Free Credit Reports: Where to Get Them and Why They Matter
During the ongoing Covid-19 pandemic, accessing your credit has become even more important. Many credit reporting agencies, like Equifax, Experian, and TransUnion, are offering free weekly online credit reports. However, even before the pandemic, federal regulations (under the Fair Credit Report Act) stipulate that you are entitled to one free credit report annually from each of the three major credit bureaus—TransUnion, Equifax, and Experian.
How to Obtain Your Free Credit Report
To ensure you get your free credit report, you must visit the official websites of each bureau directly. As stated by the Federal Trade Commission (FTC), you have the right to obtain a free credit report from each of the three major credit reporting agencies at their respective websites: TransUnion, Equifax, and Experian. You cannot consolidate your free report and free credit score into one free service.
Official Websites for Free Credit Reports
TransUnion Equifax ExperianEach bureau has its own process for obtaining your credit report, so it is important to follow them one at a time. Be sure to review the default settings on the offer pages; opting for additional services may incur extra costs.
Importance of a Good Credit Score
While you might want to obtain both a free credit report and a free credit score, it is often more beneficial to get them separately. A good credit score is crucial to lenders as it offers a quick gauge of credit risk. Individuals with high credit scores are more likely to repay their debts, whereas those with lower scores pose a higher risk. This is why lenders may make loans to individuals with lower credit scores at higher interest rates. The graphic below illustrates the likelihood of default at different credit score levels.
Figure 1: Credit Score Default LikelihoodIn order to improve your credit score, consider following these strategies:
Pay all your bills on time. Payment history is the most significant factor in your score, and even a single missed payment can negatively impact it. Keep credit card balances low. Utilization—how much of your available credit you use—is another critical factor in your score. A lower utilization rate is better for your score. Diversify your credit. Having different types of credit accounts (credit cards, loans, and mortgages) can positively impact your score. Request to be an authorized user on an older account with a good payment history. This can help extend the length of your credit history and improve the average age of your credit accounts. Avoid applying for new credit too frequently. Only apply for new credit if it is necessary. Each new application can temporarily lower your credit score.Why Credit Scores Matter to Lenders
Credit scores are essential to lenders because they provide a quick and reliable measure of credit risk. Individuals with higher credit scores are considered lower risk, thus lenders may offer them better interest rates and better loan terms. Conversely, individuals with lower credit scores may face higher interest rates, stricter lending criteria, or even be denied credit altogether.
Conclusion
While free credit reports are beneficial, it is also important to understand and manage your credit score effectively. By following the strategies mentioned above and regularly monitoring your credit reports, you can maintain or improve your credit standing, which can positively impact your financial well-being.