You’ve probably heard that it pays to stay on top of your credit, but how often does a person really need to pull their credit report?
According to Katie Ross, education and development manager for American Consumer Credit Counseling, at the very least, everyone should take advantage of the free credit report they are entitled to each year via AnnualCreditReport.com. However, generally speaking, she suggests checking your credit report and score every six months or so to make sure you’re in good standing. You can also check your credit score and credit report profile for free as often as you want using Credit.com’s Credit Report Card.
There are also instances where a credit check (and even subsequent monitoring) is particularly important. We break down a few of them.
You need to know your identity has not been compromised.
If your credit card and/or other personal information has been compromised due to a data breach, it’s definitely a good idea to pull your credit report. For starters, it can show whether someone has fraudulently used your data.
“Check to see who’s been looking at your credit,” Bruce McClary, director of media relations for ClearPoint Credit Counseling Solutions, says, referencing the inquiry section. Hard inquiries stemming from loan applications you yourself did not fill out are often “early clues” your identity has been compromised, he adds.
If you discover you’re a victim of identity theft, it’s a good idea to monitor your credit while the situation is being sorted out so you can report damaging and fraudulent information as it appears.
“You can also add a fraud alert to your credit report,” Ross says.
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Fraud is definitely one reason why credit newbies should finally go ahead and pull that report, but it’s certainly not the only instance where what you don’t know can hurt you. Studies have found as many as four in five credit reports actually contain errors on them and 25% of these mistakes can be egregious enough to cost someone a loan. Not all errors are related to fraud.
“There are people that are inputting data and they can make mistakes,” Ross says. “If that happens you need to make sure you address the problem.”
Catching mistakes close to when they appear is especially important since some errors aren’t so easy to fix. You can find more information on how to dispute information with the major credit bureaus in this article.
You’re getting ready to shop around for a new loan.
It’s always a good idea to pull all three versions of your credit report (with the scores included) right before you go shopping for a new loan or line of credit. This will preempt any unwelcome surprises.
“The last place you want to be surprised about your credit score is when you’re closing on your home,” McClary says. (Many mortgage lenders will conduct a second credit check right before the house changes hands, and fluctuations in your score can affect the loan’s terms and conditions.)
It can also help you gauge whether you should even be in the market for a new loan to begin with, since low credit scores can lead to high interest rates or a rejection. While the rejection itself won’t cause your score to drop further, the inquiry associated with the ultimately useless credit pull can.
“If you are planning to purchase a home and you are in a range of 720 or more, you’re in better shape than most,” Ross says. “If not, looking for ways to improve will be your next step.”
You’ve co-signed a loan with another individual.
Co-signing occurs when a third-party helps an underbanked or otherwise unqualified borrower get a line of credit with more favorable rates by agreeing to put their name to the loan. The practice is especially common among parents who are helping their child get their first credit card, but can also be used to obtain mortgages or car loans as well.
Some people may not realize this, but co-signers are responsible for upholding the terms and conditions associated with the contract, even if they aren’t actively reaping its benefits. This means any missed payments or, worse, defaults will appear on your credit report and have a negative impact on your score. (On the plus side, the other person’s responsible behaviors can give your score a boost.)
Either way, “you want to check periodically the primary is paying as agreed,” McClary says. If they aren’t, you may have to intervene to prevent the line of credit from doing big damage to your score.
You want to know what you can do to improve your score.
If you suspect your score is not-so-hot, it can help to request a report from one of the three major credit reporting agencies — Equifax, Experian or Trans Union. Most versions of a credit report include information of what line items are helping your score and what line items may be hurting it. This information can also give you a sense of what actions you will need to take in order to send your score upward. For instance, a report might point out your credit-to-debt ratio is too high, which means you should probably pay down any debt you’re carrying on your credit cards.
Often, reports will also break down the major components of all credit scores.
“Understand what makes your score up and learn how you can improve in those areas,” Ross says.
Keep in mind, checking your credit consistently won’t cause your score to drop. Personal pulls are considered soft inquiries and don’t appear on your credit report.
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Image: drtel, via Flickr