The Simple Habits That Could Save Your Credit Report

We just survived tax day — one day of the year that is hard to forget. Whether you have a financial planner to help you fill out taxes or you do them yourself, knowing the IRS penalties for not getting it done seems to keep most of us in check. While filing a tax report is a no-brainer, checking credit scores seems to fall lower on the priority list…which is causing some Americans thousands of dollars. According to a 2013 study by the Federal Trade Commission (FTC), 1 in 5 consumers had an error on at least one of their reports from the three major credit reporting agencies: Experian, TransUnion and Equifax. Here are a few tips and insights for not letting your hard-earned money slip through the cracks.

Request a credit report

Annual credit reports are not only free, but easy to access. “Everybody should be routinely pulling their credit reports to make sure that everything on their credit reports is accurate,” says Scott Smith, president of creditrepair.com, a Salt Lake City-based company that has been helping people resolve credit disputes for 20 years. “It’s really amazing how many inaccuracies are out there.”

These simple data entry errors can be resolved before they cause damage to your other financial prospects if you catch them early. Americans are legally allowed to request a free copy of their credit report every 12 months from each credit reporting agency (Experian, TransUnion, and Equifax) in order to check their information is updated and accurate. It’s possible to check one report from each agency every four months to keep an eye on things, and personal-finance experts recommend checking all three reports annually, even if you check them all at once.

The most trusted credit reports source is annualcreditreport.com, the only site authorized and maintained by the FTC. Be warned — the government cautions people to stay away from “impostor” sites with similar names.

Understand the penalties

It’s one thing to know your credit score is low; it’s another thing to have an unknown error on your credit report that causes your score to be inaccurately low. To get an idea for just how devastating these credit score errors can be, keep in mind that poor credit scores can result in the following:

• Increased costs of loans
• Loss of employment opportunities
• Home and apartment purchasing setbacks
• Increased insurance rates

If you’re considering applying for a loan in the near future, experts advise you to go one step further and determine your actual score. Reports might make it easy to check for errors, but they don’t show facts like your credit utilization rate (the amount of your available credit that you’re using), which accounts for nearly a third of your credit score.

Loan-seekers also need to pay attention to the second, game-changing FICO score (named after Fair Isaac Corp.), which is used by most lenders. For example, the difference between a “pretty good” credit score of 680 and a “good” score of 720 or 730 could mean an extra half percent of interest on a mortgage rate. On a $200,000, 30-year-fixed mortgage, that could cost a borrower roughly $20,000 in additional interest over the life of the loan. Many credit card companies, banks, and credit unions will make your FICO score available for free. If your financial institution doesn’t offer a free FICO score, you can always purchase your score from myfico.com for $19.95.

Make it a habit

Checking credit reports and other scores is easy to forget; after all, taking out a loan or checking for credit errors isn’t always at the forefront of your mind. If you can set a regular date to check your credit score, such as on tax day or as one of the things to add to your to-do lists before the holiday season hits, chances are you won’t forget it. Set an automatic reminder in your phone, computer, planner or other area you regularly check.

Don’t be part of the 1 in 5 — check your credit report before the errors wreak havoc on your finances. You never know how much money and opportunity you could save yourself down the road.