Look Twice at ‘Free’ Credit Report Offers

Don't fall into the trap of paying for a report that should be free.

By + More

When Erin Wooddell, a 23-year-old sales associate in Northern Virginia, wanted to check out her credit report, she did what a lot of people do: She went to Equifax, since she had heard of the credit bureau and considered it trustworthy. She assumed that she would be getting a free credit report, since she knew she was entitled to a free one once a year. But instead of getting the free report, she inadvertently signed up for a program costing $16.95 a month.

[In Pictures: 10 Affordable Spots for Summer Vacation]

Unfortunately, Wooddell is not alone in making that mistake. “After getting my report, I noticed that all the prompting actually signed me up for an account with Equifax, which is not what I wanted,” she says. After several phone calls, she was able to cancel her order, but her experience brings up the question: How can other consumers avoid making the same error?

The best strategy is to go straight to annualcreditreport.com and request the free report there, instead of visiting one of the many sites that offer reports and monitoring in exchange for fees. Anyone can access their free report once a year.

The next challenge is interpreting the report. “I had some difficulty understanding the ratings because it was my first time getting my credit report,” says Wooddell. She adds that it wasn’t easy to figure out just what her report meant and how to improve it, so we did some research on her behalf.

Here are three easy ways to boost a credit score:

1. Fix any errors on your report. It’s not always easy to fix mistakes, although credit bureaus are required by law to do so. The process can involve time-consuming. The Federal Trade Commission recommends including copies of any documents that support your position as well as the copy of the report itself, with the errors circled.

2. Pay your bills slowly and steadily: The surest way to boost a credit score is to pay bills on time and keeping accounts in good standing over many years. Avoiding credit altogether can do more harm than good, since lenders want to see that consumer have experience managing credit accounts. [The Dangers of Avoiding Credit]

3. Don’t co-sign for a friend or relative: Even spouses can harm each other’s credit by co-signing for a credit card. Once your name is on account, you’re responsible for it, even if you break-up. So limit your exposure to that risk by avoiding co-signing accounts whenever possible.

[In Pictures: 10 Smart Ways to Improve Your Budget.]

And here are three common myths (and truths) about those misunderstood scores:

Myth #1: Each person has one credit score.

Truth: Each credit reporting agency calculates a credit score for you, and they aren't always the same. While all of the credit bureaus use the same criteria to judge your "credit worthiness" and often come up with similar scores, they can vary because they have different information and may analyze it slightly differently.

Myth #2: If you file for bankruptcy, your score is permanently ruined.

Truth: Not only will your credit score begin to improve after only one year of making on-time, regular payments, but after seven to 10 years, it can fully recover and lenders will be willing to loan to you at reasonable interest rates.

Myth #3: Having a good job improves your credit score.

Truth: It's a common misconception, but your income actually has no effect on your credit score. Not even winning the lottery or inheriting a lot of money will have an impact. Again, the only thing that matters is your credit history—whether you pay your bills on time.

The bottom line: Use annualcreditreport.com once a year to check for any errors on your report and pay bills on time, and you’ll be on your way to an impressive credit score.

Kimberly Palmer (@alphaconsumer) is the author of the book Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back.