Fresh Finance: Your Annual Credit Report

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The other day I got an email from TransUnion reminding me it was time for my annual credit report.  At first, I felt a sense of excitement.  Anything that is free is normally a good thing.  But as the excitement faded, I began to worry about what might be on my credit report.  The unknown is always unnerving at first especially when the situation renders any kind of judgment.  Its the main reason people don’t go to the doctor and get tested for things they should. I won’t go into specifics but I’ll quote Nas and say “its like an AIDS test, what’s the results?” Most people aren’t in a rush to find out what’s on their credit report despite how critical a good credit report and credit score is to their financial wellbeing.  So here is why I think you should check your credit report at least once a year.

You are entitled to one free report a year.

Of course this isn’t advertised on all the airwaves and TV stations but every citizen in the U.S. is entitled to one free credit report from each of the three main credit reporting agencies in a 12 month period.  It’s important to note you should take advantage of obtaining all three reports because all three will not contain the exact same information.  The many different creditors and lenders you may have don’t all report to the same agency.  That is why there are three agencies and not one.  So it’s important to check all three for ultimate accuracy.

So how can it be free?

Well the Federal government thought it important enough that we all should be privy to this information.  So, they enacted the Fair Credit Reporting Act a few years ago to help consumers stay informed about their financial activity, fight identity theft, and get fair treatment from their lenders and creditors.  The FCRA guarantees everyone the right to their free annual report from the big three, TransUnion, Equifax, and Experian.

Why is your credit report so important to your financial future?

Great question.  Your credit report is used by lenders to determine your credit worthiness.  In essence, your credit worthiness is the degree of potential risk you pose in paying back your loan and paying it back on time.  Lenders typically include banks, credit card companies, mobile phone carriers, employers, landlords, and various government departments.

In addition, lenders use it to determine at what interest rate your loan qualifies for and what your credit limit should be.  A lower interest rate will save you a lot of money in the long run because it will equate to lower interest payments and more money in your pocket.  Employers and landlords use this information in much the same way except their decisions equate to whether or not you will make a reliable employee or tenant.  Who would have ever thought your credit score would keep you from getting a job?  The vetting process is getting a lot more thorough.

So what do lenders look at when they are viewing your credit report?

There are five main aspects to a credit report that are heavily scrutinized.  They are your payment history, the amounts you owe, the length of your credit history, types of credit used, and your new credit.  Most people have had issues in their past dealing with money, maybe missing a payment here and there, or even defaulting on a credit line.  No one is immune to financial setbacks.  But, this information stays on your credit report for 7 to 10 years and the scariest part about it is that some of this negative information may not even belong to you!  Have you ever heard of identity theft?  The only way to know what is on your own credit report is to simply check it.

Buyer beware.

Of course anything free is too good to be true.  There is ALWAYS a catch.  Despite federal regulation, the credit bureaus and other third parties have maintained a way to keep credit reporting a financial cash cow.  Although the credit report is free, the credit score is considered an additional service and must be paid for.  It’s like buying an ice cream sandwich without the ice cream.  The sandwich is only good if the ice cream comes with it.  The same goes for a credit report and accompanying credit score.

Also, be wary when signing up for your free credit report with a third party site.  You will be required to sign up using a credit/debit card in order to actually get your free report.  The reason for this is two fold. First, its used as another way to identify you as the person who is requesting the report.  Second, they are probably signing you up for a credit monitoring service via a FREE trial.  Most times you can’t get the free report without signing up for this ‘FREE’ credit monitoring trial.  The trick is that you have to cancel the free trial before the monthly charges begin to take effect. Read the fine print.

So where should you go to receive your free credit report?

As a result of the FCRA, the three credit bureaus set up a website, www.annualcreditreport.com, specifically for people to obtain their free yearly reports.  There are other sites that will offer you free reports as well but be cautious of additional fees and be sure to read the fine print.  Also, pay close attention to any additional services they try to sell you beyond the free credit report.

Article by Kevin Breckenridge

Helping to raise the financial conscious of those who are consciously aware of the necessity to obtain financial freedom. Through education, exposure, open discussion, and action we can eliminate the financial strain on our pockets. Doing so will allow us to build the capital and asset portfolio necessary to truly enjoy our life as well as elevate the launching pad for our future generations. Follow me on Twitter @Legacieinmotion

Kevin has written 32 article(s) for us.