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Credit Check: Why You Should Get Copies of Your Credit Reports© Sound Mind Investing | May 2009
A guitar-playing guy in a pirate costume sings a tale of woe about failing to check his credit report. Now he is working at a cheap, buccaneer-themed restaurant to make ends meet. Or so goes the commercial urging you to get a copy of your "free credit report." It's good advice, although the company running the ads actually charges for the "free" information by forcing you to sign up for other paid services. Fortunately, there is a way to get your credit report free — no strings attached. Finding out what's in your credit report is a good idea in general, but it's especially important during a time when lenders are reviewing credit files with a fine-tooth comb, trying to determine who is a good risk and who isn't. Also, checking your report periodically is a wise precaution in these days of rampant identity theft. Even if you've managed your money well, your credit report might have errors, such as outdated information — or even someone else's credit history posted to your file. When purchasing a house a few years ago, I learned that my credit file listed an account as "open" that was actually closed. I also discovered accounts I had simply forgotten about (remember that time you were offered a 20% discount on your purchase if you would sign up for a department store credit card?). Overall, I'm happy to say, my credit report showed me in a positive light. But seeing errors and forgotten accounts energized me to launch a mission to tidy up my credit information. I found out there are three leading credit-reporting agencies: Equifax, Experian, and TransUnion. I also learned that federal law requires each agency to provide consumers with a free copy of their credit report annually. (It's important to get a report from each of the three agencies; they may get their information from different sources.) Fortunately, you can access all three reports by going to one website — and it's not the one the "pirate guy" recommends. Reports are available without any charge or additional commitment at www.AnnualCreditReport.com. (Beware of imposter sites, warns the Federal Trade Commission.) Simply enter the required information (name, address, Social Security number, date of birth), then check the boxes indicating which of the three agencies you are requesting a report from. If you select all three, you'll be transferred in turn to each agency's site to fill out additional details and then download your credit file. Alert: you will encounter attempts to "up sell" add-on services, such as a "debt analysis" or your "credit score." Just ignore them. (And if you'd rather not order your credit reports online, order by phone at 1-877-322-8228. Your reports should be mailed within 15 days.) Some experts suggest that rather than requesting all three reports at the same time, it's better to get one every four months. That way you can keep a closer eye on any possible ID theft problems. Credit reports are fairly easy to understand — once you pick up on what the abbreviations and codes mean. Along with the credit file itself, the agencies provide information on how to report errors, handle disputes, and notify authorities about any fraudulent activity. When looking at my reports, my main area of concern had to do with what I found in the "revolving credit" section. At that time I had only one credit card, but one of my reports said I had three additional cards — two retail store cards and one Visa card. (This was leftover debris from my earlier adventures in using credit.) I called the two retail companies and had the accounts closed effective that day. I asked for a confirmation letter for my records and requested that a similar letter be sent to the credit bureau. Next, I called Visa. I thought I had closed this account years ago! They told me my Visa account was "technically" closed (whatever that means), but promised to send the appropriate documentation to Experian to let them know it was "officially" closed. Interestingly, there are two schools of thought about closing accounts. Some credit experts say it's important to get rid of old accounts because they represent "available" credit. A large amount of credit at your disposal makes you a higher-risk borrower. Other experts take the opposite approach. They recommend not closing old accounts. The important thing, these experts say, is the ratio of credit-used-to-credit-available. A low ratio (plenty of credit but not much used) makes you a better credit risk. I'm not sure who is right technically, but from a "comfort level" standpoint I didn't want to keep any unused accounts — for two reasons. First, I didn't want to be tempted to use them! Second, I was concerned about the security risk related to ID theft. In retrospect, I'm confident I did the right thing in closing my unused accounts — although it may have been better to close them over time, rather than all at once, to avoid a sudden change in the credit used/available ratio mentioned above. All in all, my experience in ordering my credit reports and getting them cleaned up was relatively hassle-free. I hope yours will be, too.
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