Check Your Credit for the New Year

Why do I need to check my credit report?

There are two primary reasons to check your credit report. One is to ensure the accuracy of information and the other to monitor your credit reports to prevent identity theft. 

As a refresher, there are three major credit bureaus (Experian, TransUnion, and Equifax) that collect information about how you borrow and repay money. I wrote an information paper on Understanding Credit and Credit Reports for more information about credit reports. 

Credit scores can affect your ability to obtain loans. Image from pixabay.com.

The accuracy of information is important as it impacts our ability to obtain new loans and the rate we are charged for those loans. There is only one true source authorized by federal law to get your credit report. It is AnnualCreditReport.com. By federal law, you are entitled to a free copy of your credit report once a year from each of the three major credit reports. Some states may have additional expectations, like Maryland which allows for an additional free copy from each of the credit bureaus. 

Ever since the pandemic, credit bureaus have allowed individuals to get a free copy each week, but the ending date for that continues to change. The Consumer Financial Protection Bureau developed a nice tool / checklist to assist you in reviewing your credit report. 

The Federal Trade Commission reports 5.7 million cases of fraud and identity theft. Checking your credit report periodically can serve as a form of identity protection. The credit report contains a list of all active accounts reported to the credit bureau. You should make sure every account listed is an account that you opened. 

If you don’t plan on opening a line of credit any time soon, I suggest you freeze your accounts. This prevents someone from accessing the information in your credit report. Experian has good information about freezing your account. Remember you need to freeze the account with each credit bureau. And don’t worry, you can unfreeze or thaw your account at any time.If you become a victim of identity theft, FDC developed a website to guide you through the reporting and recovery process.

Your Credit Report – What is it used for?

We hear a lot about credit reports, but what are they used for?  In short, a credit report is a record of how you have used credit during a certain period of time. Credit is the money you have borrowed or have the potential to borrow from another, most often a bank or lender. The credit report shows who you have borrowed from, the amount borrowed, the type of credit, and your payments toward that credit over a period of time. This information can provide insight into one’s ability to pay debt over time. It can also be a reflection of someone’s character. 

Back to the question at hand, what is it used for? Anytime you borrow money from a bank or lending institution to do things like buy a car or a house, they want to know your likelihood of paying it back. To make that judgement, they will look at your credit report(s). Banks will also look at your credit report when you open an account. Similarly, credit card and mobile phone companies will do the same.

Some employers and landlords will check your credit reports as well. In some cases, you will need to sign a release for the individual or institution to access your credit report. In addition, some insurance companies look at this information. As stated earlier, it is about gauging an individual’s character and history of paying money back. 

There are also a few other entities that may check your credit report. Utility companies may use this information to determine if a deposit is required. Student loans that are held by private companies (not federal student loans) and student loans taken out by parents (PLUS loans) also look at your credit report. Collection agencies will use them when determining your ability to pay balances and government agencies with a legitimate reason can also access your credit information. And finally, anyone with a court order. 

Credit reports provide a great deal of information. It includes four sections — personal information, account information, judgements, and inquiries. Personal information includes names used, addresses, social security number, and birth date. You may find your name listed several different ways to include maiden names or abbreviated names. It may also include multiple addresses you have had, usually tied to an account you opened at some point. Judgements typically only include bankruptcies, as most credit bureaus have moved away from civil judgements. Account information was discussed earlier, but inquiries are also included on a credit report. Inquiries occur when someone requests a copy of your credit report. There are soft inquiries and hard inquiries. We can explain that in another blog, but in the meantime, here is a recent article from Forbes on the subject.   

In closing, let me share a reliable resource for more information. The Consumer Financial Protection Bureau has a wealth of information about Credit Reports and Scores. In addition, if you are a victim of Identity Theft, you can visit IdentityTheft.gov by the Federal Trade Commission. 

Check Your Credit

There are three national consumer reporting companies — Equifax, TransUnion, and Experian.  As a consumer, you must ensure the data about you maintained by consumer reporting companies is accurate and complete.

Due to the COVID-19 pandemic, the three national credit reporting companies are offering free weekly online credit reports through April 2022, and individuals can request free copies of those reports by going to https://www.annualcreditreport.com/index.action.  

Other companies collect your information and prepare consumer reports for other agencies.  As a consumer, you have the right to see those reports as well.

View the link https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/consumer-reporting-companies/companies-list/ to see a list of consumer reporting companies. These companies use reports to inform decisions about providing you with credit, employment, residential rental housing, insurance, and other decision-making situations.  

Who can see your consumer reports?

Consumer reporting companies collect information and provide reports to other companies about you, but they must follow legal restrictions. Generally, they can provide consumer reports and risk scores to businesses such as: 

  • Debt buyers and collectors
  • Lenders (including those that offer credit cards, home, payday, personal, title, auto including auto leasing, student loans, and security deposit financing and lease guarantees on home rentals)
  • Insurance companies
  • Employers, volunteer organizations, and government agencies to determine eligibility for government assistance (employment screening)
  • Landlords and residential real estate management companies (tenant screening)
  • Banks, credit unions, payment process (check screening), and retail stores that accept personal checks
  • Companies that market and sell products and services specifically to lower-income consumers and subprime credit applicants 
  • Communications and utility companies
  • Retail stores for product return fraud and abuse screening; as well as retail store that offer financing, such as appliance and rent-to-own businesses
  • Gaming casinos that extend credit to consumers and/or accept personal checks

Check your reports before making financial decisions

If you are applying for a job, an insurance policy, or a lease, you should fact-check your background screening reports to ensure there are no errors. 

You have the right to dispute the information in your reports

If you find information in your consumer reports that you believe is inaccurate or incomplete, you have the legal right to dispute the report’s content with the consumer reporting company and the company that shared the information with the consumer reporting company, such as your lender. Under the FCRA (Fair Credit Reporting Act), companies must conduct, free of charge, a reasonable investigation of your dispute. 

To learn more about financial wellness programs at University of Maryland Extension, go to https://extension.umd.edu/programs/family-consumer-sciences/financial-wellness.