why it’s a good idea to check your credit

10/23/2020

Girl sitting on the ground while navigating her laptop.

You may regularly check Online Banking to ensure you are sticking to your monthly budget, but what about doing the same for your credit? Because your credit is used to gauge your financial well-being, it is important to make sure it remains stable. The best way to do this is through credit monitoring. If you have ever questioned the importance of credit, these three reasons highlight exactly why you should keep an eye on your credit.

1. defend against identity theft

According to the Federal Trade Commission, as many as nine million Americans fall victim to identity theft each year. Identity theft can wreck your credit quickly, so the sooner you identify it, the less damage you take. Checking your credit score on a regular basis can help you spot problems that can indicate identity theft and the need to notify the proper authorities. Consider the following when monitoring your credit report.

credit payment history

Whether an identity thief is running up the balance on an existing credit card or using stolen information to open a new credit card, there’s a good chance that they’re not planning on paying the bills that have been racked up.

And while consumers typically aren’t liable for paying back fraudulent charges made in their name, fraud will take time to resolve. If credit card fraud is caught immediately (between one to seven days after the fraudulent charges are made) and reported right away, it will still be several weeks before the removal of the fraudulent charges is reflected on your credit report.

This is likely to result in one (or more) “missed payments.” Your credit score will reflect these missed payments until the fraudulent charges are removed. Your score will recover, but it will take some time.

credit utilization

Identity thieves are typically concerned with wringing out an identity as quickly as possible before they get caught. This can sometimes mean running up credit balances as quickly as possible. High balances, whether they’re fraudulent or not, will lead to higher credit utilization, sometimes far above the recommended 30%. As your credit utilization increases, your overall credit score will decrease.

Luckily, credit utilization changes quickly. When the fraudulent charges are removed from your credit report and your credit utilization returns to normal levels, your score should bounce back to what you’re used to seeing.

credit history

Because one consideration that goes into your length of credit history is the average age of your credit accounts, it isn’t always a great idea to open more than one new line-of-credit at a time. And unfortunately, opening many new lines-of-credit at one time with stolen information can be common among identity thieves.

If one or several lines of new credit are fraudulently opened in your name, the average age of your credit accounts will shorten, which will negatively impact your credit score.

Like with the other factors, your score will recover when the fraudulent accounts are removed, and your average credit age returns to normal.

credit inquiries

If an identity thief has enough stolen information to open a credit card in someone’s name, there’s a good chance that they’re not going to stop at just one. And if an identity thief is applying for multiple credit cards in a short period of time, it will lead to several hard credit inquiries hitting your credit report all at once, in a short period of time. This will adversely affect your credit score.

If you notice fraudulent accounts opened in your name, you should take immediate action to have them shut down. However, once the fraudulent accounts have been removed from your credit report, the hard credit inquiries will still be there.

To remove hard credit inquiries from your credit report, you’ll need to dispute them with the credit bureaus.

credit mix

Credit mix is the diversity of credit that you have open in your name. Having both types of credit open in your name – revolving accounts and installment loans – shows that you have experience managing different types of credit and can positively impact your credit score. Your credit mix typically isn’t impacted by identity theft.

2. identify inaccurate information early

Credit reports contain much more than just your credit score – it also reports on whether you have ever been sued, where you live, how you pay bills and the amount of debt you have. If any of this information is outdated or misreported, it could have a negative impact on your credit score. Identifying and fixing these inaccuracies can help you qualify for better loans and interest rates for when you need them. Here’s some of the most common credit report errors to look for.

personal information

Seemingly small errors can have a massive impact on your credit report. For example, a simple mistyped social security number could lead to someone else’s information showing up on your report. Check your name, the spelling of your name, your date-of-birth, your address and former addresses and your social security number to be sure those details have been entered in properly.

someone else’s information

Besides the reason above, someone else’s information could also show up on your report because they’ve fraudulently opened an account in your name or are using your social security number. Whether caused by a clerical error or identity theft, it’s critical to make sure no one else’s accounts are being listed in your report.

out-of-date information

Another common error on credit reports is out-of-date information. It could be that a closed account is being listed as open, a removed account is suddenly back on your report and more. Carefully review your account information to be sure it’s accurate so outdated information doesn’t affect your credit score.

account ownership

One way parents might try to help their young adult children build credit is to add them to their accounts as authorized users. Couples might do the same for each other. But there is a difference between being an account owner and an authorized user — and a common credit reporting error is to show an authorized user as an owner. If you’re an authorized user on someone else’s credit accounts, make sure you’re listed as such on your credit report.

duplicate accounts

Similar to out-of-date information, you might see one account on your credit report listed more than once. The accounts could be duplicates or one account showing up twice with different names for each (for example, the name of a retailer for your store card and the card issuer of that card again, as a separate account). Duplicate accounts can really hurt your credit report if they’re also accounts that you owe a balance on, making your debt load look larger than it is.

account details

Finally, even if all the accounts listed are your own, you should still review the details of each account. That means your payment history, account balances and credit limits. Your payment history and credit utilization are the two most influential factors of your credit score, so it’s imperative to get these details right. It’s also important to check your account numbers to make sure they’re being displayed correctly.

3. understand your financial stability

You may have plenty of money in your account, but if your credit score is low, you probably won’t qualify for loans when you need to make large purchases. Your credit report is a great tool for measuring your overall financial health, so you can better understand your financial stability. The information in your credit report directly impacts your credit score, and poor credit has many far-reaching impacts. You may notice the following problems if you have poor credit, even if you have a surplus of money.

  • High premiums on insurance: You may pay a very high amount for homeowners, auto and health insurance if you have poor credit because you are not considered a reliable consumer. As your credit score rises, your insurance payments will often go down.
  • Higher utility bills: Because many industries assess the risk of various consumers based on their credit report, you may find yourself paying more for utility bills than other people who have better credit scores.
  • Failing to be approved for additional lines-of-credit: Creditors typically approve customer requests based on their credit report. If they do not have a consistent record of making payments on time or have a high debt ratio, they won’t qualify for additional lines-of-credit.
  • Higher interest rates: Lower credit scores mean you are at a higher credit risk, so you will end up paying more in interest rates and fees for every loan you secure.

Monitoring your credit should be part of your financial wellness routine. Regularly review monthly credit card statements, as well as your credit report with any of the three major credit bureaus. Each year you are entitled to one free credit report from each of the three reporting agencies: Experian, Equifax and TransUnion. Requesting a free report has no impact on your credit score. If you would like assistance in monitoring your credit, please stop by any of our branches or contact a Member Service Advisor at (800) 648-8035.

You may also check your VantageScore credit score for free within Online Banking and the BlueOx Mobile App. VantageScore updates your credit score once every quarter and any new credit activity will be reported in the following quarter.

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