Your credit score is one of the most important measures of your financial health. Your credit score, or FICO score as it is sometimes called, tells lenders how credit-worthy you are and whether they should lend to you. A good credit score allows you to get better loan rates and to borrow money when you need it, while a low score can make it difficult, impossible or very expensive to obtain a credit card, car loan, mortgage or other financing. Because a credit score plays such an important role in your financial life, you should read and review your credit reports at least once a year.
Why You Need to Monitor Your Credit Reports
You need to be aware of whether your credit score is going up or down. Your credit score will be affected by a number of different things you do. Closing old accounts will cause your score to drop lower since you will lower the amount of credit available to you. On the other hand, paying off debt will cause your score to go up since you’ll free up more credit and have evidence of on-time payments to show lenders.
Knowing how the actions you take affects your credit can help you to make more informed decisions about smart money moves. If you are going in the right direction and see an improvement in your score, this can also help you to stay motivated and on track with your financial improvement plan.
Avoiding Identity Theft and Other Problems
Another reason you need to monitor your credit score is that a change can indicate a problem with your credit report. A sudden shift downward in your credit score can, for instance, indicate that either an error has been made and that negative information is being reported or that someone has stolen your identity.
When your score declines for no reason and you have not done anything differently, it is time to order a free copy of your credit report to find out what made your score go down. If you see new accounts you didn’t open, this lets you know that the cause of the drop in your score was identity theft. You can then take action to let your creditors and law enforcement know and to stop the damage to your credit history. If it is inaccurate information on your credit report causing your score to go down, then you can dispute the inaccuracies and have them removed.
By reviewing your credit reports, you’re protecting your credit score, and your ability to get a credit card, finance a car purchase and even obtain a mortgage for your home.