companies to charge a reasonable fee for the scores. However, there are a number of different types of credit-scoring systems. The one with which many people are most familiar, the FICO score, is produced by Fair Isaac (NYSE:FIC) using information it obtains from the credit-reporting companies. In addition, there are other scores that are used specifically for borrowers seeking mortgage loans, as well as a score that the credit-reporting companies calculate for educational purposes.

One problem with FACT is that you may not get access to your FICO score. In some cases, the score you'll get under FACT may be one of the educational scores calculated by the credit reporting companies. Although Equifax gives consumers the ability to purchase their FICO score, the other companies may provide you with a different score based on other methods. The existence of other types of credit scores can be extremely confusing, especially because the scores you get may not be the ones lenders use to make credit decisions. In addition, the range of possible score values differs depending on which company produced the score. For instance, while a FICO score can range between 300 and 850, Experian's credit score falls between 330 and 830, and the score that TransUnion produces can be anywhere between 150 and 934. Because these ranges largely overlap, they can mislead consumers into believing that they can make comparisons among their various scores, when in fact the scores are calculated differently and therefore are best considered independently from each other.

Why you should care
Credit has become an extremely important factor in a variety of financial transactions. Most obviously, lenders want to know how well you have handled credit in the past before they choose to extend additional credit to you in the form of a new loan. However, there are other, less intuitive ways in which various people with whom you do business may use your credit information.

For instance, it's almost impossible to rent an apartment without undergoing a credit check from your prospective landlord. Many employers now ask job applicants to consent to releasing credit-related information during the hiring process, especially in companies that provide financial services and therefore involve a great deal of interaction with client assets. Insurance companies sometimes offer different rates to consumers depending on their credit history. Even utility companies may check your credit to determine whether they want to require you to pay a deposit before they turn on your service.

Checking your credit report is important as part of your defense against identity theft and credit card fraud. One method thieves use is to steal applications for new credit cards from your mailbox and then use the newly issued cards to run up expenses in your name. Because subsequent bills and other information may be sent to a different address, you may never even know that a particular credit card company had offered you a card. By looking at your credit report, however, you'll be able to see all of your credit card accounts. If you see one you didn't open yourself, you'll know there's a problem, and you may be able to catch fraudulent transactions before they become a much bigger hassle.

FACT gives you helpful tools to stay aware of your credit information and to defend against fraud. If you see something that looks incorrect, you're going to want to do something about it. The second part of this article looks at the rights that FACT gives you to correct errors in your credit information and to deal with credit fraud.

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Fool contributor Dan Caplinger found his credit report to be fascinating reading. He doesn't own shares of any of the companies mentioned in this article. The Fool's disclosure policy never turns you down.