If You Haven't Checked Your Credit Report This Year, Do It Now. No, Really
by The Ascent Staff | Sept. 10, 2019
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.
Don't wait to check your credit report. Checking it now may save you frustration, legwork, and even money.
Image source: Getty Images
Your credit report affects more than your credit card's interest rate and your odds of being approved for a loan. It may damage your ability to get a job, rent an apartment, or get affordable car insurance. If you haven't checked your credit report recently, you could be sending the wrong message to more people than you realize.
Not convinced you need to check your credit report now? Keep reading to learn the reasons you'll change your mind.
Your credit report may contain errors
According to the Federal Trade Commission, 20% of Americans have incorrect information on their credit reports. If your rental application, credit card application, or job opportunity was denied due to some clerical error, you'd be mad, right? Prevent this by checking your credit report regularly.
Check your credit report for accuracy, keeping an eye out for the following:
- Late payments -- Was the payment in fact late, or did the creditor make a mistake?
- Active accounts -- Do all the accounts belong to you?
- Closed accounts -- Did you close the accounts, or was there a mistake?
- New inquiries -- Did you initiate the inquiries, or is it possible that someone else has stolen your identity?
- Collections -- Are the collection accounts accurate?
If something doesn’t seem right, contact the reporting credit bureau first. All three bureaus -- Equifax, Experian, and Transunion -- provide an online dispute form. Complete it with as much information as possible and include any supporting documents you have to prove your point. Each dispute must include the facts and the action you request (removal or correction).
After contacting the appropriate credit bureau, contact the creditor that reported the inaccurate information. Write the creditor a letter with the same details and reasons and provide the documentation you have to prove your request.
If the creditor sticks with its original report and the credit bureau doesn't come up with different findings, the bureau must include a statement of your dispute on the credit report for future creditors to see.
Checking your credit report long before you'll be subject to a credit check for a loan, job, or credit card application is important. An inaccurate credit report can lead you to be denied a loan, a lease, or even a job. On top of that, it may cause you to pay higher interest rates on loans, higher premiums on insurance, and higher APRs on credit cards.
Someone may have stolen your identity
According to Javelin's 2018 Identity Fraud Report, 16.7 million Americans were victims of identity fraud in 2018. Identity fraud can include opening new accounts in your name and using your existing accounts, such as credit cards, to make fraudulent purchases.
While you may see unauthorized transactions on your statement from an established account early on, it's less obvious when someone opens an account in your name. With no knowledge of the account, some victims only find out once they start receiving collection calls for unpaid balances. At this point, it could take months to fix the situation. Once you find out, file an identity Theft Report with the FTC and place a credit freeze on your account.
Checking your credit report now may help soften the blow and decrease the amount of work you have to do to repair the damage.
You need to answer to future lenders if you want new credit
If you plan to apply for new credit in the near future, lenders will look at your credit report. Knowing what's on it helps determine your next steps.
If your credit is in worse shape than you thought, take the time to correct it before applying for the new loan. For example, catching up on late payments, taking care of collections, or decreasing excessive credit card debt may help your credit score and chances of loan approval.
You may also find accounts that don't belong to you on your credit report. Lenders use all debts reporting on your credit report to determine your debt-to-income ratio. Accounts that don't belong to you could inflate your DTI ratio, decreasing your chances of loan or credit card approval.
Even if the information on your credit report is accurate, you need to know what it says. Maybe you forgot about the 30-day late payment you made one year ago or the medical account that accidentally went to collections. Preparing yourself ahead of time can help you have a productive conversation with your potential lender.
Your new potential job may depend on your credit report
16% of employers check all applicants' credit before making a hiring decision for all positions, according to the National Association of Professional Background Screeners
Employers look for red flags on your credit report that may signify trouble. They look closely at your credit balances, as well as your history of filing for bankruptcy. Employers want to know if you're in any type of financial distress that may cause you to resort to illegal tactics, such as theft or bribery.
Employers also look at your credit report to get a feeling of your sense of responsibility. If your credit report has numerous late payments or excessive outstanding debt, it could be a sign of irresponsibility. While credit checks are most common for executive, managerial, or money-handling positions, any employer may ask to pull your credit before making a decision (though they can't do so without your written permission).
You get a free credit report from each credit bureau
Thanks to the Fair and Accurate Credit Transactions Act of 2003, you can receive a free credit report from each of the three credit bureaus per year. Just visit AnnualCreditReport.com to get started. Rather than waiting until the end of the year to pull all three reports, spread them out throughout the year. This way you may catch issues with your credit early on and take the necessary steps to fix them right away.
It's easy to get your free credit report, and it won't hurt your credit score. Within a matter of minutes, after verifying your identity, you'll be able to download and view your credit report at your leisure. Take your time reading each line for accuracy. Compare the report to your records and dispute any issues you see immediately.
Don't wait until year-end to check your credit report
Starting now, create a plan to spread out your free credit reports. Even if you don't intend to apply for any new loans in the near future, knowing what is on your credit report can help in other areas of your life. Checking one report every four months gives you a better chance of keeping your credit report accurate and looking attractive to lenders, insurance companies, landlords, and employers.
Our credit card expert uses the card we reveal below, and it could earn you $1,148 (seriously)
As long as you pay them off each month, credit cards are a no-brainer for savvy Americans. They protect against fraud far better than debit cards, help raise your credit score, and can put hundreds (or thousands!) of dollars in rewards back in your pocket each year.
But with so many cards out there, you need to choose wisely. This top-rated card offers the ability to pay 0% interest on purchases into 2022, has some of the most generous cash back rewards we’ve ever seen (up to 5%!), and somehow still sports a $0 annual fee.
That’s why our expert – who has reviewed hundreds of cards – signed up for this one personally. Click here to get free access to our expert’s top pick.
About the Author
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
