Why, how, and when to check your credit report

Image of credit score
Knowing how to access, understand, and manage your credit score and credit report is a key step in buying a home.

Just as some people are afraid to visit a doctor for fear that they will discover that something is physically wrong, so too some people are afraid to check their important credit histories because they may find that their records are not as pristine as they would like and there is something wrong fiscally.

According to a new study from WalletHub, a popular personal finance website, some 36 million American adults — a sum that exceeds the combined population of the 20 largest U.S. cities — don’t check their credit reports as often as they think they should because they’re afraid to see the exact contents.

Although it is not inconvenient to check your credit report periodically, the disorder does not seem to affect everyone equally. On the contrary, it is especially pronounced among Millennials, who are 5.5 times more likely than Baby Boomers not to look, people with low incomes (6 times more likelihood) and women (2 times more likely).

This phobia could have significant implications for people’s personal finances. Today, better quality credit is needed to get a decent credit card rate, adequate auto financing, insurance, a cell phone bill, utilities for your new home, and most importantly, to buy a home without being taken to the woodshed lenders who charge ultra-high mortgage rates.

Everyone, not just aspiring homebuyers, should check their credit reports at least once a year. It doesn’t matter the time of year, as long as you take some time to do it. If you’re in a home-buying mood, you may want to check more often to make sure something wrong or wrong doesn’t find its way into your file. Remember, your lender will check your credit, and so should you.

If there are errors, you’ll need some time, perhaps months, to clarify them and make sure your records are up to date. So, if you plan to buy, start checking at least six months, so that you have enough time to clean your records.

The good news is that you don’t have to pay to get a credit report and credit score, which is a number based on a snapshot of your credit records on the day you ask to see your score. The range usually goes from 300 terrible to 850 perfect. For a mortgage, borrowers typically need a score of 580 or higher to qualify.

WalletHub is a site where credit reports are free; CreditKarma is another. In addition, under federal law, individuals are entitled to a free copy of their credit report every 12 months from each of the three nationwide credit reporting companies, Experian, Equifax and Transunion. Order online from Annual Credit Report (www.annualcreditreport.com), the only website authorized to receive free credit reports.

Check your credit score from time to time shouldn’t count against your credit score, but beware of some websites that claim to offer “free credit reports,” “free credit scores,” or “free credit monitoring.” They are not part of the free and legally mandated annual credit reporting program, the Federal Trade Commission reports.

In some cases, the “free” product comes with strings attached. For example, some sites sign you up for a supposedly “free” service that becomes one you have to pay for after a trial period. If you don’t cancel during the trial period, you may unintentionally agree to let the company start charging your credit card.

Some “impostor” sites use terms like “free report” in their names; others have misspelling URLs on purpose of annualcreditreport.com in the hope that you misspell the name of the official site. Some of these “imposter” sites direct you to other sites that try to sell you something or collect your personal information.

Even if the site is legitimate, stay away from those who offer a “free” report unless you’re sure the report and score will be used by a lender. You want a report specific to the mortgage business, not one that applies to all sorts of other types of financing, including car loans, department stores, or your favorite gas station.

Finally, a few words about fear of credit, whether unfounded or not. According to several scholars, it is the fear of the unknown that hinders most people, who remember all too well the hardships they or their parents endured during the Great Recession a decade ago. And it holds even though most of the negative records, except perhaps for bankruptcies and foreclosures, have fallen from credit reports.

“We saw this with foreclosures, where people didn’t answer the phone or open their mail because they were afraid of bad news. It’s like a student doesn’t pick up an exam they know they did wrong,” said Michael J. Collins, faculty director at the University of Wisconsin’s Center for Financial Security.

Robert B. Walker, director of undergraduate studies at the University of Iowa, said another reason people tend to avoid checking their credit records is that they’re sometimes hard to understand. “Credit reports were designed for bankers and financial analysts, not consumers,” he said.

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By Catharine Bwana