Why It’s Important to Know Your Credit History
Smart Solutions • June 2015
You probably know that any time you apply for a mortgage loan or a credit card, the lender will consider your credit score in their decision-making. Not only does a better (higher) score increase the likelihood of getting approved, it might also lower your potential interest rate.
You may be surprised to learn, though, that the details within your credit report may also affect your ability to rent an apartment or secure an insurance policy. (Although potential landlords must get your permission to view your credit report, refusing could ultimately work against you.)
But these days, perhaps the biggest reason to keep a close eye on your credit is making sure your record is accurate. Below, we explain how to understand your credit history, so you can spot any potential problems before your credit rating is adversely affected.
Credit Score Versus Credit Report
While your credit report outlines your credit history, your credit score is the numerical value lenders use to decide how big of a financial risk you are. Put simply, your credit report affects your credit score, but they are not the same thing.
Credit scores, such as FICO® Scores (the scores used by most lenders), are calculated from factors on your credit report, such as your payment history, amounts you owe, length of your credit history, your interest in obtaining new credit and the kinds of credit you have. One common misconception is that applying for more than one loan (at the same time) for the same purchase can negatively impact your score; however, this is not the case.
Understand Your Credit
Knowing your credit score helps you understand how lenders may evaluate your ability to repay a loan. But the best way to prevent potential identity theft—and the accompanying fraud—is to review your credit report.
Experts recommend checking your credit report at least once a year. And federal law entitles you to a free copy from each of the nationwide credit reporting companies — Equifax, Experian and TransUnion — once every 12 months.
When reviewing your credit report, watch out for:
- Someone trying to open new credit accounts in your name
- Mistakes that make your report inaccurate
- Mix-ups with someone else having the same name as you
If you find any errors or suspicious activity, let the credit reporting agency know in writing—they are obligated to investigate the issue. And to request your credit report going forward, visit annualcreditreport.com.
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