We all know good credit is important for getting a loan, and employers increasingly are looking for good credit scores as a hiring criteria. Your credit score can seem scary if you believe you have no control over it. Advertising for credit-related services plays off fears that credit can be irreparably damaged and must be continuously monitored. Ignore the hype.
Credit scoring is actually very rational and predictable.
Credit scores are often generically referred to as "FICO" scores. The three major credit bureaus (Equifax, Experian, and TransUnion) each calculate their own version, but these credit scores contain basically the same information. Records of your credit and payment behavior are aggregated by the credit bureaus and used to calculate a numerical score-usually between 300-850.
The higher the better, as this score represents a prediction of your likelihood to repay a future debt.
Both simple errors and malicious identify theft can damage your report. The longer they go unchecked, the more damage is done. The Fair Credit Reporting Act entitles Americans to free credit reports. Once per year you may request a free report from each of the three major credit bureaus. In addition to the annual reports, you are eligible to receive a free credit report within 60 days of an adverse credit action. These include being denied credit or receiving substandard credit terms from a lender. You also may be able to get a free credit score if, based on your credit score, you were denied a loan or insurance.
Free reports do not include credit scores. That's OK. You just need the data behind the score because you want to make sure that there are no errors-like missing mortgage payments-and that someone else is not fraudulently securing credit under your name.
Reports can be requested on the federal government recommended site, annualcreditreport.com, or by calling (877) 322-8228.
Lela Davidson is a former CPA who almost always pays her bills on time.