Editorial Policy

Welcome to Adulthood: How to Check Your Credit

Erica Sandberg

April 9, 2012

QDear Erica,

I’m a 24-year-old recent grad, and am trying to get all my grown-up financial stuff in order. I’ve never pulled my credit reports before, so searched around and now am so confused. Do I need to be pulling my credit reports or my credit scores? Or both? How often should I check? Also, there seems to be a lot of scores and reports out there. My understanding is that FICO is the main one I should be looking at, but I’m not sure. Right now, I just want to keep an eye on things. But, within five years, I want to get a house and a new car, too. — Greg

AHi Greg,

How nice to meet an educated young man with lofty but totally achievable goals! It’s true that mastering money and credit is a crucial part of becoming a full-fledged and well-functioning adult. But how and where do you begin? With so much to do and learn, it’s easy to get flummoxed. I’m happy to put you on the right track before you make some expensive mistakes.Ask Erica

Yes, check your credit reports. Visit AnnualCreditReport.com, a website created for consumers to access reports from all three credit bureaus — TransUnion, Equifax and Experian — at no cost, once per year. Your reports will take only a few minutes to pull. You’ll just need to enter your identification information and answer a few personal questions.

You’ll also be asked if you want a report from one, two or all the bureaus. Go for all of them right now, so you have complete information. After that, check them annually, but, in the future, you can stagger the reports throughout the year, so you never have to pay a fee. May as well save money wherever you can, right? Oh, and if you suspect fraud, check them more often — you’re entitled to free reports in those circumstances as well.

Once you have all your credit reports, read them carefully and make sure everything is accurate. If you spot anything that is incorrect, notify the reporting bureau to have your file updated with the correct information. Now don’t go crazy with this. When I say incorrect, I mean that the report has your name misspelled or contains accounts that you never opened or wildly wrong balances. If you recently made a payment to a credit card company or cleared a collection debt, give it time — about 30 days — to reflect the activity.

As for credit scores, you’re right that there are a few types. The credit bureaus themselves have developed their own scoring systems, including the VantageScore, which is consistent among all three bureaus. However, the most commonly used model is the FICO score, which ranges from a low of 300 to a high of 850. FICO, like all credit scoring models, generates these numbers from the financial data in a credit report. It doesn’t include your income, assets, address, race, gender or age — just a three-digit score that reflects the way you’ve borrowed and repaid money.

Get your FICO scores for your TransUnion and Equifax reports (FICO doesn’t have an agreement with Experian) from myFICO.com. Each costs about $20, and I suggest you get them once per year, but at least six months before applying for a loan. To get your Experian score, visit the company’s website. You’ll probably see that the scores vary a bit. That’s because your credit reports will have slightly different data contained in them. Don’t worry about that — you’ll just want to know the spread. Lenders will typically use the score that falls in the middle.

Having your reports and scores allows you to see exactly where you are today, so you can know what you need to work on. An excellent FICO score is in the mid-700s, and it will help you get the best financing deal for the house and car you’d like to buy. To get there, simply have and use a variety of credit types for a number of years, make all payments on time and stay out of debt. Remember that credit card debt is not the only kind of debt that will affect your report — bills that have gone into collections, monetary judgments against you and unpaid parking tickets will look bad to lenders as well.

Apply for new credit judiciously, too. Every time you apply for a credit card or a loan, the issuer or lender will check your credit. That results in a “hard” pull — and it could dock your credit score by a few points. You, on the other hand, can check your reports and scores as often as you’d like — because looking at your own credit history results is only a soft pull, which won’t affect your score. In fact, those soft pulls show that you’re being proactive about your credit.

If all this sounds simple, it is — on the surface. You do have to actively manage your credit, though, which takes time and dedication. That’s where many people fail. Don’t be one of them, Greg!