Three Insider Tips on Your Free Annual Credit Report
Credit reports. Credit scores. Credit this, credit that. There’s so much to know about credit. Entire books have been written about it. Not only that, the credit landscape changes often as new rules and regulations take effect.
We’re here to be your sherpa, as we always are, and help you climb whatever figurative mountains you’ve got lined up for yourself. Maybe it’s planning for homeownership some day, if not today. It’s definitely a good call to get in the know about things you can do now to plan for tomorrow, because as our parents always said, if you don’t have a plan, you plan to fail. Or something like that.
We’ve anticipated some questions that often come up as go-getters decide to take action and get to the bottom—or the top, if we want to extend that mountain metaphor—of their personal credit history.
Check Your Credit Report
About to make a big purchase and not sure about your credit? Or…you’re just mature and you know that when left to their own devices, things have a tendency to go haywire?
That’s like, wizard-ninja level wisdom. It’s best to not let these things slip past you, and you’re right, being aware is the best way to ensure that some random person in Stevens Point, Wisconsin, doesn’t put their cable bill in your name, and then run your credit into the ground by never paying the bill—which happened to someone we know (places have been changed, of course).
You can clean that stuff up, but the longer it’s left alone, the more damage it can do as your FICO score adapts to the delinquent account. Getting that credit report from Annual Credit Report is free once a year. We highly recommend checking it on a yearly basis, to make sure there’s nothing going down that’s not your doing. Once you’ve got the report in front of you, if there’s something false on the report, it’s possible to open a dispute and fight to have it removed.
What the What Is FICO Anyway?
Tomes could be written on the FICO score and its history. We’re not going to lie and say that these pieces would be incredibly fascinating, unless you’re like us and find numbers and finance interesting (and we do, so they would be!).
Back in the 80’s Fair, Isaac, and Company dreamt up a way using computers and mathematical formulas to simplify a person’s credit worthiness. They devised this system to weigh several factors about a potential borrower’s ability and willingness to pay back a loan. Before that, many people were unable to get loans or borrow money.
A FICO score is a number generally between 300-850. The national average is around 695. While the company doesn’t divulge all the secrets of their methods, they do freely share how they weigh each aspect that they judge it on.
These are, in order of what is weighed heaviest: payment history at 35%, how much credit you’ve used is about 30%, the length of your credit history comes in at around 15%, and mix of types of credit are around 10%, as are recent credit applications.
The Big 3
There are three major credit bureaus, but only one FICO score—though there are variations within FICO scores and they all present the information that matters to you and lenders differently.
Transunion, Equifax, and Experian all have their own methods for keeping tabs on credit worthiness, and conveying that information to lenders. Each company does it differently. When you do your adulting duty and check them annually, you’ll see firsthand their various models of reporting.
Depending on which lender you use, they’ll go to a credit agency to conduct what’s called a hard inquiry on your credit if you’re seeking a loan. Hard inquiries can negatively impact your credit. Soft inquiries are what companies do before they send you an offer to get a credit card or other loan with them. Soft inquiries don’t impact your credit, but hard inquiries can.
Because all three agencies display and tally your credit history differently, it’s a brilliant idea to check your credit report from each bureau when you have the opportunity. But you were already going to do that anyway, weren’t you, because you’ve just leveled up when it comes to understanding credit.
Earlier we hinted that the world of credit is massive. The purpose of this article was simply to introduce you to the language and give you some guideposts toward having the wisdom to make great decisions about your financial future and eventually becoming a homeowner.