There are a number of reasons to check your personal credit report, but Matthew Frankel, writing for the Motley Fool, suggests the most important reason is to find and fix errors. Mistakes on credit reports are more common than you think. In fact, according to Consumer Reports, 20 percent of a group of 3,000 Americans they polled found a mistake when checking their credit report. “These mistakes range from minor errors to serious negative information that can prevent you from getting a loan or even a job,” writes Frankel.
It’s easy to check—and it’s FREE
The federal government requires the three major credit bureaus, Experian, Equifax, and TransUnion, to give you free access to your credit report every year. Visit www.annualcreditreport.com to check out your report. There are other sites that will try to sell you a service, but the above site is the only place authorized to give you access to your free report.
For a fairly minimal fee, you can also contact one of the three bureaus directly and have one them monitor your credit report monthly and notify you every time there is a change.
What should you be looking for? Make sure your identifying information like name, birthdate, and address are correct—if you notice an address that doesn’t make sense, that’s a big red flag that your identity might be in jeopardy. You should also check to make sure you recognize all the credit accounts. Are any closed accounts listed as closed, etc.
Contact the bureau if you find an error
Inaccurate information is not only a problem for you, it’s important to the credit bureaus. The process is different for all three, but they all offer an online dispute process.
You’ll need to include all the documentation you have that shows the error. It could be as simple as a copy of your driver’s license if they’ve misspelled your name or a current account statement if there’s a mistake on an account.
If you believe your identity has been stolen, you may need to put a security freeze on your credit to prevent any further fraudulent charges and report the situation directly to the creditor. Most of the time you won’t need to contact an attorney, but if you’re not getting anywhere with the reporting bureau and you have proof of an error, you may need to go to that extreme, but that is rarely the case.
Fraudulent or inaccurate information on your credit report will make it more difficult to get a small business loan, so it’s important to make sure your credit report is accurate. What’s more, even small errors that reduce your score even slightly can have a negative impact. For example, Frankel writes, “…a borrower with a 760 credit score (excellent) could expect to pay 3.45% interest on a 30-year mortgage, but a borrower with a 650 (fair) might have to pay 4.5%. This might not sound like a big difference, but on a $200,000 mortgage this means about $43,000 more in interest over the life of the loan.”
Because most lenders look at your personal credit score when you apply for a small business loan, if you have a lower credit score, you can expect to pay a higher interest rate on a traditional small business loan or maybe even be denied. With that in mind, regularly checking your credit report for errors probably is the most important reason to do it.