Are you planning to apply for credit? Consider checking your credit report first.

Know that when applying for a credit card or a major purchase like a mortgage, the contents of your credit report will determine how much it will cost you if approved. When considering your application, your lender will be checking with one (or all) of the three major credit bureaus: Transunion, Experian and Equifax. Credit counselors advise that it is always a good idea to review your credit report and correct any errors before applying for any type of credit.

Mistakes made in the past can ruin your chances of obtaining credit.

If you’ve made financial mistakes in the past, your potential lenders will see them on your credit report. Knowing what is on your credit report is the first step in cleaning up bad marks from the past. Most experts say over 30% of all credit reports contain erroneous information.

Monitor your credit report for free.

You are entitled to one free credit report per year from each of the three major credit bureaus. To obtain your credit report free online, visit www.annualcreditreport.com. You may also request your free credit report by phone at 877-322-8228 or by writing your request to: Annual Credit Report Service, P.O. Box 105281, Atlanta, GA, 30348-5281. Credit counselors advise that there are many businesses claiming to be the free credit report provider that end up charging their clients fees. You do not need to provide a credit card number to obtain your free credit report.

Why is my credit score so important?

Credit scores are used for so many things like applying for credit cards, mortgages, loans, and can even be considered by certain employers while screening their applicants for employment. While there is no absolute answer to what a lender will consider a good score, it has been observed by credit counseling agencies that individuals with credit scores in the 700 plus range get the best interest rates and credit limits.

How is my credit score calculated?

Your credit score is figured using data from five categories, which include payment history, amounts owed, length of credit history, new credit and types of credit used. Your score changes on a daily basis and is calculated at the time the score is requested.

What does my credit score represent?

This gives lenders a good idea of your likelihood of repaying a debt. A good credit score may save you thousands on financed purchases like a home or car. For example, an individual paying a 30-year $300,000.00 mortgage with a credit score of 620 might qualify for an interest rate of 7.256%, while an individual with a credit score of 720 might qualify for an interest rate of 6.162%. At first glance, it would seem that the interest rates are not largely different however; the individual with the 620 credit score would be paying $2,047.00 per month, while the individual with the 720 credit score would be paying $1,830.00. That’s a difference of $217.00 per month!

What do I do if I have a low credit score?

Paying your bills on time each month will start rebuilding your credit right away. If you have accounts with missed payments, try to make them up and keep them current.

Keep the balance of your credit cards low. You can lose points off your score if you carry a balance in excess of 50% of your credit limit.

Don’t cancel your credit cards! A large part (around one third) of your score is based on how much credit is available to you. Closing accounts may instantly decrease the amount of credit you have available changing key credit available vs. credit owed ratios. Credit counselors advise instead, you put the credit cards away or destroy the card but keep the account open. Closing cards may also cause a loss of credit history, further lowering your score.

Even though your credit score is something that you may not fully understand, there are many things that you can do on a daily basis to maintain this very important number. It is your responsibility to make sure that the information on your credit report that determines your credit score is correct. Visit www.annualcreditreport.com for a free copy of your credit report from each of the free major credit bureaus.

I’m sure everyone has heard some kind of advertising to receive a free credit report. But how do they justify that the report is free when you have to sign up for a monthly credit monitoring service for $15-$20 per month in order to receive that credit report? Granted, this is a free trial membership, but most of us give our credit card information and forget to cancel the free membership before we start to get charged.

Legislation was passed that provides consumers with one free credit report from each of the three major credit bureaus per year at no cost. The catch comes in where you obtain these copies.

Www.annualcreditreport.com is the website created by the three major credit reporting agencies to allow consumers to obtain their free annual copies. You can also obtain copies by writing in or calling (877-322-8228.) BUT the law does not allow you to obtain free credit scores. If you want your credit score you’ll have to pay $6-$8 per score. This is still less expensive than paying for someone to monitor your credit.

Bottom Line: Don’t pay someone for something you can obtain for free. Also, you can monitor your own credit report for identity theft by staggering your requests to one copy every four months. And as far as credit scores are concerned… if you look at a copy of your credit report, you’re going to have a pretty good idea of what your credit score is going to be. Don’t be so concerned with your score until you’re getting ready for a major purchase like a house or car.