Are Free Credit Reports Safe?

Any credit bureau or financial company can advertise free credit reports, but the Federal Trade Commission (FTC) warns that such offers usually have strings attached. The Fair Credit Reporting Act (FCRA) provides an official, safe way to get no-cost credit reports, but it involves using a specific website. Otherwise consumers should be cautious about purchase requirements attached to free offers.

Definition

Credit reports are files containing financial information about consumers, the Federal Reserve Bank of San Francisco explains. The main compilers are three national credit bureaus called TransUnion, Equifax and Experian. The reports are sold to entities such as financial institutions, insurers and employers to help them evaluate applications. They show demographics, employment date, current and past credit accounts and certain public records such as court judgments on financial matters.

Purpose

Credit report entries often have mistakes. Dayana Yochim of the Motley Fool financial advice site warns that errors are found in more than 80 percent of credit files. The FCRA requires all three credit bureaus to give free report copies yearly upon consumer request. This allows people to check their files and complain to TransUnion, Experian and Equifax about inaccurate information. The data is corrected or removed if the dispute is correct.

Considerations

The FTC explains that the credit bureaus work through a special website, annualcreditreport.com, to provide the free FCRA-mandated credit reports. The website is safe, and it offers phone and mail order alternatives for people who prefer not to place online orders. Some credit bureaus and other commercial vendors advertise free reports, too, but the FTC warns that they usually require some type of purchase or sign-up for paid services like credit monitoring or identity theft protection. Such businesses are supposed to prominently disclose those terms on their websites.

Time Frame

Free credit reports are only available once each year from annualcreditreport.com, according to the FTC. Consumers can purchase additional reports from commercial sites as often as they wish. A "Wall Street Journal" article recommends spreading out no-cost reports to maximize the free entitlement. Order a report from one bureau at four month intervals, which covers the whole year. Repeat the same process every year.

Alternative

Fraud victims have an alternate way to get free credit reports, even if they ordered copies from annualcreditreport.com in the past 12 months. The FTC explains that they are entitled to review their files when they request fraud alerts from the credit bureaus. This lets them identify any unauthorized accounts or activity. Fraud alerts are free and last for 90 days, alerting lenders to take extra precautions before granting new credit.

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Do You Have to Have Excellent Credit to Refinance?

Paying off a loan with another loan, called refinancing, can save you money on finance charges and lower your monthly bills. Although excellent credit maximizes the benefits of refinancing, refinancing can benefit you even if you have less than stellar credit. However, you always benefit from improving your credit before refinancing.

Identification

You do not have to have excellent credit to refinance. A lender allows you to apply with any credit score and then makes a decision based on your application as a whole. Because a refinancing loan requires the same standards as any other loan, an excellent credit rating gives you a better chance at receiving approval than a good or worse credit score.

Disadvantages of Poor Credit

A less-than-excellent credit score -- anything above 760 is excellent -- may mean refinancing won't make your loan cheaper. A good credit rating may help if you had a poor or average credit rating when you originally applied for a loan. You might also want to refinance if interest rates for the market in general have dropped significantly since your first loan application.

Other Considerations

A credit rating is just one factor a lender considers when you ask for a refinance loan, especially for a mortgage or auto loan. For instance, if you own 70 percent of your property, the lender might consider you a lower risk than someone who only owns 10 percent equity in his home with a better credit history. You also can receive a lower interest rate if you have a high monthly debt-to-income ratio.

Tip

Calculate how much you can save by refinancing. Several websites, such as Bankrate.com, have tools that tell you how much you will save by refinancing. It can take years to break even on a refinance loan after origination fees. If you want to refinance because you cannot afford payments, talk to your lender first -- because it may help you make your monthly payments more affordable than refinancing, which usually requires a credit check that lowers your credit score a few points. Also, improve your credit months before applying for a refinance loan, such as by eliminating credit-card debt and paying every bill on time.

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How Much Can a Credit Score Rise if I Pay an Old Debt?

Strangely, sometimes the best decision for your credit score is to not to pay off an old debt, even if morally right. You may not even have a legal obligation to pay it once it reaches a certain age. Any potential points you can get from paying an old debt is probably less important than the fact that you reaffirmed your responsibility to pay it.

Considerations

It takes years of good payment history and keeping debt low to build a good score, but a single missed payment or collection account can damage your score for years. If you are late by more than three months, paying probably won't raise your score by more than a few points. If it goes to a collection agency, paying it off will have no effect on your score.

Potential for Harm

When debts are years old, paying them off causes damage to a credit score, because credit reporting companies can only list them for seven years. Reaffirming an old debt brings the payment status to current and renews the clock. Paying a collection account of any age used to hurt a credit score, but modification of the FICO formula in 2008 changed this. Also, states put statutes of limitations on most debts, usually from three to seven years, so you may not even have liability on an old debt.

Paying Old Debts Has Some Benefits

Some lenders, usually mortgage providers, refuse to approve a loan application until the potential borrower pays off any outstanding debts. Even if a lender does not require an applicant to pay off collection accounts, doing so could be a good way to show high moral character and willingness to pay any debt. You can ask your loan officer what course of action the bank would like to see on a collection account.

Tip

You can negotiate with a lender to get a collection account taken off your record by paying back the old debt, but this tactic is much harder than in years past, because credit reporting agencies are aware of this tactic. Some collection agencies cannot report to the major rating companies due to abuse of account deletions. However, it cannot hurt to at least try to negotiate to remove the account.

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Does Checking Your Credit Hurt It?

Checking your credit generates a record that appears on your credit report. The record appears at the bottom of the credit report and is visible to anyone who pulls the report. Checking your own credit score is referred to as a soft inquiry. Pre-approval marketing campaigns also make soft inquires to your record to determine eligibility. Despite generating a credit report inquiry, it is important for consumers to check their credit reports for accuracy.

Effect on Credit Score

The credit score remains unchanged during a soft inquiry. Consumers wishing to check their score multiple times a year can do so without affecting the score. Hard inquiries on the other hand affect the score slightly. A hard inquiry is triggered by a consumer when applying for a loan, credit card or life insurance. Hard inquiries account for less than 10 percent of the overall score. Multiple hard inquiries such as the ones by home lenders or car dealers which occur in a 14-day period are listed as just one inquiry on the report.

Recording Inquiries

Reviewing the number of times a consumer has applied for new credit gives lenders a sense of a consumer's financial health. Multiple inquires can indicate that a consumer is looking for a way out of an overwhelming debt situation. Applying for multiple cards or moving balances around can preclude a financial meltdown. Hard inquires not generated by the consumer could indicate identity theft and should be investigated. Unauthorized credit inquiries can be removed from the credit report at the consumer's request.

Who Performs Credit Checks

Credit card companies and other lenders perform soft inquires for pre-approved credit offers. Those with a specific business purpose such as home loan lenders, car dealers and landlords may perform hard inquiries with the consumer's permission. Inquiries appear only on the report being checked. I.e. a credit check on a TransUnion credit report will not show on a consumer's Experian credit report. Contacting the credit agencies to have your name removed from marketing distributions can reduce the number of soft inquiries on your credit report.

How Long Inquiry Remains

Soft inquires remain on the credit report for a year. Hard inquires will show up for two years. Credit reporting guidelines require all inquires to remain on the report for at least a year. Although hard inquiries stay on the report longer, most creditors tend to ignore any that are older than six months. After two years the record of inquiry will be removed from the report. It is important to note that few people are ever rejected for credit based on too many inquiries on their credit report.

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How to Remove Old Credit From Credit Report

Information stays on your credit reports from 7 to 10 years, according to the Federal Reserve Bank of San Francisco. The period is the same whether the information is good or bad. It should drop off automatically after that, but sometimes it remains. You will want to remove it if it is negative because it will bring down your credit score as long as it stays on the reports.

Instructions

1

Request copies of your credit reports from all three credit bureaus. Experian, Transunion and Equifax are independent bureaus, so each may contain different information. The Federal Trade Commission says they must all give you a free copy every 12 months under the law. Request it by calling (877) 322-8228 or going to the annualcreditreport.com website. Both of these sources are run by the government and provide reports without any purchase obligation.

2

Read through the three credit reports and make a list of any items that at least seven years old. The Federal Reserve Bank of San Francisco says most accounts and other items must be removed at the end of seven years, but certain bankruptcies can stay on for 10 years, depending on the terms of the settlement.

3

Dispute any old items with the credit bureaus on the grounds that the reporting time frame has passed. Credit bureaus are required to remove erroneous items once you report them. They will conduct an investigation and notify you of the results.

4

Re-check your credit reports once the credit bureaus finish their investigations and say they have removed the old items. Normally they will do so, but it's always best to double-check.

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The Most Important Credit Rating Factors

Whenever you apply for a loan or credit card, the lender checks your credit score to determine whether to approve your application and what interest rate to charge. Your credit rating considers many different components of your credit history, but they are broken down into a few major categories. Focus on the most important factors when you are trying to boost your credit score.

Payment History

Keeping all of your accounts in a positive status of "paid as agreed" is the single most important thing you can do to keep your credit score high. 35 percent of your credit score is based on your payment history. Make at least your minimum payment on time each month by setting up automatic payments or payment reminders. Budget your money carefully so you always have enough to pay each bill. Your payment history also considers negative public records, such as bankruptcy, foreclosure and court judgments. You can avoid these by following through on all of your financial obligations.

Amount of Debt

Your credit rating considers how much you owe on each of your accounts to make up another 30 percent of your score. Borrow only what you need to keep these numbers low and increase your credit score. Your credit score also considers the ratio of the amount you owe on each account to the amount you initially borrowed or the credit limit on the account. Make extra payments to decrease this ratio. According to MSN Money, you could hurt your credit score if any credit card balance is over 30 percent of the card's limit. Keeping the balance to 10 percent or less of the limit is best.

Longevity of Credit

The longer you have had credit, the better. When you first start building a credit file, your score will be low and each negative item on it will have a fairly large effect. Your credit score will improve as you manage credit responsibly over many years. 15 percent of your score is based on your credit length and another 10 percent considers the variety of types of credit you have. On the other hand, 10 percent of your credit score penalizes you for applying for and opening new accounts. Therefore, whenever possible, keep your oldest credit cards open and do not apply for new credit cards unless you need them.

Credit Report Accuracy

Your credit score is based on the information on your credit report, so even if you have excelled in the most important areas of your credit history, your score will only reflect this if your credit report is accurate. Check your credit reports for free through the Annual Credit Report website (see Resources) and look for inaccurate information. Dispute incorrect information that could be dragging your credit score down.

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How to Check Your Credit in Canada

Knowing your credit rating is essential to your financial well-being, for applying for loans, for mortgages and more. A credit rating is an indicator of how well you pay off existing bills and loans, according to CIBC.com. Canadians have the right to access their credit reports for free by mail or in person, or for a fee over the phone or Internet from Canada's two main credit bureaus, TransUnion and Equifax.

Instructions

1

Visit the home page of either of Canada's main credit bureaus, Equifax.com or TransUnion.ca. Both websites have a link to a printable document you will need to request your free credit report. At Equifax.com, the free credit report is titled "free credit file"; at TransUnion.ca it is called a "consumer disclosure." Follow either of these links and print the corresponding document.

2

Gather your two pieces of identification and photocopy both sides of each. TransUnion requires one piece of government-issued identification such as a drivers license, Canadian passport or birth certificate, and one additional piece of identification such as a signed credit card or social insurance card. Make sure that together the two pieces show your name, current address, date of birth and signature. Equifax requires copies of two pieces of government-issued identification and an additional document that shows your current address if neither piece of ID does.

3

Mail your request for a free credit report, along with the necessary photocopied identification to the corresponding credit bureau, whose addresses are provided on their websites. According to Equifax.ca, you should receive your report within five to 10 days.

4

Visit a TransUnion credit bureau in person to obtain a free copy of your credit report instantly. Bring the same pieces of identification you would use to request your report by mail, or photocopies. TransUnion credit bureaus are located in Newfoundland, Nova Scotia, Ontario, Prince Edward Island and Quebec.

5

Visit the home page of either Equifax.ca or TransUnion.ca to download your credit report and score instantly. As of May 2010, the cost of downloading your credit report with TransUnion is $14.95 plus an additional $7.95 if you wish to view your FICO score. The cost of viewing your credit report with Equifax is $15.50 or you can pay $23.95 to view your credit report and FICO score together.

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