3 Reasons to Check Your Credit Report Today

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Most Americans don't realize how important their credit report has become. It obviously has a huge impact on your financial life, whether you're applying for a home loan or credit card or looking to rent an apartment. But increasingly, credit information has become part of the data-gathering process for a wider range of decisions, with many employers looking at credit histories of prospective employees to assess reliability and spot potential warning signs. Moreover, many Americans don't do nearly enough to ensure that their credit history accurately reflects their financial experience, leaving themselves open to erroneous information as well as more damaging consequences.

A recent poll by credit-tool company WisePiggy revealed some troubling trends among Americans in handling their credit. According to the poll, more than one in nine Americans have never looked at their credit reports or even their credit score. Even among those who have seen their credit report information, nearly a quarter haven't updated their knowledge of their credit within the past year, and only about half have information that's no more than six months old.

By letting so much time pass between checks of your credit report, you leave yourself open to some big risks. Here are three things to consider in how often you choose to review your credit history.

1. You Need a Better Credit History to Get a Loan

During the housing boom a decade ago, many banks aggressively courted mortgage borrowers, cutting their credit standards and allowing borrowers with low credit scores to obtain subprime loans to let them buy homes. The resulting mortgage crisis shook the financial system to the core, and in response, mortgage lenders have gotten a lot stricter about whom they lend to.

Even six years after the bailouts of major mortgage banks, many lenders are still dealing with the aftermath of their easy credit decisions. A Washington Post report details the efforts of government-sponsored mortgage-finance entities Fannie Mae and Freddie Mac to force banks to repurchase mortgages that turned sour, and the response even from small banks has been to tighten their lending standards to avoid any chance of that happening in the future. The article cites figures from the Urban Institute revealing that as many as 1.2 million loans haven't gone through because of these tougher standards. A few banks have looked at ways to lower required credit scores, but federal agencies have been slow to foster those efforts.

If you anticipate needing a loan, it's important to check your credit history and score to ensure that you'll be able to qualify for these higher standards. Letting your score fall below accepted levels could cost you thousands more in higher financing costs due to having to accept a higher interest rate, or you might find yourself unable to get a loan at any price.

2. Regular Credit Report Checks Help Avoid Identity Theft

As recently as a few years ago, credit card breaches were rare. Now, as the recent 60 million customer data breach at Home Depot (HD) shows, attacks on credit card information databases have become everyday events, and you simply can't guarantee that large pieces of your credit history aren't being compromised in those attacks.

Checking your credit report regularly ensures that you'll see unusual activity no matter where it occurs. Many consumers rely on the card companies to provide those warnings or look only at the cards they use most frequently. But smart scammers can take your information from one card to use to apply for new credit in your name, and they can rack up thousands in charges without your even knowing the account exists. Your credit report will list not only your active accounts but also recently opened and some of your closed accounts, giving you a complete picture that you can use to assess your threat level and any damage that identity thieves have wrought.

3. Preserve Your Right to Free Credit Reports

The best reason to check your credit report today is that you can do so without paying a cent. The government-approved AnnualCreditReport.com gives you free access to reports from each of the three major credit-reporting bureaus annually. That means you can stagger your access across the three bureaus -- Equifax, Experian (EXPN) and TransUnion -- and look at your credit every four months.

When the government first required access to credit reports, the credit-reporting bureaus weren't happy about giving away information that they used to reap profits from lenders and their other paying customers. In response, they've tried to earn money by offering subscription-based credit monitoring services that go beyond the required disclosures. Some of those services might be worthwhile, but making sure you take advantage of the free access that you're legally entitled to receive will show the lawmakers who made it possible that you value their efforts, and make it more likely that the services will remain available in the long run.

Given how easy it is to get your credit report, there's no reason not to review it on a more regular basis. By doing so, you'll greatly reduce the risk of having erroneous information come back to bite you in the future.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google Plus. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. Check out our free report on high-yielding dividend stocks.

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3 Reasons to Check Your Credit Report Today
You're entitled to a free credit report every year from the three major credit reporting agencies -- Equifax (EFX), Experian (EXPGY) and TransUnion. Go over your report line by line. Do your balances match your records? Are there any claims of delinquencies for accounts you never opened, or late payments you don't remember? If you spot any errors, contact the reporting agencies to dispute them.
Your credit history reflects how responsible you are with your credit. Missing a payment -- or multiple payments -- lowers your score and makes you look risky and unreliable. Set up a system to guarantee you're on time with all future payments. Mark due dates on your calendar or (even better) set up automatic payments from your checking account.
It's not just the fact that a payment is late. Credit agencies also keep track of how late your late payments are. The longer it takes you to pay an overdue amount, the worse the damage it will do to your score, so if you're late on any bills, take care of them as fast as possible.

Credit agencies pay attention to your credit utilization ratio -- how much you owe compared to the maximum your credit cards would allow you to borrow. If you're using most of your available credit, it's time to adopt an aggressive strategy to pay down your balances.

There are two popular strategies. One version of the "snowball method" involves paying off the card with the lowest balance first, then working your way up the line. This gives you the fastest psychological victories from crossing debts off your list, which motivates you to keep going. Or you could follow the traditional snowball method of paying off the debts in order of  the highest interest rate first. Resist the urge to play the balance transfer game. Instead, focus on genuinely paying off the balances, once and for all.

As long as you keep adding to your debt, you'll never get ahead, so it's time to drastically reduce how much you charge on a regular basis. Put your credit cards in a drawer or cut them up altogether. Take a red pen to your budget. Get a second job for extra income. Do whatever it takes to stop adding to the balances you're trying to pay down.
It seems counterintuitive, but if you've paid off an account, you should still keep it open. It will show up as "good debt" on your credit history, and the longer you've had it, the better your score. (Note: You can cut up a credit card and still technically leave the account open.) Keep the account "active" by occasionally charging a small amount on it, like your Netflix (NFLX) subscription and immediately paying it off in full. Set up automatic payments to make sure you're never late.
If you have a spotty credit history, it's easier to get a secured credit card, department store card or gas credit card than a major credit card. If you make small charges to it each month and then pay them off immediately, you'll build up a positive credit history and boost your score.
If you're having trouble getting a card of your own, ask a friend or relative to add you as an authorized user to one of their credit card accounts. This is a big favor to ask, though, so make sure to use this privilege responsibly and only charge what you know you can pay off immediately. And don't be offended if the person says no. 
Credit card companies are more flexible than you may think -- after all, they want to keep your business and collect your money. So it doesn't hurt to call up customer service and ask about ways you can negotiate your current arrangement. You may be able to get a settlement arrangement that lowers your interest rate or waives late charges so long as you make regular payments. You may also be able to get a certain late charge removed if you can demonstrate hardship and an otherwise decent payment history.
A high debt utilization ratio (using too much of your credit limits) can hurt your score, so if you're able to negotiate a credit limit raise, it could give you some extra points. That said, this is a risky move if a higher limit will only tempt you to spend more, so use it only if you really trust yourself.

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