5 Reasons Why You Should Monitor Your Credit Regularly
Monitoring your credit is crucial to building and maintaining good credit and stopping potential problems from getting out of control.
Your FICO® Scores are a key indicator of the health of your credit history, which is an important component of your overall financial well-being.
Keeping track of your FICO Scores will not only make it easier to build and maintain an excellent credit history, but it will also give you the chance to address issues as they arise instead of waiting until the damage is done. Here are five reasons why monitoring your credit regularly is one of the most important things you can do with your finances.
1. You Can Spot Fraud Before It Wreaks Havoc on Your Credit
There are many different forms of identity theft, but one that can do significant damage to your FICO® Scores is when someone uses your information to apply for credit in your name. This criminal act is called new-account fraud, and the losses attributed to it rose to $4 billion in 2019, according to Javelin Strategy & Research.
When someone uses your name, Social Security number and other personal information to apply for credit, a hard credit inquiry will be added to your credit reports. If the account is approved, you'll also see the new account show up on your reports.
If you're not keeping track of your FICO Scores, you may not know what's happened, giving the thief time to rack up a balance on a credit card or use loan funds and leave the bills unpaid. Even one late payment can cause a significant drop in your FICO Scores, but if you can catch the fraud before it gets to that point, you'll be able to dispute it with the credit bureaus and have it removed from your credit report.
At that time, you'll also have the option to freeze your credit reports so that if someone tries to open an account in your name again, the lender won't be able to access your reports and approve the application. Alternatively, you can add a fraud alert to your reports, which notifies creditors that you may be a victim of fraud and encourages them to contact you directly to verify the application.
2. You Can Check for Potential Inaccuracies
It doesn't happen often, but sometimes a creditor may report something inaccurate to the credit bureaus, or the credit bureaus may include something inaccurate in your credit reports. If it's a negative item, it could damage your FICO® Scores, especially if it's left unnoticed for a while.
The good news is that you can dispute items on your credit reports that are inaccurate or unsubstantiated. File a dispute directly with each individual credit bureau that lists the information on your report—they'll take 30 days to investigate your claim.
If a bureau can validate your claim that the item is inaccurate or unsubstantiated, it will remove it from your credit report, which can result in an immediate impact on your FICO Scores.
If you're not monitoring your credit regularly, though, it can be easy to miss those potential problems.
3. You'll Gain a Better Understanding of How Your Actions Affect Your FICO® Scores
Your FICO Scores are influenced by five main factors: your payment history, how much you owe, the length of your credit history, your credit mix and pursuit of new credit. But there are a lot of smaller elements within those categories that can impact your FICO Scores in different ways.
As you keep track of your scores, you'll be able to see how your payments, balances, new accounts and other information reported to the credit bureaus affect your FICO Scores for better or for worse.
It will also give you a better understanding of what you can do to address potential issues as they arise.
4. You'll Always Be Credit-Ready for When You Need it
Your FICO® Scores are most important when you need to apply for credit. But if you're applying for auto or homeowner's insurance, looking for a job, or renting a new apartment, your credit is also important. They may not use your FICO Scores to make a decision, but they may use the information on your credit reports, which is directly tied to your score.
It's common for financial experts to recommend checking your credit before you apply for a loan or credit card to know if you need to make any changes before you apply. But if you've been monitoring your credit and practicing good credit habits as you go, your credit will always be ready when you need it.
That way, if you're in an emergency situation and need financing, you don't have to worry as much about high-interest rates. And if you want to buy a new car or a home, you don't have to wait until your credit is where it needs to be before you apply—it will already be there.
5. Know When You Might Qualify for Better Offers or Terms
If you're working on building your credit so you can apply for a specific credit card offer or a refinance of your auto, student, or mortgage loan, checking your FICO® Score regularly will let you know when it's in the right range to potentially get approved for the account and terms that you want.
For example, if you're hoping to replace your secured credit card with an unsecured rewards card, knowing your FICO Scores can help you know when the right time to apply is.
The Bottom Line
Your FICO® Scores are an essential part of your financial health, and there is a long list of benefits to checking them regularly. When you check your FICO Scores, consider whether you need to take any actions or if you're on the right track.
Ben Luthi has been writing about money and travel for seven years. He specializes in consumer credit and has written for several major publications and industry leaders, including U.S. News and World Report, Fox Business, Wirecutter, Experian, and Credit Karma.