A person’s credit scores greatly influence their ability to secure a home loan, rent an apartment, or open a credit card account. Yet, many consumers still fail to keep a watchful eye on their credit report.
Checking up on their credit report may not be a priority, but considering the effect that credit has on a person’s life, consumers have more than one good reason to monitor their credit.
Correct inaccurate information
It is common for people to have inaccurate information reflected on their credit report. Creditors can see a lot of information when they check a person’s credit, from the spelling of their last name to the current balance on a credit card account and the last time the bill was paid. However, if this information is inaccurate, the consumer will have to be the one to get it corrected to ensure the creditor will be able to make an informed decision.
One thing consumers can do is file a dispute. In doing so, the consumer is requesting that the credit bureau investigate the information that has been reported. Typically, within 30 days, the credit bureau can inform the consumer of the results of this investigation and whether the information is valid or needs to be updated.
Protect yourself against fraudulent activity
The number of identity theft victims within the US totaled 14.4 million in 2018, according to Javelin Strategy and Research’s 2019 Identity Fraud Study. If an account is fraudulently opened in someone’s name, this account will appear on that person’s credit report. Unbeknownst to the consumer, there is someone out their charging thousands of dollars to a credit card with no intention of paying the bill.
Depending on when a person views their credit report, they will be able to see that there is an open account that they didn’t actually open and take action. Alerting credit bureaus of this activity can get the information removed from the credit report, but people should also report this to the FTC and contact the police, as identity theft is a crime.
Avoid unnecessary hard inquiries
Applying for credit will result in a hard inquiry. One or two hard inquiries on a credit report may not impact a person’s score by a lot, but as the number of hard inquiries increases, a person’s score decreases. Luckily, someone who knows their credit score knows their odds of approval when applying for a personal loan, credit card or another type of credit account.
For example, if a lender requires a borrower to have a score of 650, and an applicant has a score of 600, the chances of denial are high. Should that applicant know beforehand that they do not meet the lender’s minimum credit score requirement, they would be able to find a more suitable option for their credit profile and avoid unnecessary hard inquiries.
Improve/rebuild your credit
Credit reports contain a lot of information about an individual’s finances and credit health. The information that is reported to the credit bureaus is what is used to calculate credit scores, and certain information can cause a person’s score to drop significantly.
When someone monitors their credit, this gives them the opportunity to improve it because they can see what activity is negatively impacting their score. Someone with high credit utilization will be able to determine that using their credit cards less will increase their score. Or that if they avoid applying for credit too often, no new hard inquiries will be listed and decrease their score.
Being in the know is important when it comes to a person’s credit score. Even if they don’t want to monitor their credit on a daily, weekly or monthly basis, obtaining a free credit report every year would still allow them to keep an eye on things and do what is necessary to maintain a healthy credit score.