Why You Should Check Your Credit Regularly

What’s the big deal about credit scores? Since credit scores are recognized as predictors of future bill paying ability, the better your rating, the more financing options and terms that are made available to you: just think of all the situations your score enters the picture:

Who Checks On Your Credit? What Your Credit Score Affects Lenders Bank loans: a home mortgage, car loan, credit card, business loan are all much more expensive with poor credit. You’ll get faster credit approval with good credit. Insurers Auto insurance premiums and rates, home insurance rates. A good score can be responsible for lowering your premiums by 31% than what it would normally be. A bad score can raise premiums by 143%. Landlords Your credit rating can be an indicator of how prompt you are about paying the rent. Employers 35% of employers check up on you to make sure your focus is on your job and not on your financial problems. Utility Providers Cell phone providers and other agents may offer less than optimal plans and rates to those with poor credit. This way, providers manage the risk of payment default by customers. Source: MSN Money

So it’s clear why we’d want to stay on top of our credit profile: the more we know about it, the better we can manage it. What’s interesting is that informal polls have shown that almost half (49%) of those polled did not know the significance of these scores.

Tips On Getting Your Credit Score and Report

There are two elements to your credit profile and rating: your credit report and your credit score. While credit reports can be obtained for free rather easily, you will typically need to pay for your credit score although free credit scores do exist with some caveats in their usage. We’ll expound on this further below.

Some general tips on securing your credit information:

#1 Start out with free credit reports.

To get a good picture of your credit several times a year, you can order your reports from AnnualCreditReport.com, which is the central, official site from where you can conveniently obtain free credit reports.

#2 Stagger your free credit report orders.

It’s wise to stagger out your orders for these free reports so that you get one from each of the three bureaus every 4 months. However, even though you can do this, you won’t get your credit score for free. Unfortunately, what you get from AnnualCreditReport.com does not include that magic number called your credit score, so you’ll have to determine whether you need to pay for that extra information.

#3 Not all credit scores are equal.

Don’t look now but you probably have many credit scores to your name:

You get a score for each credit bureau that makes the calculation.

Your score changes over time based on your financial habits.

Be aware that some scores used by lenders or insurers are based on estimates so by knowing your real scores, you can make the appropriate corrections and justifications when dealing with these agents.

Credit bureaus don’t share their data with each other.

Lenders typically check all your scores when large loans are involved.

Just take a look at the various credit scores available to consumers. The most widely used scores are the FICO scores:

Credit Score

Where To Buy

Range

FICO Score (TransUnion) myFICO 300 – 850 FICO Score (Equifax) myFICO 300 – 850 FICO Score (Equifax) Equifax Score Power 300 – 850 Experian Plus Experian 300 – 850 VantageScore Experian 501 – 990

(letter grade: A – F) Credit Karma Score Credit Karma 300 – 900

Credit scores are calculated differently by the different credit reporting agencies. Things can be confusing here since Credit Karma, TransUnion and Experian use their own proprietary algorithms while Equifax uses the most widely used credit score formula (from Fair Isaac Corp or FIC) called “FICO”. The numbers themselves may not be equal but they may source the same credit report as the basis for their calculations:

Perhaps the most obvious difference among the scores is their ranges. For example, Equifax uses FICO’s credit-score range, from 300 to 850. But TransUnion uses a range from 400 to 925 (I’ve also seen it reported as between 150 and 934), and Experian scores are reported with a range of 330 to 830. A FICO credit score of 790 from Equifax translates to a score of 868 from TransUnion and to a score of 776 from Experian. But consumers could count on roughly equivalent scores so long as the underlying data on file with each credit-reporting agency are essentially the same. Let me clarify that we’re discussing proprietary TransUnion and Experian scores here, which you get by visiting the TU and Experian sites independently. In actuality, FICO scores based on TransUnion and Experian credit reports do exist as well, which are scores that are calculated using the FICO formula. You can find these scores in our table above.

If you’re still confused, here is how to think of these scores:

Equifax score is strictly a FICO score. It’s available at myFICO.

TransUnion score can be proprietary if the TU non-FICO formula is used to calculate it. But it’s based on your TU credit report. This may be available at the TransUnion site.

TransUnion score can be FICO if the FICO formula is applied to your TU credit report. This is available at myFICO.

Experian score can be proprietary if a non-FICO score formula is used to calculate it, but it’s based on your Experian credit report. This may be available at the Experian site.

An Experian FICO score is no longer available. Check our update on the Experian credit score and report story for more details.

#4 Only pay for credit scores you need.

Some of us don’t want to bother with the variety of scores that are generated in our name. Some will want to know them all for their peace of mind, particularly to ensure that there are no glaring mistakes in the calculations done by the reporting agencies or to keep an eye out for fraud or ID theft. At the very least, you’ll avoid surprises if you get those scores that will be in use for any upcoming transactions you’ll be involved in. Lenders are likely to check all your scores if you’re applying for major loans. If you care about only one score, then you should stick with a FICO score that’s available at myFICO.

#5 Use a FICO score simulator.

It’s not the real thing, but you can get an approximate idea of your credit rating by trying out a simulator tool like this. To some degree, it may provide you an indication of your credit-worthiness. You can also play with some variables to see how certain hypothetical events can affect your credit.

#6 Watch out for “Free Credit Score and Report” scams.

There are other web sites out there that will purport to provide you free credit reports, free credit scores and free credit monitoring, but these are recognized as “impostor sites” by the Federal Trade Commission. Here is what the FTC says about these so-called credit web sites:

Only one website is authorized to fill orders for the free annual credit report you are entitled to under law: AnnualCreditReport.com. Other websites that claim to offer “free credit reports,” “free credit scores,” or “free credit monitoring” are not part of the legally mandated free annual credit report program. In some cases, the “free” product comes with strings attached. For example, some sites sign you up for a supposedly “free” service that converts to one you have to pay for after a trial period. If you don’t cancel during the trial period, you may be unwittingly agreeing to let the company start charging fees to your credit card. Some “impostor” sites use terms like “free report” in their names; others have URLs that purposely misspell AnnualCreditReport.com in the hope that you will mistype the name of the official site. Some of these “impostor” sites direct you to other sites that try to sell you something or collect your personal information.

So be forewarned that in this case, “free” most likely will come with a catch.

Why You Should Check Your Credit Regularly

By law, you are entitled to free credit reports from the three credit reporting agencies (Experian, TransUnion and Equifax) once per year as dictated by the Fair Credit Reporting Act (FCRA). In many situations, that’s all you’ll probably need, but some establishments may prefer to review your credit score because it’s the quick and easy way to gauge your financial standing. Really, who wants to wade through credit report paperwork when a number can tell all?

While your credit report is a record of all your credit-related activities, your score is the number that represents your credit health based on your report. Through secret recipes closely held by the credit bureaus, pages of your credit report data are distilled and boiled down to this one number that’s so much more convenient to digest and process. Many businesses like using these scores because these numbers provide a way for the businesses to standardize their payment terms and policies.



THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV. You have the right to a free credit report from AnnualCreditReport.com or 877-322-8228, the ONLY authorized source under federal law.

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