Why You Should Check Your Credit Score and Credit Report

You have probably heard about the importance of your credit score and credit history, and may have even shrugged it off, but there are a number of reasons to check both. You know that the better your credit score, the better your chances of being approved for a loan, and the lower the rate. But that’s only half of the equation. Even more important than your actual score is your credit report, or credit history.

Your credit score comes from your credit report, so it’s important to understand that in order to improve your credit score you must first improve your credit history. Think of it this way. Remember when you were in school or college? You received individual scores or grades on assignments and then received a final grade at the end of the year. All of your assignments throughout the course of that semester or year are like items on your credit report. Some received good scores, and some may have been bad scores. But all of those assignments come together to give you a final grade, which is how your credit score is calculated. Remember sleeping through that freshman math midterm that brought your entire grade down by 25%? That’s like missing a payment on your credit card or other loan.

Checking Your Credit Report

There are two good reasons to check your credit report. For one, you simply want to make sure the lenders on your account are reporting information correctly. Mistakes can and do happen. Maybe you’ve sent in all of your auto loan payments in on time but for some reason they are reporting a late or missing payment. That’s a big mistake and could cost you qualification on a future loan, or get you higher interest rates elsewhere. A simple mistake like that could really hurt.

The other reason to check your credit report is to spot identity theft. Identity theft can be a silent crime until it’s too late. A criminal may have obtained your information and opened up a credit card in your name and you’d never know unless you spotted it on your credit report. So checking your report at least once a year is a good way to make sure nothing fishy is showing up. The sooner you can catch a problem, the better.

You can get your credit reports for free each year. Just head on over to annualcreditreport.com and use their secure site to verify your information. When you receive your report it may be a little overwhelming at first, but the site will guide you through the data and you’ll see what’s most important. If errors do arise, be sure to contact the creditor right away.

Checking Your Credit Score

Since you need a good credit report for a good credit score, once you’ve verified your credit history is in-check you may also want to get your credit score. Knowing what is on your credit report is nice, but without having an estimated score it’s really hard to know where you fall on the scale of good and bad credit.

A FICO credit score ranges from 300 to 850, where the higher the number, the better. And the higher the score, the more likely you will be approved for a loan and ensured the lowest rates. When you know your score you’ll have a pretty good idea of where you fit in the spectrum. For example, scores greater than 720 are considered excellent, and would put you in the best position to obtain the best rates and terms. On the other hand, scores less than 620 are considered poor, and that means you may have trouble getting a loan or may have to pay a few percentage points higher interest. Everything in-between is pretty much average and lending requirements will reflect that. Not sure what your score is? Get your credit score today.

Related posts:

1. Credit Score and Credit History Basics
2. 15 Ways to Establish and Improve Your Credit History and FICO Score
3. How to Freeze Your Credit Report at All Three Credit Bureaus
4. 10 Mistakes That Hurt your Credit Score
5. A Few Tips for Repairing Bad Credit