How to Obtain and Use a Free Credit Report

A Credit Article Contributed by Brook Yu

What Information is in a Free Credit Report?

A credit report collects a person's financial history and summarizes it into a report used to determine one's credit worthiness. You should easily be able to obtain a free credit report which will show your credit score. The credit report score is used to indicate a person's likeliness to repay the debt, and whether or not the debtor can be expected to repay the debt in a timely manner.

The information contained in credit reports is used by financial institutions because it allows them to determine whether or not to extend credit to the individual interested, and if so, how much credit and at what interest rate to they are willing to give. The numerical score on the credit report is calculated by looking at the overall financial history of the individual.

Special attention is given to the types of credit that have been used in the past, the amount of current outstanding balances, and what kinds of credit has been applied for in the past.

Why Should You Care to Obtain Your Free Credit Report?

Because financial institutions mostly use the information inside the credit report to calculate the interest fees they charge you, it is helpful to know what your credit score is so you can avoid overcharging institutions. Also, by knowing you have bad credit, you are more likely to be able to make decisions to reverse the negative score on your credit report.

As more and more financial institutions base their prices on a risk based pricing system, the credit report becomes an even more important tool that you should be aware of. Another reason to obtain a free credit report is that some studies show that up to 46 percent of credit reports contain erroneous information on the person in question. These errors could affect you by making you ineligible for good interest rates or even by making it impossible to get a loan that is needed.

Once discrepancies are found, formal disputes can be made to reporting agencies and you can restore your good credit. Another growing concern that warrants a closer look at individual credit reports is identity theft. By looking closely at your credit report you may be able to catch early signs of identity theft by seeing odd or mistaken information. As there are many places to obtain a free credit report, there is no excuse not to get one.

Where Can I Find Resources to Obtain a Free Credit Report?

There are many sites online that allow one to obtain a free credit report. One search may produce hundreds of results all advertising a free credit report, but may include other charges such as a membership that may be free to try out, but expensive to stay in. Other agencies promise to keep track of changes within the credit report every month or so. Dealing with these agencies, however, can be complex and may include hidden costs so some discretion is advised.

If you do not want to go through an agency in obtaining a free credit report, you can petition for one on your own through the three nationwide credit reporting agencies, and should be able to, upon request, obtain a free copy of your credit report once every twelve months. If you have difficulty in obtaining a free credit report from the reporting agencies, you can contact the Federal Trade Commission through their website (http://www.ftc.gov) or through mail.