Free Credit Report Advice

What is a free credit report?

It is now possible to immediately get your free credit report online. While virtually everyone knows that credit reports are important, there is still a fair amount of confusion surrounding exactly how they work. In order to effectively use your free credit report and takes steps toward improving your financial situation, it is wise to have a clear understanding of the subject.

A credit report is just a record of your financial history. Anytime you take out a loan or make a credit card payment, for instance, it shows up on your credit report. Potential lenders use your credit report to evaluate your “credit worthiness,” or how likely you are to pay back your debts.

People who have had trouble with credit in the past (lots of late credit card payments, defaulted loans, or even bankruptcy) are, naturally, considered risky candidates by lenders. On the other hand, if you have a long history of paying your bills promptly and not becoming financially overextended, lenders will encourage your business by offering you more credit and lower interest rates. If you are like the vast majority of people, you likely fall somewhere in the middle.

What is a credit score?

Your credit score is a numerical “summary” of the information contained in your credit report. You can think of it as your financial grade point average. Although there are actually numerous different types of credit scores out there, the FICO score is, by far, the most commonly used system in the U.S.

The exact method used to calculate a person’s FICO score is proprietary (kept secret.) Its purpose, though, is to give lenders a simple, efficient way of evaluated a potential customer. Without credit scores, lenders would have to read through and analyze each and every applicant’s credit report, a potentially very time-consuming and imprecise task.

You should keep in mind that you, in fact, have three different credit scores – one from each of the three major credit reporting agencies (Equifax, Transunion, and Experian.) While all three scores should be almost identical (there is a small degree of variance resulting from minor calculation method differences,) occasionally one of the agencies may make an error on your file. It is a good idea to always pay attention to any discrepancies between your scores, as this usually means something was incorrectly recorded by one of the companies.

How is my credit score determined?

Although the exact formula isn’t publicly known, as mentioned above, your FICO score is calculated using the following five categories of financial data: payment history, amounts owed, length of credit history, recent credit activity, and types of credit used.

The first two categories (payment history and amounts owed) are the most important. Together, these two factors account for about 65% of your total score. The exact percentages that each of the five areas contribute varies somewhat depending on your individual financial history.

In particular, younger people and others who haven’t been using credit for very long should expect to have less emphasis placed on their payment history (since they haven’t had very long to develop a strong reputation.)

Why should I get a free credit report?

If you have ever borrowed money in the past or plan to in the future, then a free credit report is a virtual necessity. Since this description covers just about everyone, it is a safe bet that a free credit report is something you should definitely check out.

Maybe you need a loan for a car. Perhaps you would like to own your own home. Maybe you would just like to get a credit card in order to have more purchasing power and flexibility when it comes to day to day expense? All of these things involve credit. The better your credit history, the better your chances of being approved and getting a good interest rate. A high credit score can both save you thousands over the years and expand your purchasing opportunities (a fancier car, a bigger house, etc.)

Can Getting a Free Credit Report Help to Prevent Identity Theft?

Identity theft is an increasingly common problem. Malicious hackers and other computer criminals steal credit card numbers, social security numbers, and other personal information from millions of individuals every year. This information is then used to open new credit cards, take out loans, and make big purchases. The victims are left with ruined credit and, in many cases, huge amounts of debt. Getting it all sorted out can be a long, difficult, and expensive process.

Identity theft is particularly hard to prevent and control because many victims have no idea it has happened to them until long after the fact. It can be months or years before they figure out that something is wrong. Even after it becomes apparent that identity theft has occurred, it can be still be very difficult to figure out how and when it happened and to track down the culprit.

Naturally, most people want to know what can be done to help prevent this very distressing crime. There is one simple thing, fortunately, that can dramatically reduce your risk of identity theft — regularly checking your credit report.

Any suspicious or unauthorized activity will show up quickly on your report, usually within a week or two following each monthly billing cycle. While a free credit report won’t necessarily prevent identity theft from happening, it is an invaluable tool for mitigating its damaging affects on you financial well being.

Can a Free Credit Report Help Me Improve My Credit Score?

Yes, a free credit report is a great way to begin the process of improving your credit score. Before you can solve any problem, you need a thorough understanding of what the current situation is. With a free credit report, you get a detailed, well-organized snapshot of your financial life. You can see how you look “on paper” to credit card companies, loan officers, and other potential lenders. This is a great way to get an objective sense of your financial status, without all the complexity and emotion that money and money problems so often bring.

A free credit report is the perfect starting point for drafting your plan for a brighter financial future. Perhaps you already have good credit and just want to know how to make it every better. Maybe, on he other hand, you have made some mistakes in the past and have a lot of work to do before your score is something to celebrate. Either way, a free credit report will give you the information necessary to get moving in the right direction.

Free Credit Report

A free credit report can help you gauge your status among creditors and banks. A free credit report can also help you manage your finances to a degree, allowing you to plan your expenses properly too. It will be especially useful if you have a family to feed and look after daily, as expenses may need to be divided among your immediate family members. Planning your expenses by effective utilization of a free credit report can also mean efficient future planning too.

Your credit rating can be determined by a number of things. It is primarily issued to people who hold checking and bank accounts, as well as people who have taken out loans before. Banks and other financial institutions may use these credit ratings to gauge how likely you are to pay back debts such as loans and credit interest rates. Having a good credit score can help you gain favor with major banks, while a low credit score may mean just the opposite.

Credit Reports and Credit Scores

Credit report and credit scores share two significant differences from each other:

• A credit report shows a detailed history of the credit cards you have used, as well as any loans you may have taken out. This history is typically issued by major credit bureaus once a year. It may also include detailed information about the accounts that you have held, as well as collections if you have any.
• A credit score is a three-digit number that is based on the information shown on your credit report. This credit score is based on your ability to pay back loans and credit interest rates, among other details. It can also include any negative information which can reflect on the final credit score.

Based on these credit scores and reports, banks and financial institutions will be able to gauge your reliability when doing business with them. Credit reports in particular will evaluate the credit worthiness of an individual or company. A credit report will contain an individual’s past borrowing and repayment history. Creditors will look for particular information when going over your credit report, such as late payments and bankruptcy.

Customers who apply for credit with a bank or other financial institutions will have his or her information forwarded to a credit bureau for a background check. Information written on this application will be cross-checked before a final credit report is issued to the creditor. Providing accurate information to a creditor, whether or not you have a bad credit rating, is always important.

Credit scores, on the other hand, are simplified numerical scores that represent a statistical analysis of a person’s credit report. Credit scores are also sourced from credit bureaus, and are used to evaluate the potential risk a consumer poses to a creditor or financial institution. Credit scoring is not only done by banks, but also by real estate companies, government agencies, mobile phone providers and insurance companies.

Both of these should be looked after, especially if your financial situation is particularly sensitive. As credit reports and scores are used to assess a consumer’s likelihood to repay debts on time, people with bad credit reports or credit scores may be shunned from financial transactions. This may not always be the case, however, as some financial institutions may have special deals for people with unfavorable credit reports and low credit scores.

Importance of Free Credit Reports

Every U.S. Citizen is entitled to a free copy of his or her credit report once a year. This is attributed to the FACT Act, or the Fair and Accurate Credit Transactions Act, established by Congress in 2003. The importance of this free credit report is not only for transparency during financial transactions, but also to safeguard the finances of American families.

These free credit reports can be very important for a variety of reasons:

• It can be a good way to safeguard citizens against identity theft and fraud.
• Free credit reports provide transparency between creditors and their customers.
• They allow a means to which a person can accurately plan expenses.

Should you already have a copy of your free credit rating, then you should be able to plan your expenses better. If you currently possess a bad credit score, then your free credit report should be a good way to formulate a plan of recovery. Getting your credit score up can help you utilize more financial transactions while keeping you from reverting to a default.

You can try a few things to keep your credit report favorable:

• Keep an account open with one bank or institution for a long time – A general rule to follow is that the older your credit report is, the more stable you are perceived by creditors and financial institutions.
• Diversify your accounts – Your credit score improves if you have more than one type of account on file. Your experience in dealing with multiple kinds of bank accounts and loan types makes you look more reliable in the eyes of creditors.
• Minimize requests for credit reports – While this may have little to no bearing on your credit score whatsoever, a request for a credit report is noted down every time it is made.

Some businesses exist solely to provide consumers with credit reports. These usually cost a small fee, and can be an alternative to having to wait for your free credit report once every year.

A person’s annual credit report, and subsequently the credit score or rating gleaned from it by the credit bureau, directly affects his or her ability to apply for a credit or a loan from different financial institutions.

Credit scores and ratings will have a strong effect on how creditors and lenders will view your credit worthiness, but your credit history may have more bearing on your potential employer who will want to assess your ability to manage financial assets.

Below are some common myths about credit reports and credit scores:

1.) If you close a credit account, it will help you improve your score.

It won’t. It will even hurt it because old credit accounts that are being maintained will mean that you are paying them responsibly for a long period of time.

2.) If you open a lot of credit accounts, then these accounts will help improve your score.

This is also a very common myth. Money lenders will infer from the simultaneous opening of credit accounts that a certain consumer needs money so badly that several credit lines needed to be applied for in order to make ends meet. Opening a lot of accounts will deduct directly from your credit score, because each time an individual opens a credit line, a hard inquiry is made on the credit report by the creditor or the institution where you are getting your loan from.

3,) If you check your credit score periodically, you risk the chance of hurting it.

Checking and getting credit reports will have no effect on your credit score. As a matter of fact, you have three different ways to get them every year. Getting your credit report is free because it is mandated by the law. Obtaining a copy of your annual credit report regularly is even helpful in catching identity theft cases. Plus, it will have the added benefit of your knowing how you can improve your credit score.

4.) Canceling offers from credit card companies will help improve the credit score.

Every time you opt out of credit card offers, you are simply lessening junk mail sent to your address. These credit inquiries generated from credit card offers are soft inquiries that will have no effect on your credit score.

5.) If you want to restore your credit score, then you must pay your outstanding balances.

Paying off a delinquent balance will only rid you of the financial obligation. The delinquency mark will remain on your record. These delinquent activities that negatively affect the credit score are delayed payments, accounts sent to collection agencies, charged-off accounts, and declarations of bankruptcies.

6.) All delinquent payments have the same effect on the credit score.

Any delays in mortgage and car loan payments count more than a delayed credit card payment. Mortgage and car loans weigh in heavily on your credit score.

7.) If you pay before the due date of a bill or a loan, it will help tremendously improve your credit score.

Paying ahead of the due date is a maneuver that will not work in improving a credit score because the account balance has already been reflected and reported to the credit or loan agency. But if you pay ahead of the statement date, then that will give a zero balance on your account and thus enhancing your utilization rate or the amount of credit you are utilizing. This will give a boost to your credit score. Most importantly, paying on time is what really counts.

8.) The credit reports and credit scores are the same regardless of where you get them.

This is not true. The three credit reporting agencies or credit bureaus, namely Equifax, Experian, and TransUnion, work independently of each other and they never share their data. You may use this important fact to closely compare and keep an eye on your credit reports (from the three major credit bureaus) and all the possible errors or disputes that may arise from them.

9.) A credit report is not important if you know you have good credit history.

The law gives every American the right to request a free copy of their annual credit report from the Federal Trade Commission (FTC). Obtaining copies of your credit reports and analyzing them periodically will safeguard you from identity theft, and if suspected, then you can address it right away by filing a police report and notifying your creditor.

10.) A perfect credit score is not possible.

The perfect 850 credit score is just around the corner provided you always pay your bills on time and you have just the right mixture of credit and good debt, like student loans.

11.) If you are married to someone who has a bad credit score, then you must expect that will negatively affect yours.

This is only true for joint accounts.

12.) Employers will check the credit scores of their potential applicants.

This depends on the job you are applying for. Also, according to a 2010 statistical report, roughly 13% of companies do credit report checks on their job applicants.

13.) Employers will only look at the bad credit score and not the reasons behind it.

Employers checking on their applicants care a lot and are usually very thorough. There are instances, especially if you have impressive credentials, when you even get called to explain how you got the bad credit score.

14.) Employers and criminals are searching for the same information on your credit report.

Also, be careful! Some fast credit repair services and some credit monitoring services may even perpetuate these misconceptions to prey on unwary consumers.
Click Here for the Top Rated Credit Repair Program.

Credit scores and ratings will have a strong effect on how creditors and lenders will view your credit worthiness, but your credit history may have more bearing on your potential employer who will want to assess your ability to manage financial assets.

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This video explains what your credit score is and the ways it is calculated:

Be sure to check your credit report to see how you stand in your credit worthiness.