Your free credit report is a compilation of information about your financial history. The three bureaus, TransUnion, Equifax, and Experian, gather information about your accounts, available credit, credit usage, payment history, and the like. The bureaus take this information and give you your credit score, which lenders use to determine how much you can borrow and what your interest rate will be.
Of course, I teach my clients not to use debt. It takes your earnings each month and makes others wealthy instead of you. Nonetheless, reviewing your credit report is something that everyone should do each year regardless of how you handle your personal finances.
Find Out How Much You Currently Owe
All debts will be reported to the credit bureaus. It will show the original amount borrowed, what you’ve paid, and what the remaining balance is.
If you do not know what your current debt load is, or have accounts in collections, your credit report will show where those accounts are held and what the balance is.
When you’ve added up all of the accounts on your report that have a balance, that’s what you currently owe and have to pay back. The sooner you know what you have to overcome, the sooner you can get to work on it.
Validate Open and Closed Accounts
Your free credit report will also show what accounts are open in your name and which ones are closed. As you pay off your debts and close out old accounts like car notes and credit cards, your report will show these accounts as paid in full or closed as of a certain date.
If you believe you’ve paid off a debt, but are not 100% sure, your credit report will give you an answer. Each year, as you work through the debt snowball and on your house, make sure that everything tracks correctly and that when you have something paid off, it stays that way. If there is an inaccuracy, you may need to dispute the report to correct it.
Check for Identity Theft
One of the most important reasons to check your free credit report is to make sure your identity has not been used for financial fraud. As I’ve written before, identity theft is very real and is becoming more common each year. It can happen at any point, so it’s important that you be on top of your situation.
Identity theft can take several forms, such as a hacker gaining access to your accounts. But it also includes the more common practice of someone you know opening up credit lines in your name. Familial identity theft is the most common type, and even your children are at risk of having their information used for fraud.
Pulling a copy of your report each year will let you know if something is off. If there is an account reporting that you do not recognize, immediately contact that creditor and figure out if you merely forgot, or if your identity has been compromised. Also, obtain an identity theft protection plan that will monitor your financial information and do the restoration work in the event of a breach.
Though I don’t actively encourage people to pursue a higher credit score or take out new debts, the information in the free credit report is an important part of your long-term financial planning. Make sure you know what you do and do not have open in your name. Know where your accounts stand and don’t let mistakes go uncorrected.
This is just one thing you can do each year to have a little more knowledge and peace of mind.