Credit Reports -- Your Free Report Could Cost You

The growing prevalence of identity theft and increased concern about good financial health has led many consumers to seek copies of their credit reports online. Doing so is certainly laudable; the more you know about how potential creditors and lenders see you, the more prepared you can be when it comes time to apply for a loan or credit. An added bonus is that consumers can obtain one copy of their credit report from each of the three main credit bureaus once a year through the official Web site set up for such purposes at AnnualCreditReport.com.

Unfortunately, there are still many Web sites that exist for the sole purpose of tricking consumers who are seeking copies of their free reports. A quick Google search for the term "free credit report" today turned up no fewer than twenty four million sites in the search results. There certainly are not twenty four million Web sites that are going to provide copies of credit reports for free, so what is this all about?

It's about money. Aside from the "official" site, the others are there to profit, and they can profit in one of two different ways:

Sell you something - Some of these sites actually belong to the credit bureaus; they have set them up to give you the credit report while selling something else to you in the meantime. These sites will offer the "free" report in large letters, while telling you in smaller ones that by accepting the free report you are agreeing to buy a credit monitoring service, which can cost you $10-15 per month. The credit bureau-owned sites will also tell you that you can get your report for free at the "official" site. That is usually stated in fairly small print near the bottom of the page.

Steal something from you - Unfortunately, there are still many unscrupulous crooks out there on the Internet who see the interest in credit reports as the ideal way to steal personal information from people. Their sites will offer a "free" report, and perhaps some other services for which you can pay. But when you fill out the application and provide your name, Social Security number and credit card, you get nothing in return. Instead, the operators of these sites use the personal information to borrow money and take out credit in your name, leaving you to pay the bills.

If all you want is a free credit report, the best way to avoid this problem is to obtain it from the official Web site at AnnualCreditReport.com. Alternatively, you can call 1-877-322-8228 to receive your report by mail. That way, you can avoid being victimized by the thousands of Web sites that might cause you to pay dearly for your "free" credit report.

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Credit Reports and Scores Often Confuse Consumers

Most people who are of an age to care about their credit are aware that the three main credit bureaus, Experian, Trans Union and Equifax, maintain credit reports on them. The bureaus keep track of loans, credit cards and bankruptcies and make note of whether each consumer pays his or her bills on time. Most people are also aware that their credit history is also available in the form of a credit score, which is, in essence, their overall credit worthiness reduced to a three-digit number.

Beyond that, many people have, at best, a vague understanding about how their financial transactions are regarded by the credit bureaus. There are a number of myths and misconceptions about credit reports and credit scores and how they are affected by things people do financially. Here are a few examples of these popular misunderstandings:

A consumer has only one credit score - Not true. Each bureau keeps track of financial transactions independently of the others and may have more or less information to work with than the other bureaus. Plus, until recently, each bureau used their own scoring system. In all likelihood, if a consumer were to contact each bureau to obtain his or her credit score, the result would be three completely different figures.

Your salary affects your credit score - Your score is simply a reflection of how well you handle the credit available to you. If you earn more money, you might have more available credit, or not. Either way, the score is simply a reflection of what type of credit you have and whether you pay your bills on time. How much you earn is not part of the equation.

Canceling a credit card raises your score - Not necessarily true. Credit bureaus examine how much of your available credit you are using. Less is more; the bureaus like to see that you are using as little of your available credit as possible. If you owe a lot of money on credit cards and you cancel an unused account, it may look like you are using a larger portion of your available credit. That will actually raise your score!

Marriage merges credit reports - Your credit report is your own. That will not change if you get married. Jointly borrowed money will show up on both reports and will affect both of your scores. And just as marriage doesn't merge the reports, divorce won't separate the joint items. If you get divorced and your ex doesn't pay on your joint loans, your score will decrease.

The process of compiling credit scores is a complicated one. It's understandable that many people don't entirely understand how the system works. Perhaps the best way to keep tabs on what is going on with your own finances is to check your credit report regularly. You can get a free copy at AnnualCreditReport.com.