Your credit score will haunt you for your entire life -- and having a decent credit score is essential because your score determines whether you can obtain a loan, as well as the terms of the loan including the interest rate. The Fair Credit Reporting Act (FCRA) allows you to obtain one free credit report per year from each of the three major credit-reporting agencies. Although general inquiries on your credit report can impact your credit score, exercising your right to view your own credit report will not cause your score to drop.
The FCRA is a U.S. law that was originally passed in 1970 and regulates the collection, distribution, and use of the information on your credit report. It was later amended to allow everyone to obtain one free credit report every 12 months. This gives you with the opportunity to verify the accuracy of the information on your credit report every year.
Your credit score is a three-digit number that ranges from 300 to 850 and represents information on your credit report. In 1956, the Fair Isaac & Co. (FICO) created a mathematical algorithm, which uses your payment history, the amount you owe, the length of your credit history, new credit you've added and types of credit you have to determine your credit score. Lenders generally propose more favorable terms to those who have a score between 650 and 850.
The three major credit-reporting agencies are Equifax, Experian and TransUnion. Since each agency can have different information on which it bases its report, the reports can vary, which is why you can receive a free report from each of them every year. Although it is possible to obtain more than one copy a year, the agency might impose a fee -- and multiple inquiries can impact your credit score negatively. If you apply for multiple credit cards in a short period of time, multiple inquiries will show up on your credit report. While looking for new credit can equate with higher risk, multiple inquiries from auto, mortgage or student loan lenders within a short period of time do not affect most credit scores. However, according to the FICO, statistics show that consumers with six or more inquiries on a credit report are eight times more likely to declare bankruptcy. Although excessive inquiries can play a part in assessing your risk, lenders generally pay attention to whether you pay your bills on time and how much overall debt you have.
Obtaining Your Credit Report
The Federal Trade Commission and the three main credit-reporting agencies work together to provide you with a way to obtain your credit reports. You can obtain copies by mail or phone, or simply by visiting AnnualCreditReport.com. To obtain your reports, you must provide your name, address, date of birth, and Social Security number. You must also provide information about your current loans, previous addresses and employers to confirm your identity. These questions are generated using information from your credit report.
Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.