Since you can now get a free credit report each year, there’s no reason not to look at yours. By seeing your credit score and history, you can see which mistakes to avoid in the future.
This can lead to a higher score and lower credit costs so you can get loans and cards with fewer rejections.
When looking at your free credit report, there are three things you should keep a close eye on:
1. Your total debt.
Have you opened so many loans and credit cards that you’ve lost track of how much debt you owe? Without knowing your total debt, you won’t be able to come up with a solid plan to tackle it and pay it off.
Look at all of the accounts on your credit report and highlight their outstanding balances. Then add them together to see how much debt you must pay down so you can finally get some peace of mind.
Once you know your total debt, compare it to your income so you can make a plan to slowly but surely pay it off.
2. Errors or mistakes.
You shouldn’t automatically assume that all of the information on your credit report is correct. Companies and credit bureaus can sometimes make mistakes that can lower your score at no fault of your own.
How common are mistakes on credit reports? Quite common, as a Federal Trade Commission study from 2013 found that 25 percent of consumers found errors on their reports.
As for the types of information that can sometimes be incorrect, here are some hotspots:
- Your employer and address – Both must be correct if you hope to apply for a loan or credit card in the future.
- Closed accounts – Open accounts with balances are sometimes incorrectly listed as closed. This can negatively impact your score. If you know an account is open, make sure it’s listed as such.
- Old, negative information – Look for any delinquencies, such as collections or late payments past seven years. They should be disputed and removed from your report. Bankruptcies, however, can be listed for 10 years.
- Bankruptcy-related debts – If a debt was discharged in a bankruptcy, make sure it isn’t listed as unpaid or delinquent.
- Payment history – We list the most critical area last, as payment history has the most significant impact on your credit score. Make sure that payments for the previous 24 months are listed correctly.
3. Red flags for identity theft.
One of the biggest reasons to check your free credit score annually is to see if your identity has been stolen. Here are some signs that your information may have been compromised:
Businesses you have no association with have made inquiries on your report.
You see new accounts that do not belong to you.
If you see any signs of identity theft, contact the creditors or lenders involved to let them know your account is unauthorized. You can also place a fraud alert on your report to force businesses to confirm your identity before opening a new loan or credit account.