If you’re not thinking of buying a house or car soon, or applying for a new credit card, then you might think there’s no reason to check your credit. It’ll be there when you need it, right? So, why bother worrying about it now? The truth is, there are many reasons to check your credit, and waiting until the moment you need it could end up being too late. Here are five reasons why it’s important to check your credit — and how you can do it for free.
Why It’s Important to Check Your Credit
1. Because It’s Like a Physical for Your Finances
It’s easy to think of credit reports like a report card for your finances, and thus to want to avoid them. However, if you think of them more like a physical for your finances, it might be easier to see the power you have in regularly reviewing them.
Reviewing your credit report isn’t an exercise in understanding how much debt you really have or facing past mistakes. Rather, it’s a way to catch problems early, when they’re easier to solve. Here are just a few things you could discover by checking your credit reports:
- An account that’s been sent to collections that you might never have known about otherwise (for example, a medical bill you didn’t realize went unpaid or a library fine you forgot about years ago)
- An account you cosigned on going unpaid — if you helped someone by cosigning on a loan or line of credit and they don’t tell you if they’ve fallen behind on payments, your credit report will show you
- Credit utilization that is too high — it’s easy enough to check balances on your credit cards, but reviewing them all on your credit report can help you see if the balances combined might be high enough to hurt your credit scores
This is just the beginning of the useful information your credit report can show you. Below are a few more reasons why it’s important to check your credit regularly.
2. Because Credit Report Mistakes Could Be Hurting Your Score
Hard to imagine though it may be, credit reporting mistakes are real and can potentially be damaging to your credit. But when you check your credit reports regularly, you can catch these mistakes and dispute them, ensuring that your credit reports are a fair and accurate representation of your credit profile.
FREE TOOL: Are mistakes on your credit report hurting your credit score? Find out here.
3. Because It Can Help You Catch Identity Theft Faster
Credit reporting mistakes aren’t the only threat to your credit — so is identity theft. But how can you tell if your identity has been compromised?
Your credit reports can help. When you review your credit reports, you’ll see financial accounts that have been opened in your name. Therefore, if someone has stolen your identity and taken out a loan, that should show up on your credit report. From there, you can dispute the account and report the theft via the Federal Trade Commission — quickly working to solve a problem you might not have known about otherwise.
4. Because If You Wait to Check Your Credit Until You Need a Loan, It Could Be Too Late
Building or improving credit takes time. If you wait to check your credit until you’re sitting at a mortgage broker’s office or in the salesroom of a car dealership, it could be too late. That’s not the moment when you want to find out that your credit needs work.
Instead, if you check your credit report before you need credit, you’ll have more time to make improvements if your credit needs it. That way, once you’re in the market for new credit, you’ll already know where you stand and your likelihood of getting approval.
5. Because Good Credit Can Save You Money
Having good credit doesn’t just help you get approved for credit — it can help you save money on the credit you get approved for. Why? Because higher credit scores are often approved at lower interest rates.
You can see an example in this pdf by popular credit scoring company FICO®. The example compares a theoretical 620 FICO® score to a 760 and shows what would happen if both applied for a $280,000 30-year fixed mortgage. In the example, the 620 was approved for the loan at a 5.08% APR, which means a monthly payment of $1,517. The 760, on the other hand, was approved at 3.49% and a monthly payment of $1,256.
Not only does the lower interest rate decrease the monthly payment on this fictitious mortgage, it also lowers the amount of money paid in interest over the life of the loan. In the example, the borrower with the higher interest rate would pay $266,055 in interest alone before the loan is paid off. The borrower with the lower interest rate pays only $172,131 in interest over the 30 years.
In other words, the borrower in this example who has the higher credit score and lower interest rate pays $261 less per month than the borrower with the lower credit score and higher interest rate. Over the life of the loan, the borrower with the lower credit score also pays $93,924 less in interest overall.
It’s Free and Easy to Check Your Credit
Now that you can see the reasons why it’s important to check your credit regularly, the next thing you should know is that it’s fairly easy to do so. You can see your credit reports from all three credit reporting bureaus (Equifax, Experian, and TransUnion) for free once per year via AnnualCreditReport.com.
What’s more, you can use tools like Upturn to monitor your credit in the meantime, getting monthly alerts on changes to your credit and learning about the things you can do to improve your credit. Keep in mind, however, that Upturn and tools like it don’t normally show you all three of your credit reports. It’s important not just to check your credit, but to check it via all three credit reporting bureaus, as their reports can vary.
Checking your credit might sound like a chore, but it’s actually a move that can enable you to maximize your financial opportunities. And remember — the sooner you check, the better.
Get all the facts you need to know about credit scores and credit reports.