As you obtain and manage credit, your creditors report information to three credit bureaus in the United States: Experian, Equifax and Transunion. These agencies compile credit histories that contain information about the types of debt you owe, the timeliness of your debt payments, and the length of time you have held debts. As a consumer, you should periodically check your credit report for six important reasons.
Purchasing Power
Obtaining your credit report can give you an overview of your creditworthiness, which can help you determine your credit purchasing power. A credit report that reflects a history of late payments or charge-offs may prevent you from obtaining credit cards, obtaining a mortgage loan or buying a car. If a lender is willing to accept you as a risk, it may charge higher interest rates if you have a poor credit history.
Rebuilding Credit
By reviewing your credit report, you can identify areas that need improvement in order to raise your credit score. If you have a history of late payments, for example, you can focus on making your payments on time to rebuild your credit. If you score suffers because you have no credit history, obtaining a credit-card with a limit of $500 or less and paying the balance each month may increase your creditworthiness.
Identifying Errors
Although most consumers assume that items appearing on their credit reports are valid, mistakes happen. A credit bureau may erroneously report another person's debt under your name, or a creditor may neglect to report a debt you have paid off. Reviewing your credit report can help you identify areas so you can file an investigation request with the credit bureau.
Identifying Identity Theft
Inaccurate entries on your credit report may also be indicators of identity theft, which occurs when another person uses your identification to obtain unauthorized credit. If you find debts on your credit report that you did not initiate, you can file a dispute with the credit bureau to begin an investigation. If the credit bureau agrees that you did not initiate a debt, it will typically remove it from your credit file.
Public Records
Credit reports contain information about public records, such as bankruptcy filings, judgments and liens. Although most people are aware of bankruptcies, some incur money judgments or property liens without their knowledge. Obtaining your credit report can help you identify liens and judgments, allowing you to contact creditors to reach a resolution.
Employment, Renting and Insurance
Creditors are not the only entities that use information from your credit report. Some employers review your credit file to determine your level of financial responsibility; if you have a poor credit history, the employer may not offer you a job. Rental agencies, landlords and insurance companies also commonly use credit information to evaluate applicants.
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