Your credit report and your credit score are two important pieces of your financial health, so you should review them regularly. Credit scores are different than credit reports. Reports show your credit history, while scores are a number based on several personal financial factors, described below.
Before diving into the reasons why you need to regularly review your credit, let’s briefly define it.
What’s a credit score?
A credit score is a 3 digit estimation from credit bureaus that determines people’s eligibility for credit.
Credit scores in the United States are expressed in a range from 300 to 850. A good credit score is somewhere between 670 and 739, while an excellent credit score is between 740 and 850.
Your score is based on:
- Payment history
- Amounts owed
- Length of credit history
- Number of credit types in use
- Account inquiries
“Credit risk” is essentially a term that answers the question: “what’s the likelihood that you’ll pay your bills on time?” So, why is it important to review your credit scores and credit reports annually? To summarize:
- You need to know what kind of credit you have before making a large purchase;
- You need to know how lenders and businesses look at you and whether they consider you a credit risk;
- It’s important to know if inaccurate information, or too many requests, have led to a change in your credit; and last but not least;
- It might help you stop identity theft or credit card fraud.
1. Know before you try to buy
If you’re planning on making a big purchase, like a home or a car, you need to review and prepare your finances. A big part of that is checking your credit reports and credit score to get an idea of what the lenders you’re about to try and get into business with will see. This way, you’ll be better prepared for their answers.
2. Are you considered a credit risk?
A lender’s biggest concern can be boiled down to this: “Will the borrower pay what they owe in a timely way?” Your credit scores and credit history determine the most important terms of your loan, including the interest rate. If you have a questionable credit history and a low credit score, your interest rate will, obviously, be negatively affected. In some cases, bad credit makes it impossible to get a loan unless you go to an unconventional funding source.
3. Identify mistaken information
The third reason to check your credit history and credit score annually is to make sure that your personal credit info is accurate and complete. You should also ensure that there are no accounts listed that aren’t yours. If you do spot a mistake, contact the company and dispute the information with the credit bureau. If you think that fraud may be behind it, let the company reporting the information know that it may be fraudulent.
4. Stop identity theft and credit card fraud
It’s an unfortunate fact of life that identity theft is on the rise. If someone’s been using your Social Security number to apply for credit or to buy things with your personal information, you’d only notice if you paid close attention to your credit reports. You really don’t want to let this sort of thing happen under the radar, so this is another reason to regularly check your reports.
One way to stop identity theft or fraud in its tracks is by calling your credit issuer and asking them how a charge ended up on your report. That way, you could file an identity theft report and freeze or place fraud alerts on your credit.
IDShield is here to help
For more tips on how to get world-class credit report monitoring, to learn more about the benefits of credit monitoring, how to stop getting credit card offers, how to fix credit report mistakes, and how to protect your personal data from identity thieves, IDShield offers one-on-one consultation to answer all of these questions. And we help ensure that your private information remains private.
IDShield is a product of Pre-Paid Legal Services, Inc. d/b/a LegalShield (“LegalShield”). LegalShield provides access to identity theft protection and restoration services. For complete terms, coverage and conditions, please see an identity theft plan. All Licensed Private Investigators are licensed in the state of Oklahoma. This is meant to provide general information and is not intended to provide legal advice, render an opinion, or provide any specific recommendations.
