Why Is It Important to Check Your Credit Report?

When was the last time you checked your credit report? You don’t remember?

OK, it’s time to open a new tab and take action. The sooner you check your credit report, the sooner you can take advantage of its benefits (more on this below).

Table of contents

Why should you review your credit report regularly

Maybe you think you have good or excellent credit. Maybe you think you have poor credit. Perhaps you believe your credit score falls “somewhere in the middle.”

Regardless of what you think, keeping current with your credit report and score is key to healthy finances. 

Let’s look at some of the reasons to regularly review your credit report.

To catch errors or inaccuracies

Credit reports can sometimes contain mistakes, such as accounts that don’t belong to you, incorrect payment histories, or personal information errors. Catching these early allows you to dispute and correct them.

To monitor for identity theft

Reviewing your credit report lets you look for any suspicious activity or new accounts you didn’t open, which could be signs of identity theft. Early detection is crucial.

To track your credit utilization and payment history

Your credit report shows how much credit you’re using versus your total limits (utilization) and whether you’ve missed any payments — two major factors that impact your credit score.

To understand what lenders see

Lenders check your credit report when evaluating applications for loans, credit cards, mortgages, etc. Reviewing it proactively lets you identify and address any potential issues ahead of time.

To prepare for major purchases

If you plan to finance a car, home, or other major purchase soon, checking your credit is essential to ensure your report is accurate and your credit score qualifies you for the best rates.

What should you look for on your credit report?

Hopefully, now you understand why you should review your credit report regularly. But the question remains — what exactly should you be looking for? We’ve broken it down really simply. 

Personal information accuracy

Ensure your name, address, Social Security number, and employment details are accurate. Incorrect information can lead to credit denials, fraud, or legal issues. Regularly reviewing and updating this data keeps your report clean and your identity secure.

Credit accounts

Verify that each listed account is one you recognize to catch unauthorized or fraudulent accounts early. This prevents potential damage to your credit score and financial reputation. 

Account details

Ensure accurate account details like credit limits, balances, payment statuses, and histories. Mistakes can misrepresent your creditworthiness, leading to higher interest rates or loan denials.

Credit Inquiries

Verify all listed inquiries to ensure that only legitimate entities have reviewed your credit. Unauthorized inquiries can indicate potential fraud or identity theft.

Public Records

Ensure public records like bankruptcies, tax liens, and judgments are accurate. Incorrect records can unfairly damage your financial standing and limit your access to credit.

Credit utilization

Monitor your credit utilization or the ratio of your total balances to your total credit limits. High utilization can lower your score and signal financial distress to lenders. By monitoring this ratio, you can manage your spending and credit usage more effectively, maintaining a healthier credit profile.

Negative items

Review negative items like late payments, collections, and charge-offs for accuracy. Knowing the scheduled removal dates helps you understand when your credit report will improve.

Identity details

Check and update personal identifiers such as former addresses, employers, and aliases to maintain the integrity of your credit report and safeguard your financial identity.

Why do lenders look at credit reports?

Of course, your credit report isn’t just for your own good. Lenders also use it for various reasons. 

To assess credit risk

A person’s credit report details their history of repaying debts and using credit responsibly. This helps lenders evaluate the risk of extending new credit or loans. Lower credit risk typically means better loan approval chances and terms.

To verify applicant information

Credit reports contain identifying personal information that allows lenders to confirm the accuracy of an applicant’s name, address, employment information and other details provided on the application.

To review payment history

Payment history on past and current credit accounts is a major factor lenders scrutinize. Late payments, collections, bankruptcies, and other derogatory items can negatively impact lending decisions.

To determine debt levels

Lenders want to assess an applicant’s existing debt obligations and credit utilization levels across all accounts. High debt can impact the perceived ability to repay new credit.

To comply with regulations

For mortgage, auto, and other major loans, lenders are often required to review applicants’ credit reports as part of their due diligence.

To identify potential fraud

Credit reports may reveal signs of identity theft or application fraud if accounts or inquiries show up that the applicant doesn’t recognize.

Don’t Hide From Your Credit Report

Why is it important to check your credit report? 

This should no longer be a burning question. Instead, you now know the answer and what to do next. Taking action sooner rather than later will work in your favor. 

FAQs 

Why is it important to review your credit reports annually?

Reviewing your credit reports annually helps you catch errors, detect identity theft, and ensure your financial records are accurate. This proactive step can protect your credit score and ensure you’re in good standing when applying for loans or credit.

Why is it so important for your credit report to be completely accurate?

A completely accurate credit report ensures that your financial history is correctly represented, directly affecting your credit score. Inaccuracies can lead to higher interest rates, loan denials, and other financial setbacks, making it essential to maintain precise records.

If you were a lender, why would employment history or credit reports be important to you?

As a lender, employment history and credit reports provide insight into a borrower’s financial stability and reliability. They help assess the risk of lending money by revealing the borrower’s creditworthiness and ability to repay the loan.