Understanding how credit scores work, and therefore, having a good score can save you lot of money. In insurance, a good credit score and history can mean paying less for home and auto insurance each year.
This is the 4th post in a 5 part series on credit scores. Read:
- Part # 1: How Does Your Credit Score Work?
- Part # 2: What Effects Your Credit Score?
- Part # 3: Where Should I Get My Credit Score?
The purpose of today’s post is to answer the common question, “How to get my annual free credit report?“
Your credit report, which is different from your credit score, is a detailed report of your past credit history. It provides a future lender with just about every major financial transaction from your past. The information on your credit report is what makes up your credit score.
Getting your credit report is free and easy. To do so, go to annualcreditreport.com. You’re entitled to a free copy of your credit report from each of the reporting agencies once a year (Equifax, TransUnion, and Experian).
(Tip: AnnualCreditReport.com may not be the first site that comes to mind when you think free credit report. It is however, the one set up by law through the Fair Credit Reporting Act.)
You can get these all at once or over a period of a year. I prefer to spread it out just in case someone requests a copy of my credit report, I don’t have to pay to get one.
Once you get your credit report, it’s important to review it carefully. You want to double check everything. Even basic information such as your name, social security number, address, etc… Start from the first page and work your way toward the end.
To show you what you should be looking for, I’m going to take you through a past copy of my credit report from Experian over. The exact order may differ for you depending on what credit reporting agency you receive your report from.
Potentially Negative Items or Items for Further Review
The first item showing on my credit report is a collection agency. I had a bill go to collections when I was in college. My credit report gives me the information of the collection agency along with the original creditor. It also lists the amount, which was just $57, and the fact that I paid it off.
Most importantly, it mentions that this collection will be removed after seven years.
If I was a smart college kid, I would have recorded the dates and kept a paper trail. This would allow me to record the exact date that the company went to collections. A lot of times, dates are a few months behind, which I think it is in my case. If I had the proper documentation showing that this bill was sent to collections earlier, I could have it deleted from my credit report earlier.
Another footnote worth mentioning is that Chapter 7, 11, and 12 bankruptcies as well as unpaid tax liens will remain up to ten years.
Accounts in Good Standing
The next section of my credit report gives accounts that are paid up to date along with their balance history. Mine include three credit cards and one mortgage. All accounts statuses currently list “Open/Never late”, a great sign.
On one of my credit card accounts I’m listed as an authorized user, meaning it’s not my responsibility to pay the bill. Even though this isn’t my credit card, being an authorized user still affects my credit rating.
Here is a bit of history on the authorized user because it has been a back and forth issue. One of the ways you use to be able to increase your credit score was to add yourself as an authorized user to an account in good standing. For example, if your parents had good credit, you can ask for them to add you as an authorized user and their credit history would go on your credit history. Your credit score would then immediately go up. The FICO figured out this trick quickly and decided to eliminate authorized user status from the credit score equation for a short time. However, about two months after they reversed their decision, stating:
“After consulting with the Federal Reserve Board and the Federal Trade Commission earlier this year, Fair Isaac has decided to include consideration of authorized user trade lines present on the credit report in the FICO 08 model.” – Tom Quinn, Vice President of Global Scoring Solutions for Fair Isaac Corporation
My guess is that FICO adjusted their formula in the two months, to minimize any credit score increase from being added as an authorized user on an account in good standing. However, if the account is in bad standing, it will negatively affect your score.
Therefore, if you’re an authorized user on an account with a bad credit history, it might be best to have yourself removed.
Record of Requests for Your Credit History (Hard Inquiries)
The next section of my credit report lists recent hard inquires. Hard inquiries are performed by current and potential lenders when you’re taking on an additional financial obligation.
The most common hard inquiries you will find on your credit report include:
- Banks & Credit Unions
- Credit Card Companies
- Car Dealers
- Insurance Companies
- Property Management Companies & Landlords
- Phone & Cable Companies
- Utility Companies
Here’s the statement from Experian on my credit report:
“We make your credit history available to your current and prospective creditors and employers as allowed by law. Experian may list these inquiries for two years so that you will have a record of the companies that accessed your credit information.
The section below lists all of the companies that reviews your credit history as a result of action you took, such as applying for credit or financing or as a result of a collection. The inquires in this section are shared with companies that view your credit history.”
You want to avoid hard inquiries as best as you can. It’s estimated that a hard inquiry will lower your credit score anywhere between 5 and 10 points.
Since hard inquires do negatively affect your credit score, here’s how to limit them.
- Ask – Anytime you’re opening a new account, ask if they are pulling your credit, when they are pulling your credit, how many times they pull your credit, and are there any ways for them not to pull your credit.
- Don’t Rate Chase – A common but damaging trend is to chase low introductory rates on credit cards or high introductory rates in the case of savings or checking accounts. The more accounts you apply for, the more hard inquiries you will see on your credit.
- Avoid Applying for Store Cards & Cards That Give You a Free Gift – Popular retail stores will ask you if you want to save 10% today by applying for a store credit card at checkout. A similar marketing trick is done by issuing free T-Shirts at sporting events or pizzas on college campus to those that apply for a credit card. Keep in mind that every time you apply for one of those cards, they pull a hard inquiry.
- Avoid Nothing Down and 0% Interest Loans – Say you went into Best Buy and want to buy a new big screen. They have a promotion going on that says, “0% financing to 2013″. Even though it’s a 0% deal, if you want to limit hard inquiries, avoid it. Even if you know you will have the money in the future, it’s not worth it. Pay in cash or a credit card today and avoid them ever having to pull your credit.
Getting Rid of Hard Inquiries
There used to be a common technique to get rid of hard inquires; if you did a soft inquiry on yourself once a day, hard inquires would eventually get bumped. Credit reporting agencies are bright people and quickly caught on.
As of now, there is no way to eliminate a hard inquiry that you gave permission for. That doesn’t mean that there is no way to get rid of a hard inquiry from a company that you didn’t give permission to.
If you don’t recognize or don’t remember giving authority for a hard inquiry on your credit, you have the right to get it removed by mailing or faxing a request to the creditor. You want to do this immediately, before they make another unauthorized inquiry.
The contact information for the creditor should be on your credit report. If it’s not, visit the company’s website and search for a contact number. Then call the creditor, and ask for either a fax line or mailing address to submit your formal letter. (Note: Don’t ask for the hard inquiry to be removed over the phone because there is no paper trail.)
Below is a copy sample letter you send via fax or certified mail to each creditor.
Your Name
Your Address
Your Phone Number
RE: Unauthorized Credit Inquiry
I was recently going over my credit report from (Insert Reporting Agency’s Name), and I happened to see a hard inquiry listed from your company.
The details of the inquiry are below.
Date of Request: (Insert Date of Request)
Creditor Name: (Insert Creditor Name)
In which I am aware of, I have never approved your company for this inquiry. Under the Fair Credit Reporting Act, it is stated that you must have my authorization to perform a hard inquiry on my credit.
Unless you can provide me a written proof of authorization signed by me, I’m asking you to contact each credit reporting agency to have your illegal inquiries removed immediately. I also ask that you remove any personal information of mine from your records.
Thank you for your attention to this matter,
Your Name
Your Signature
Removing a hard inquiry on your credit report can give your credit rating a slight boost.
Inquiries Share Only With You (Soft Inquiries)
Soft inquiries are inquires that you’re not even aware of. For example, companies who send preapproved credit card applications through the mail, perform a soft inquiry before sending you that application.
Soft inquiries have no bearing on your credit score.
On my credit report from Experian it states in bold letters:
“We offer credit information about you to those with a permissible purpose, for example to:
- Other creditors who want to offer you preapproved credit
- An employer who wished to extend an offer of employment
- A potential investor is assessing the risk of a current obligation
- Experian Consumer assistance to process a report for you
- Your current creditors to monitor your accounts
- A static copy of your credit report provided to a subsequent user necessary to complete your mortgage loan application
These inquires do not affect your credit score.”
The important thing to remember when reviewing your credit report is to eliminate any errors. It is a pain to do so but one error can mean the difference between a great or poor credit score.
