Get Your Credit Report Free

If you're like the majority of Americans, you don't know what your credit score is, let alone what it's used for.

Traditionally used to approve mortgage loans, the three-digit number representing your credit risk is now influencing a number of other business transactions.

The August issue of Consumer Reports warns this could hit you where it hurts. It could result in higher car loans and insurance premiums and could even stand in the way of getting a new job or renting an apartment.

Lisa Lee Freeman, the magazine's deputy financial editor, visits The Early Show to explain.

To access a free guide to deciphering credit reports, visit ConsumerReports.org. Another great Web site is www.myfico.com. But the big news is that by Sept. 1 of his year, consumers will have access to free credit reports at Annualcreditreport.com – a government Web site. All three major credit bureaus are on the site, and each one has to give you one free report a year.

Consumer Reports recommends getting a report from each credit bureau every few months. Freeman notes it is important to check yours for errors because these reports are not always accurate.

Annualcreditreport.com, however, does not give you scores, only access to the reports. For $45, you can get scores and reports from all three agencies.

It is important to know your scores, because the difference in a few points can mean big money.

If you are 30 days late on a bill, Freeman says, your score can drop 100 points. Even 50 points can mean an extra $100 a month on a mortgage; over 30 years, you could be paying an extra $36,000.

If you get your credit report and there's an error, Freeman says, "Do not call them; they are not helpful. For minor errors, you can go online to the Web site of the credit bureau.

"The best way is to send a letter with documentation backing it up. For example, you're trying to prove that you paid a bill on time: send copies (not originals) of the check, date, etc., in certified mail, with a return receipt requested.

"A mistake people make is contacting credit repair companies, asking third parties to help. Many of them are scams, and the good ones do nothing you can't do yourself."

The following are some tips on how you can improve your credit score.

Sign up for automatic bill payment: Being just a few days late is not a big deal, but 30 or more days can mean 100 points on your score. So it's very important to stay on top of this.

Watch the timing of your spending: If you are applying for a loan in a few months and you have very high balances on credit cards, that could hurt you. Nobody should be spending at the max anyway. Creditors look at the ratio between how much outstanding debt you have and what your credit limit is.

Limit credit-card applications: You can apply for cards, but be judicious. It's easy to go to local mall and sign up for every credit card available, because they offer discounts, enticements, etc. But every time your credit is checked, it hurts your score. The only exception is when you are applying for a mortgage. In general, however, a steady stream of credit cards will hurt.

Think twice before canceling cards: Keep the ones you've had for a long time, because those long-term relationships actually work in your favor.

Make sure credit limits are posted: A lot of times credit cards won't post your limits to credit bureaus. The problem is they then assume you are maxed out. Credit companies should see the limits so they know you are not maxed out.

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