Mellody's Mail: Check Your Credit

Q U E S T I O N: I have heard it is a good practice to check your credit report every six months. Could you please let me know the best way to do this?

A N S W E R: As a follow-up to my segment on refinancing, I have received several questions, such as yours, related to credit reports and credit scores. To begin with, a credit report tracks the history of your payment performance.

A credit score — also known as a FICO score (named after Fair, Isaac and Company, the firm that developed the system) or Beacon score — is calculated by using a credit scoring model that assesses various components of your credit history, including timelines of your bill payments, your outstanding credit, the length of time your credit has been active, the types of credit you have and any acquisition of new credit.

The resulting credit score can range from a low of 300 to a high of 850 — the higher your score, the better your credit.

Your question of how often to check your credit report is an excellent one. It is important to know your credit score and be familiar with your credit report so you can correct any issues in a timely manner.

There are three major credit agencies, Equifax, Experian and TransUnion, and ironically, they will not necessarily provide you with the exact same credit reports because creditors do not always report to all three agencies. This being the case, it is a good idea to personally request a report from each of these three agencies at least once a year to ensure your credit reports are accurate and up-to-date.

Also, if you are considering a major purchase, such as a home or car, you may want to request a credit report in advance to verify your good standing. Although the fee for a credit report can range from free to $100, it usually costs about $9 for a single credit report.

People often express concern that multiple inquiries will negatively affect their overall credit score. While this used to be true, it is less of an issue today. First, credit agencies differentiate between personal credit inquiries, considered "soft" pulls, and third-party inquiries, deemed "hard" pulls. "Soft" pulls will not negatively impact your score. Additionally, credit agencies now recognize that people may shop around for the best rates when it comes to securing a mortgage or a car loan. As such, being a savvy shopper should not hurt you.

Keep in mind your credit report is a history, and not a snapshot of performance at one given time, so beware of companies claiming they can "fix" your credit for you. Only you can take steps to improve your credit, including paying your bills on time, paying off your credit card balances and reducing the number of credit cards you have.