Despite a record number of data breaches and incidents of identity theft, Americans have questioned the importance of monitoring their credit reports. According to a survey conducted by Credit.com, 26% of Americans who claim they have never checked their credit reports said they haven’t done so because credit reports aren’t important to them. The February 2015 survey was conducted online among 4,489 Americans ages 18 and older.
What Are Credit Reports?
Credit reports contain detailed information about your credit history, including your old and new credit accounts, their current status, your outstanding debts and whether you missed any payments. Credit reports are compiled by the credit bureaus — mainly the three major credit reporting agencies, Equifax, Experian and TransUnion — and are used to determine your credit scores, a numerical representation of your ability to repay a loan as agreed. Credit scores are used by lenders and other service providers when they’re deciding whether to extend you a loan or contract and at which rate you’ll be charged.
Why Are Americans Skipping Over Free Credit Reports?
In 2003, the government recognized the importance of giving consumers access to their credit data, and federal law mandated that every American be entitled to a free copy of their credit reports once a year. However, in the years that followed, only a small number of Americans took steps to get their free credit reports. The Consumer Financial Protection Bureau (CFPB) found that just 16 million Americans (8% of the U.S. adult population with credit files) obtained their free credit report between 2010 and 2011, the last year this data was made available. In fact, according to the Credit.com survey, 13% of those who had not seen their reports said it was “too expensive to check.”
Credit.com’s survey results suggest that Americans continue to devalue the importance of monitoring their credit data. Of those who had not checked their credit reports:
- 34% never thought about checking them
- 26% do not believe it’s important to them
- Nearly 40% of millennials don’t know where to obtain them
- 29% believe that because they pay their bills on time there’s no need to check them
- 19% say they already know their credit score, so there is no need to get the reports
- 13% are afraid to see them
Credit Confusion Continues
Even for those who have checked their credit reports, Credit.com’s survey results prove that many Americans lack an understanding of what components make up a credit report and why it’s critical to monitor it:
- 27% were surprised by some of the information that appeared on a credit report
- 21% found incorrect information
- One in 10 (10%) found a collection account they didn’t know about
- 9% discovered a late payment they didn’t know about
- 15% were unsure of the relative importance of each section of the credit report
- 11% weren’t sure how the information in the report related to their credit score
Unfortunately, it appears that a significant number of consumers who have seen their reports did not review them proactively but obtained them in conjunction with an application for credit or housing. If they found problems, that may have left them with little or no time to dispute mistakes or address problem areas. Of the consumers who had seen their credit reports:
- 25% of consumers saw it in conjunction with a mortgage loan
- 13% saw it when applying for an auto loan
- 3% saw it when they tried to rent an apartment
Why Are Credit Reports Important?
Checking your credit regularly is important for several reasons. For starters, it’s in your best interest (often quite literally) to know where your credit stands before you apply for a credit card, mortgage, auto loan or other financing. That way, you’ll have an idea of what products and/or terms you’re likely to qualify for and be able to take the initiative to improve your standing. Second, credit reporting errors are more common than you may think. In fact, a 2013 study from the Federal Trade Commission found one in five people have them on their credit reports, and 5% of people have errors that could in result less-favorable terms on a loan. It’s important to check your credit reports regularly for errors that may be needlessly weighing your scores down and take steps to dispute them with the credit bureaus (you can learn more about how to do that here.)
Finally, checking your credit reports is one of the best ways to spot identity theft since mysterious line items, like new credit inquiries, strange addresses or credit accounts you never opened, will tip you off that something’s amiss.
How Do I Get My Free Annual Credit Reports?
As we mentioned earlier, the government mandated back in 2003 that each consumer is entitled to a free credit report from each major consumer reporting agency every 12 months. You can request your reports from Experian, Equifax and TransUnion at AnnualCreditReport.com.
Keep in mind, the law only entitles you to a free credit report, not a free credit score, though the bureaus usually provide an option to buy one for a nominal fee when you request your report. You can also view two of your free credit scores, along with a free credit report snapshot, on Credit.com.
This survey was conducted online within the United States by SurveyMonkey Audience on behalf of Credit.com from January 23 to February 3, 2015, among 4,370 adults ages 18 and older. The margin of error for the survey was +/-1.3%.