If 2010 is the year you have vowed to get your financial house in order, a great place to start is with your credit report. First off, what is a credit report? Basically, it is a record of your borrowing and payment history. The report, used by banks and other creditors, helps them to determine your credit worthiness.

The report also includes your credit score, which is an equation that takes the amount and type of debt you owe, as well as your payment history, the length of your credit history and volume of inquiries and then compares your repayment history with thousands of other consumers to arrive at a score. This number can range from 300 to 850 – anything above 700 is great and anything below 680 may mean you are paying higher interest rates for credit. On the Web site myFICO.com, you can get a sense of the different interest rates you pay depending on your score.

The good news is that you have the right to see your report annually for free. There are some snake oil salesmen types out there who will try to “sell” you a report. Don’t do it.

The government has mandated that the “big three” credit reporting agencies – Experian, TransUnion and Equifax – each provide you with a free report once per year. And it’s super easy. Just log onto www.annualcreditreport.com and you can look at your credit report from all three agencies. If you want your credit score, however, you will need to pay. When you look at your report, the companies will offer you the option to pay and receive your FICO score. It is probably worth it to do this if you are considering getting a mortgage or refinancing some of your debt, since this magic number can impact the interest rate you will receive.

Why is it important to look at your credit report?  This is the main way that your FICO score is determined, which can impact the interest rate you get on your borrowing and can even impact insurance costs and employment. And credit reports are notorious for having errors – I just checked mine out when I was writing this blog and one of the credit reporting companies had my birth year wrong.  While this doesn’t affect my credit history, it does emphasize that only you can be certain whether the information contained in the report is accurate.

If there is an error, be sure to correct it. When I reviewed my own report, there were detailed instructions on how to correct any errors in the report. We also have an article and sample dispute letter on LifeTuner, “Disputing Credit Report Errors,” that can help. Guess I’ll get started on correcting mine now.

This blog entry was featured in Carnival of Financial Planning – Edition #128 and Money Management Fourth Edition.