The Importance of a Credit Report Check-up

There are many things in life that require close scrutiny or a comprehensive investigation – otherwise known as a checkup – to be sure all is in proper order. Visit a physician for a checkup to verify the condition of your health. Shop at a used car lot, kick the tires and request a CarFax® report to checkup on the history of a car before signing on the dotted line. But there’s one checkup that many consumers fail to perform that can directly affect every aspect of their life – their credit report. Consider this an examination for the health of your future.

A check-up is performed with the hope of finding that everything is well and there’s no action required. But just as a physical exam can reveal problems that can be fixed by following a doctor’s advice, a financial checkup will help you see trouble spots that need attention. And in the same way that you’re advised to have a physical checkup annually, financial checkups should be performed at a minimum of every 12 months.

If you’ve ever applied for a credit card, student loan, mortgage or auto loan, a credit report was started in your name. Its purpose is to establish your degree of credit-worthiness and is a key component in acquiring credit. Your credit report may be viewed by insurance agents, landlords, lending institutions, creditors, current and potential employers. They will be looking at how promptly you pay your bills, the number of credit cards, the amount of available credit and the total amount of debt you carry.

When to Check Your Credit Report

A financial checkup would be worthless without including an examination of your credit report. It is a detailed reflection of how you’re doing with your credit accounts, and with the Federal law that entitles you to free annual credit reports, it’s painless. But one review every year may be too little, if you fall into any of the follow scenarios.

  • Buying a Big-Ticket Item – Check in advance of applying for a loan for potential landmines that may destroy your chances of securing the money you need for a home, car, boat, etc. Look for errors and have discrepancies cleared up before filing out the loan application.
  • Possible Identity Theft – Unauthorized purchases, bogus communication from scammers about your financial accounts and lost or stolen credit cards are potential threats to your identity. Red flags like these should be followed up with a review of your credit report where identity theft activity will be exposed.
  • Denial of a Loan or Credit Application – Another situation that warrants a credit report review is when the bank denies a loan application. This is especially important, if you can think of no reason for the denial; your credit report may provide an answer if you discover inaccuracies or fraudulent transactions on your report. Also, keep in mind that a recently enacted law requires a lender who denies a consumer based on their credit to provide the consumer a free copy of their credit report.
  • Fixing a Bad Credit Situation – With all your financial history at your finger tips, using a current copy of your credit reports will help pinpoint the areas that need the most attention when you’re working to improve your financial health.

What to Look For

Now that you have your report(s) in hand, do you know what to look for? There are specific entries that should be reviewed to prevent identity theft and to ensure that creditors and lenders are viewing accurate information when they make an inquiry on the condition of your financial health.

Personal Identification – Is your contact information correct – your Social Security Number, birthday, current and past addresses and employers. If your name is misspelled, lenders may not be able to access your report.

Credit Accounts – Make sure all the listed accounts are yours and that the account number matches the one you have on record. Confirm that all your open and inactive accounts are reported. Each account adds credibility and length of history to the report which are of value in calculating your credit score. Verify the history of each account as these have the biggest impact on a credit application.

Inquiries – Authorized institutions can request to see your credit report – called an inquiry. Review the inquiries section of your report to verify that the businesses listed have had reason to make the request. Look for unusual entries that may be indication of a scammer working to steal your identity.

Timely Entries – Negative entries have expiration dates. Missed or late payments and debt collection records expire after seven years. If you see expired entries, contact the credit reporting agencies and ask that they be removed. There is no expiration on the positive actions depicted on your report and will remain indefinitely.

Bankruptcy Records – The damage a bankruptcy has on a consumer’s financial future is reflected in the fact that it remains on their credit report for 10 years. Confirm that all debts discharged in bankruptcy are listed that way and not simply listed as delinquent or unpaid.

The importance of an accurate credit report cannot be understated. It holds the information that helps determine your credit score and to form a decision on loan and credit requests. After closely reviewing the details of your credit report and finding an error, it’s important to respond quickly by contacting the credit bureau.

Noreen Ruth writes for ASAP credit card blog and several popular finance websites. She is interested in educating consumers about using credit responsibly and about legislative action that will affect their ability to borrow money. She has contributed hundreds of articles to various sites that provide content to educate consumers on comparison of credit cards, debt relief services, loans and other finance related topics.

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