How and Why You Need to Monitor Your Credit Report

Planning is important to make sure your financial house is in order. It is vital to know where you are today, where you want to be in the future and to have a game plan on how to get there. Many times we overlook one of the most sacred financial documents when devising this plan - the credit report.

A credit report is the key or the roadblock to many of the financial decisions we make today. Think about it, large life decisions such as buying a home, a new car, any large purchase on credit, or simply obtaining a credit card rely heavily on this one document and the score that is affiliated with it. Having an excellent credit report and score will allow you the freedom and flexibility to utilize credit most effectively.

There are a couple things you should be doing on a regular basis to make sure your credit report is accurate and your score remains at a peak level.

Review Credit Report Annually

You are entitled to a free credit report every 12 months from each credit reporting company. This will not provide you with your credit score, but should be used as a tool to confirm the information on your report is accurate and current. There are many websites you can go to in order to obtain these reports. AnnualCreditReport.com is recommended from the Federal Trade Commission’s website.

Review Credit Scores Annually

You should also check your credit scores annually to make sure they have not changed significantly since the last time you checked, especially if you have not had anything adverse happen to your credit. Unlike your credit report, you are not entitled to free access of your credit scores annually.

There are a few ways to obtain your credit scores. Some credit card providers (you can check with your current card providers) will provide you with your score and inform you as changes take place with your score for free. In addition, you can always use myFICO and obtain your score from each of the three bureaus. This option will cost you roughly $20 per bureau, for a total of $60 for all three.

You can also obtain a free score at Credit Karma, but keep in mind the score you receive here will not provide you with the exact score from the bureaus. It will give you a good sense as to what your credit score is and where you stand versus other people.

How Your Credit Score Impacts Lending Options

The credit report and its associated score is the holy grail of lending. It could very well mean the difference between an okay rate, better rate, and the best rate provided to potential borrowers. Depending on the size of the purchase, this difference could mean a savings of tens of thousands of dollars over time.

As an example, according to Bankrate’s mortgage calculator, the current rate for a 30-year mortgage with 20% down for someone with a 740 plus credit score would be around 4.75%. For someone with a score between 640 and 659, the rate would be 5.375%. At first glance, this may not seem like a huge difference in rate, but it would mean a $45,000 increase in cost assuming you purchase a $400,000 home and finance $320,000. Having the best credit score will save you every time you borrow.

Think of the other times we borrow money. Imagine if you compound the savings mentioned above (for purchasing the house) and you saw similar savings when buying a car, paying for a child’s education, utilizing home equity for renovations, credit card rates and other ways of borrowing too. Not having the best rate could mean the difference in reaching your goals.

Maintain Your Credit Score

Making sure your credit report is accurate and you are maintaining an excellent credit score is vital to your financial success. Make sure you are checking your report and scores at least annually so you can monitor your situation. Recent articles by Lawrence Sprung: 5 Credit Card Myths Hurting Your Financial Future

 

Disclosure: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.