Credit monitoring is a critical component of financial hygiene. Viewing your credit report might assist you in visualising your overall financial health and in prioritising payments if your income fluctuates.
Hopefully, you’re aware of all the credit accounts you have open and are keeping track of their balances and payments. However, checking your credit is the only method to view all of this information in one spot.
There are several methods for monitoring credit scores, depending on how involved you want to be in the process and if you’re ready to pay for a professional credit monitoring service. Whatever method you use to monitor your credit, you have the same rights under the Fair Credit Reporting Act. For example, your credit information is deemed secret and can only be revealed to those with a legitimate reason or who have your consent. Furthermore, firms that provide information to credit bureaus are legally required to examine any complaints you raise as a consequence of what you see in your credit report.
In the part that follows, we’ll go over how to monitor your credit and how regularly you should check it.
What exactly is a credit score?
A credit score assists lenders in determining your creditworthiness. FICO and VantageScore are two primary scoring algorithms that use information from your credit report to establish your credit score.
Credit scores vary from 300 (bad) to 850 (outstanding) (excellent). Payment history, sums outstanding, age of credit history, credit mix, and current activity are the five key characteristics used by scoring algorithms to generate your credit score. Each element is weighted differently, but payment history (35% of your FICO Score) and sums outstanding (30%) are the most crucial.
Your credit score may influence everything from credit card acceptance to mortgage interest rates. Because your credit score has such a large influence on your financial life, it’s critical to have a decent credit score and check it on a frequent basis.
What Is the Difference Between a Credit Report and a Credit Score?
Your credit report is a document that contains information about your whole credit history, but your credit score is a numerical score based on the information in your credit report. If your credit report is like a report card that lists all of your prior work, your credit score is like your final grade in a class.
Remember that you may dispute issues on your credit report but not your credit score. If you discover any errors or anomalies on your credit report, report them immediately to the credit bureaus to avoid any negative effects on your credit score. In contrast, if your credit score drops rapidly, you should research the source and report any possible inaccuracies.
Another thing to remember is that you have a legal right to a free copy of your credit report once a year, but no corresponding regulation exists for your credit score. The majority of credit card companies and banks provide free credit score updates.
Should You Check Your Credit Score?
Your credit score is available in several formats. This is due to the fact that each of the three credit bureaus – Equifax, Experian, and TransUnion – compiles your credit report individually. The two most prevalent scoring systems are FICO and VantageScore. There are further variants of these two rating systems, including FICO Score 2, FICO Score 5, and FICO Score 8. FICO Score 8 is the most extensively used version of FICO credit scores, according to FICO.
Lenders decide which credit agency to utilise to obtain your report and score, as well as which scoring algorithm to employ. Lenders may obtain your credit score from various sources and use the median for significant loans such as mortgages. If you’re seeking for a specific loan, you should inquire about the lender’s credit scoring methodology and the credit bureau.
Knowing Your Credit Score
Credit scores vary between 300 and 850, with 850 being the best. The higher your credit score, the more likely you are to get approved for the best interest rate loan or credit card.
Because various credit agencies employ different algorithms and methodologies to calculate your credit score, it might be helpful to interpret any particular credit score as a generic reflection of your creditworthiness. Different lenders utilise different scores, therefore the score used by a mortgage lender may differ slightly from the score used by a credit card provider.
According to the Federal Trade Commission, the FICO score is used by the majority of lenders. In terms of receiving the best rates, whatever score various lenders employ, the higher the better. However, because various lenders utilise different credit ratings, the Consumer Financial Protection Bureau advises consumers to shop around.
Checking Your Credit Report and Score
- Use AnnualCreditReport.com to check your credit report.
Every year, you are entitled to one free credit report from each of the three credit agencies – Equifax, Experian, and TransUnion. However, due to the budgetary strains of the COVID-19 epidemic, you can view your report monthly for free until April 2021. To get your free credit report, go to AnnualCreditReport.com. Check read this post for complete instructions on how to check your credit report.
- Examine your credit score
Your credit score is normally not shown on your credit report, and the law does not require unfettered access to your credit score as it does to your credit report. However, there are various methods to get to it. The majority of credit card providers will supply you with your FICO score for free. Examine your monthly bank statement or access your account online. If you can’t locate it, contact your bank or utilise their chat service to inquire whether they offer your credit score and where you may find it.
Just keep in mind that your credit score might vary based on the scoring algorithm employed. Your bank or credit card account score may not be the same as the score used by a lender to calculate your creditworthiness.
- Keep track of your credit score on a regular basis.
It’s critical to keep track of your credit health based on the information in your report on a frequent basis. Early detection and correction of discrepancies or errors on your credit report can avoid you from being caught off guard by a sudden drop in your credit score and help you identify possibilities for improvement.
You may check your credit health on your own by using free credit reports and credit score access. Many experts believe that self-monitoring using your free credit report may help you save money while also taking charge of your finances. You don’t have to pay for the service if you make it a practice to go over your report on a regular basis, searching for potential faults or areas of opportunity.
However, there are a number of credit monitoring programmes that might assist you. These services often include benefits such as regular access to your credit score, notifications when changes are noticed, and advice on how to improve your credit score.
The drawback is the price. Credit monitoring services from the three credit agencies (TransUnion, Equifax, and Experian) run from $19.95 to $24.99 each month, and paying extra money may not be in your best interest if you’re attempting to build your credit.
- Be wary of cons.
The FTC warns consumers against impostor websites that claim to provide free credit reports but wind up collecting hidden fees or selling your personal information, including your Social Security number. AnnualCreditReport.com is the only website permitted by law to give free credit reports.
- Develop healthy credit habits
Remember that your credit score is never fixed. Even if you have an excellent credit score, maintain healthy credit practices such as paying off your balances on time and in full and maintaining a low credit usage ratio.
If you have no or poor credit history, the first step in improving your credit is to check your credit report and score. You must have a complete picture of where you are currently in order to comprehend what you should be doing differently and identify areas for progress.
Why Should You Check Your Credit Report?
Checking your credit report is essential whether you’re trying to develop or keep good credit. By monitoring your report on a regular basis, you will know precisely where your debt stands and can ensure that all three credit bureaus are reporting information appropriately. Errors are not uncommon. In fact, according to the FTC (Federal Trade Commission), one out of every five persons has an inaccuracy on their credit report at some point in their lives.
Checking your credit report is also an important step in preventing identity theft. “The early evidence that someone is out there asking for an account in your name will show up on your credit report as an inquiry,” says Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. “The key to preventing credit fraud or identity theft is to act as soon as feasible.”
How Frequently Should You Check Your Report?
At the very least, you should check your credit report from each bureau once a year, taking advantage of the free annual credit report provided by law in the United States. However, with free credit reports now accessible every week until April 2021, you may check your report more frequently. The frequency is determined by your current credit activity and whether or not you are actively working to build or enhance your credit. While you’re unlikely to see big changes from week to week — lenders usually need at least a complete billing cycle to send revisions to the credit bureaus — there’s no harm in getting the reports as frequently as you’d like.
How Does Your Credit Score Affect Credit Card Eligibility?
Your credit score has a significant influence on the credit cards you are eligible for. Cards with the finest benefits or premium advantages often demand a decent to outstanding credit score, which ranges between 670 and 850. If you have poor or no credit, student credit cards and secured credit cards can help you develop credit, even if they don’t provide as many rewards.
However, your credit score isn’t the only factor to consider when applying for a credit card. Lenders may also consider your credit usage ratio, debt-to-income ratio, and balances on your existing credit cards. To increase your chances of getting the cards you want, make sure you pay off your balances on time and in full and don’t apply for too many new cards in a short period of time.