Why And How Do I Check My Credit Status?

By ADAM GELLER AP Business Writer

Q. I’ve been told it’s a good idea to regularly monitor my own credit status. Why is that important and how should I go about doing it?

A. Consumers should keep track of their credit profile for two main reasons, experts say. It’s key to making sure they are treated fairly and beneficially by lenders and other businesses. It also helps keep tabs on identity theft.

It’s becoming easier and less expensive to check your own credit. But to make the best use of the information, it helps to know what’s out there and how it is used.

Just about every consumer has a credit profile, showing their record of borrowing and repayments to make purchases. Three private credit tracking companies — Equifax Inc, Experian Ltd, and Trans Union LLC — compile that information in credit reports. Another company, Fair Isaac Corp, assigns consumer credit scores, known as a FICO scores, that puts a value on overall credit worthiness.

This information is now used routinely by businesses in dealings with consumers. Lenders check credit to decide not just whether to offer a loan to a consumer, but at what interest rate. Some insurers check credit in deciding what premiums to charge for auto insurance. Landlords check credit before deciding whether a consumer would make a good renter.

But because reports include information from a variety of sources, it’s not uncommon for them to include errors or notations for which there is a logical explanation, said Jack Gillis, director of public affairs for the Consumer Federation of America, an advocacy group. Checking your credit rating regularly and alerting the agencies if and when changes need to be made can prevent problems later, he said.

“The worst time to find out about a problem in your credit rating is in a situation when you need to get credit,’’ Gillis said.

Credit reports also can tip consumers to identity theft since reports will usually show if someone has opened a credit account in your name and run up a balance.

Consumers should check their credit reports once or twice a year, advocates say. It’s not as crucial for most people to check their FICO credit scores, but it is a good idea to do so six months before you anticipate applying for a big loan. It also can helpful for people who are trying to improve their credit profile and want to know what baseline they’re working from, said Liz Pulliam Weston, author of Your Credit Score: How to Fix Improve, and Protect the 3-Digit Number that Shapes Your Financial Future.

The credit agencies charge for a copy of credit reports. But a recent change in federal law requires each of the agencies to provide consumers with a free copy of their report each year. The program is now available for most of the country, with consumers in a final group of eastern states eligible September 1.

The agencies have set up a joint website to provide these free reports at www.annualcreditreport.com. Consumers can also call 877-322-8228.

The agencies will not provide the free reports through their own websites. Also, some companies have set up similar web addresses that sell the same reports consumers can get for free. Some consumers try to save money by having a friend at a bank or mortgage broker pull their credit report for them. That’s a mistake, advocates say, since that shows up as a lender inquiry and hurts your rating.

Weston suggests consumers get one of the reports every four months, allowing them to regularly keep tabs on their credit profile at no charge.

Consumers can get their FICO scores at Fair Isaac’s site, www.myfico.com.. The company sells a variety of packages, wrapping FICO scores together with one or more credit reports compiled by the agencies.

A number of companies now offer credit monitoring services, many charging annual fees of more than $100, to track a consumer’s credit rating and provide an alert if someone has opened a line of credit in your name. Both Gillis and Weston said they see limited value in such services, provided consumers regularly track their own credit.