Credit Reports

Due to recent changes in law, you are now entitled to one free credit report annually from each of the major credit bureaus. In 2005, the federal Fair Credit Reporting Act (FCRA) mandated that consumers were entitled to one free credit report a year from the three credit bureaus. This is a copy of your entire report with all of the information reported to the credit bureaus, and it is the information that your credit score is based on.

There has been a lot of press regarding the recent changes which allow you to pull your credit report once a year, but the question remains: how often should you pull your credit report? Is once a year enough? With identity theft on the rise, and the credit, banking and housing markets in turmoil, many people wonder if it would be a good idea to check their credit more often than once a year.

The answer, of course, depends upon your personal circumstances and what credit problems you hope to guard against. For most people, an annual review of your credit report is a good idea, and will alert you to any major changes such as old items falling off, or any new items that may have been added. If you are worried about identity theft, or if you are rebuilding your credit and applying for a major loan, such as a mortgage, you might want to keep a closer eye on your credit.

In that case, you might also consider a subscription credit monitoring service, which not only alerts you to any changes in your credit report, but will allow you to access your credit score as well. Your credit score is not included in your credit report, and it is one of the most important thing lenders consider when determining your creditworthiness. If you are considering paying for three more credit reports, at that point, it might be more cost effective for you simply to subscribe to one of these services.

It's important to be an informed credit consumer and know your credit score. Whether you decide to do a one-time check of a single credit score, or purchase a year's subscription to monitor your changes in credit data at all three bureaus, or one bureau, depends upon your needs and budget.

When people pull their own credit reports, for example when they receive their free annual credit report from the three major agencies, they sometimes worry that the inquiry will "ding" their credit score. This is not the case. Any time you look at your own credit report, the credit bureaus call that a "self-disclosure" or a "self-inquiry" and it does not help or hurt your score. Neither do inquiries from your existing creditors, potential employers, or businesses who are considering soliciting your business (also known as "promotional" inquiries). Your existing creditors will most likely pull your score a couple of times a year, as part of an "account review." None of these inquiries will hurt you.

A self inquiry is considered a "soft inquiry" and does not affect your credit score. This is to differentiate it from a "hard inquiry" which is an inquiry that comes from a lender who is inquiring for the specific purpose of extending you credit. Numerous hard inquiries can have a negative impact on your score, but soft inquiries have no impact whatsoever.

The only sort of inquiries that will "ding" your credit rating are multiple "hard inquiries" made by new credit grantors whom you have explicitly authorized to check your credit. If you apply for a lot of credit cards in a row, for example, this may indicate to the credit bureaus that you are a distressed borrower who is contacting many lenders in hopes of an approval. Statistical studies reveal that this type of behavior is associated with a high risk of default. Therefore, multiple credit applications may trigger a reduction in your credit score, if you are not careful.

The only thing you need to be careful about, when pulling your own free credit report, would be if you accessed your credit report through another company, rather than directly through the official credit bureau website. This may also count as an outside inquiry if you are not requesting your report from the bureaus directly.

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