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Is there such a thing as a free credit report?


Banking Image Gallery Everyone from potential employers to mortgage lenders look at your credit report when considering you. They have to pay for the reports, but can you get yours for free? See more banking pictures.
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Your credit report is an important thing. It’s kind of like a passport to living in the 21st century. With a good score (based on your credit history), it’s much easier and much less expensive to get loans, be insured, and even get a job. And since it’s a detailed listing of what kind of a borrower you are, it’s also important to look at your credit report occasionally to make sure it doesn’t contain mistakes.

The three major credit reporting companies -- Equifax, Experian and TransUnion -- make their money by analyzing and reporting on how you live your financial life. These companies use mathematical models to calculate what kind of risk you pose to someone who is considering lending you money. The formulas the credit reporting bureaus use are based on the original credit scoring model created in the mid-20th century by the Fair Isaac Corporation. Fair Isaac’s model is the industry standard, which is why your credit score is usually called your FICO (Fair Isaac COrporation) score.

You can read about credit scores in more detail in How Credit Scores Work, but essentially, they work like this. Your personal data (like your age, where you live, your Social Security number and the like) is attached to your financial information. This includes the payments you’ve made, the amount of credit available to you, how much debt you have, the types of loans and credit you have outstanding, and the age of your credit lines [source: BankRate]. All of this information is crunched into the scoring formula, and your FICO score -- a number between 300 and 850 -- is tabulated.

If this sounds like a lot of work, it is. The credit reporting bureaus compiled about 4.5 billion pieces of data every month in 2003, culminating in more than one billion completed reports issued that year [source: PBS]. That’s one-sixth of the global population.

These reports are products the credit reporting bureaus sell to potential lenders, employers, insurance companies and others looking into your background. And selling your personal information is big business: A 2006 report lists nearly $4 billion in combined annual revenue for two of the three major credit reporting agencies alone [source: VantageScore].

Since the information these companies sell is based on accounts of your activities, you should be able to access your report free of charge, right? You can, but there are restrictions attached. What's more, there are credit report scam artists to watch out for. Read the next page to find out how to legitimately receive your free annual credit report.