There are many homeowners who have found themselves in the unfortunate position of being underwater on their home. Some of these homeowners live in a neighborhood where home values have declined, and others took out too much in home equity loans. In some cases both happened.

While it’s understandable that these homeowners are frustrated, some have decided to simply walk away from their homes, even though they can afford to make their monthly mortgage payments. This is known as strategic default. There are numerous problems with the decision to walk away from one’s home when the borrower has the ability to pay.

Is walking away from your mortgage moral?

First, there is a moral aspect to the decision. You signed a contract and agreed to pay a monthly price for your home. Unless the contract had a stipulation that you can walk if your home’s value falls – and I’m not aware of a single mortgage contract like that – you are not fulfilling your obligation. Some will argue that it’s a business decision, but I think it’s more than that. After all, would a homeowner whose home appreciated in value call it a “business decision” if the bank decided to increase their mortgage payment as the home’s value rose? I seriously doubt it.

I believe we are all obligated to honor our contracts unless there are extenuating circumstances which prevent us from doing so.

I want to be very clear that when I talk about the moral aspects of walking away from a home, I’m talking about people who can afford their payments. I know first-hand that there are people out there who really cannot afford to make their payments and want desperately to stay in their homes. Those people may not have a choice when it comes to giving up their home.

Who does walking away hurt?

In essence, walking away hurts the homeowner who is walking and every other homeowner out there. As homes are sold as short sales or foreclosures, the values of neighboring properties decline. If homeowners walk away from homes they can afford, it just perpetuates the cycle. The only way neighborhoods are going to recover is for homeowners to hang in there and watch out for one another.

I’m a fairly optimistic person, and I truly believe the tides will change and properties will eventually regain their values. Those who think they’ve lost the equity in their home forever are really creating a self-fulfilling prophecy by contributing to declining property values and adding to the amount of foreclosures and short sale homes that are sitting on the market.

I’ll just rent after I walk

Homeowners who think that they can walk away from their homes, rent for a bit and start over are going to be in for a big surprise.

When someone lets their home go into foreclosure, it harms their credit score and leaves a black mark on their credit report. It’s a black mark that will stay on their credit report for seven years. Many landlords do credit checks on their potential renters. Seeing a foreclosure is likely going to be a red flag to the landlord that you’re not capable, or willing, to make your rent payments on time.

The foreclosure is also going to be a red flag to lenders if the homeowner would like to buy a home or take out any new credit in the next seven years. In addition to the decision of whether or not to give a potential homeowner a mortgage, lenders also base interest rates on the borrower’s credit score. The borrowers with the best credit scores get the best mortgage terms and/or interest rates. A foreclosure is going to put the borrower in a bad position when it comes to getting credit … if they can get credit.

Allowing a home to go into foreclosure clearly isn’t something that should be taken lightly or decided quickly, especially if the homeowner can afford the monthly payments. I would urge people to consider all of the long-term effects of a foreclosure, including their plans for the next seven years, before making a final decision.

Kristen Doerschner is the public relations coordinator for a non-profit debt relief agency and a freelance writer. Through her writing, Kristen covers a variety of topics, but specializes in issues related to financial education.

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Related Articles:

1. Options for Homeowners Who Can’t Make the Mortgage
2. Foreclosure Freeze – Project Lifeline
3. Comparing 15 Year and 30 Year Mortgage Terms

You have seen the commercials and heard the radio jingles, so by now you know that having  a good credit score is important. But what is a good credit score? Generally, anything above 700 is considered a good FICO credit score.

But that is not the end of the story. The reality is that a good credit score doesn’t guarantee a loan or mean that you are in good financial shape. A good credit score just gives the lender another piece of information to help determine your credit worthiness. Your ability to get a loan depends on many factors, including your credit report, your credit history, amount of available credit, credit utilization, and other factors.

What is a Good Credit Score?

Your credit score is determined by a proprietary mathematical formula. There are many different versions of credit scores, but the most commonly reference is the FICO credit score, which is considered the industry standard. Your credit score is based on a weighted formula which includes your payment history, amounts owed, age of credit history, recent loans, and the types of credit you have. The FICO credit scores range from 300 to 850 and a good credit score range is considered 700 – 850. Here are more credit score ranges and their ratings.

FICO credit sore ranges:

• FICO credit score range: 300 – 850
• Good credit score: above 700
• Average credit score: 680 – 700 (depending on source)
• Poor credit score: Below 620

Why You Need a Good Credit Score

As the FreeCreditReport.com commercials wants you to believe, you need a good credit score to drive a nice car and pick up chicks. Unfortunately, that’s not quite true. A good or bad credit score doesn’t guarantee a loan or necessarily prevent you from getting a loan. A good credit score will make it easier to be approved for a loan, allow you to have more available credit, and qualify you for lower interest rates when you are approved for a loan. And low interest rates can make a HUGE difference over the life of a loan.

Affect of Good or Bad Credit Score on Interest Rates

You will almost always be able to obtain a loan, even with a poor credit score. But the terms and size of the loan will vary widely. The difference will come in the form of the required down payment or the interest rate you will have to pay. Let’s look at some examples of how good and poor credit scores will affect your payment structure on a mortgage, then on an auto loan. There is a substantial difference in monthly payments between high and poor credit scores, and the payments over the life of the loan should be enough to convince you that a good credit score is valuable!

Affect of Credit Score on 30 Year Fixed Mortgage Rates

The score ranges and interest rates below come directly from the MyFICO website. There are three examples given for credit score ranges and interest rates, one is for auto loans and the other compares credit score and interest rate ranges for 15 and 30 year mortgages. The example below is from the 30 year fixed mortgage at $300,000:

Comparing good credit mortgage rates and bad credit mortgage rates. Using the numbers above, you will notice there isn’t a big difference in the monthly payment from the top credit score to the second tier credit score range of 700-759 (remember anything over 700 is generally considered a good credit score range). Once you start dropping into the lower tier credit score ranges, you will see a large monthly difference in your payments. But thinking in terms of monthly payments can be an expensive way to think, especially when you consider that this is for a 30 year mortgage.

Even with the best credit score, making minimum payments on a 30 year mortgage means paying $256,564.15 in interest over the life of the loan. Paying 6.234% interest over the life of a 30 year mortgage equates to paying $363,851.12 in total interest. To put it another way, that monthly difference of $298 equals a difference of over $107,000 over the life of the loan.

Affect of Credit Score on Auto Loans

Using the same concept as we used above, let’s examine the affects of how your credit score range affects your monthly auto payments. The MyFICO website references a 36 month fixed rate auto loan for $25,000.

Comparing good credit auto loan rates and bad credit auto loan rates. As you can see, the monthly difference  between the good credit score range and a poor credit score range is $155, or over $5,500 for the life of the loan.

What is bad credit score?

Have a poor credit score? Credit scores under 620 are often considered sub-prime loans, and come with more risk to the lender. Borrowers with credit scores in this range often pay substantially higher interest rates. If you fall below the sub-prime loan cutoff limit, it may be best to try and improve your credit score before applying for a loan. You may find it easier to obtain a loan and the terms will likely be better.

Remember, not all is lost. As we mentioned above, you can almost always find someone to give you a loan if you need one. You will see a difference in the terms of the loan, though. You may be required to pay a larger down payment or higher interest rates to get the loan you are seeking.

Your credit score is important

Like it or not, your credit score plays an important role in your ability to obtain a loan, the amount of available credit you can carry, and the interest rates you will pay. If you are considering applying for a loan in the near future it is probably a good idea to know your credit score and try to improve it before applying for the loan.

Get your free credit report and credit score. If you are interested in monitoring or improving your credit you can get your free credit report and free credit score to help you. Be sure to read all terms and conditions.

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Related Articles:

1. Difference Between Credit Score and Credit Report
2. How is Your Credit Score Determined?
3. Your Credit Score is About to Become More Valuable

The next phase of the Credit Card ACT changes will come into effect on February 22, 2010. The Credit Card Act of 2009 was signed into law by President Obama in April of 2009 with a 15 month rollout schedule. The first phase went into effect last August 22, 2009 and the next phase is scheduled to go into effect later this month.

Credit CARD Act of 2009 Phase 1:

The first phase of the Credit CARD Act required credit card companies to give 45 days advance notice to cardholders before making any significant changes to the account holder’s terms and conditions or interest rates. The 45 day advance notice applied to increases in interest rates, certain fee changes (annual fees, cash advance fees, and late fees), or make other significant changes to the terms of your card.

The 45 day notice for rate increases does not apply to variable interest rates, expiring introductory rates, rates that are tied to an index, or when the card holder breaks previously agreed to terms (such as a payment plan).

It also required credit card companies to mail statements no later than 21 days before the due date (the previous requirement was 14 days).

Credit CARD Act of 2009 Phase 2:

The second phase goes into action on Feb 22, 2010. Here are some of the ways the second phase of the Credit CARD Act will affect consumers and credit card users:

Interest rate increases:

• Credit card issuers cannot increase interest rates within the first 12 months of the account being opened (unless consumer makes late payments).
• Introductory promotional rates must remain in effect for at least 6 months (great news for people who take advantage of 0% Balance Transfers).
• Credit card issuers will not be able to raise an interest rate on an existing balance unless the cardholder goes 60 days past due on the account.
• Increased interest rates only apply to new charges and cannot be made retroactively.
• No universal default clauses.

Credit card fee restrictions:

• Over limit fees. Card holders must give consent to allow card issuers to process over the limit transactions. Even with consent, only one over limit fee is allowed per billing cycle.
• Payment processing fees. Credit card issuers will no longer be allowed to charge payment processing fees for accepting payments via mail, phone, or online, but will be allowed to charge fees for expedited payment processing.
• Payment due date. Payments will not be considered late if they are received by 5pm on the due date, including weekends and holidays; payments made at a local branch or office must be credited the same day. (credit card companies could previously set the time payments must be received, often making the cutoff in the morning of the due date to increase the number of late payments and the fees they could charge).
• Annual fee and non-penalty fee limits. Non-penalty fees cannot exceed more than 25% of the credit limit when the account is opened. For example, many secured credit cards currently come with annual fees almost as high as the credit limit.

Student credit cards:

• Consumers between the ages of 18-21 will need to provide proof of income or have a co-signer before they can be approved for a student credit card.

Billing and Payment Allocation:

• Payments must automatically be applied to the highest interest balance first. This is great for consumers who open a new credit card for a favorable interest rate, such as a 0% Balance Transfer card.
• Credit card statements need to include a minimum payment disclosure that details how long it will take to pay off the current balance and how much interest will be paid over the life of the loan. These numbers must be given for both minimum payments and the payment need to pay the card off in 3 years.
• Double-cycle billing will no longer be permitted (double-cycle billing calculates the average monthly balance over two months).
• Credit card issuers must make account terms and cardholder agreements available online.

Credit CARD Act of 2009 Phase 3:

The third phase of the Credit CARD Act goes into effect on August 22, 2010 and has provisions for reinstating lower interest rates if card holders continue to make on time payments for 6 months, and there will be new rules for gift cards, limiting the fees and prohibiting the expiration of them for the first 5 years.

What are your thoughts on the Credit CARD Act?

I previously wrote some of my thoughts on the Credit CARD Act of 2009. Overall, I think these changes will clean up the industry and make it easier for consumers to know where they stand. This will benefit some people who carry a balance on their credit cards, and will likely end up hurting people who like to take advantage of rewards credit cards. Even though I am in the latter category, I support most of these changes.

What are your thoughts on these changes?

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Related Articles:

1. Killer Credit Card Fees and How to Avoid Them
2. Changes to the Credit Card Industry – Credit CARD Act of 2009
3. What Should I do About Increased Credit Card Interest Rates?

In a previous post, I addressed the various types of debt relief that are available. Once you’ve chosen the best method to pay down your debt, the next step is to make sure you’re working with a reputable and reliable debt relief company.

This is one of those situations where a little common sense and some research will be invaluable.

Go with your gut

Follow the old adage of, “If it seems too good to be true, it probably is.” If a company is making you promises that sound so great you can’t believe it, then don’t. If you’re gut is telling you something isn’t right, go with that feeling. It’s important to remember that you didn’t get into debt overnight, and you’re not going to get out of debt overnight either.

Research Debt Relief Companies

Before you commit yourself to working with a company, learn about your state laws regarding debt relief agencies and research the company.

Research state and national regulations. Find out if your state has laws in place to regulate the industry. Does your state require a company to have a license? To make certain disclosures to consumers? To cap their fees at a certain amount? If so, ask the company if they are licensed and how much they charge for services. Ask for details of any debt relief plan in writing before you sign anything.

You should be able to find out about the applicable laws in your state by contacting your state Attorney General’s office.

Research the company. If you have a local consumer protection bureau or alliance, check with them to see if they’ve had any complaints about the company.

On a larger scope, find out what kind of rating the company has with the Better Business Bureau. You can also see how many and what kind of complaints have been filed against the company and if they were resolved. Check with the Federal Trade Commission and your state Attorney General’s office to find out if they have received complaints about the company.

Warning signs

There are some common warning signs that a company may not be reputable. Be wary if a company:

• Cold calls or solicits consumers out of the blue.
• Charges high fees, especially if the fees are paid up front.
• Asks consumers to sign over power of attorney.
• Will not send free information about their services and fees.
• Encourages consumers to sign up for a plan or program immediately without first sending the consumer the program’s details in writing.
• Pays their employees based on commission.
• Don’t offer financial education as part of their plan or program.

Your best bet is to work with an accredited, non-profit company that has your best interest at heart. Make sure you feel comfortable with the company. Remember, this company is going to be helping you to work through a difficult financial situation, and you want to be sure that you’re truly going to get reputable help.

Online Resources to help you research debt relief agencies

• Federal Trade Commission
• Better Business Bureau
• National Foundation for Credit Counseling

Kristen Doerschner is the public relations coordinator for a non-profit debt relief agency and a freelance writer. Through her writing, Kristen covers a variety of topics, but specializes in issues related to financial education.

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Related Articles:

1. Top 10 Consumer Complaints And How to Protect Yourself
2. Comparing Debt Consolidation, Debt Management and Debt Settlement
3. Haiti Relief Donations Are Tax Deductible for 2009

Surely you’ve seen at least a couple of ads for debt relief services as you’ve been watching television.

Some of the ads make promises that must sound pretty enticing to someone carrying an unmanageable debt load and struggling to get by. But not all debt relief services or personal circumstances are created equally.

For someone who truly needs some professional help to get out of debt, it is crucial that they understand the different types of debt relief services and the pros and cons of each.

Debt consolidation

This is simply a loan. You borrow enough money to pay off all of your other accounts. It’s basically trading debt for debt, but it can work. There are to key pieces to successfully using a consolidation loan to pay off your debt. The first is to make sure you get a good interest rate that is lower than your current interest rates. The second is self-discipline. Too often, people take out consolidation loans, but continue to use their credit cards. Ultimately they end up in double debt trouble.

Two common forms of debt consolidation include a Home Equity Line of Credit, a loan against the equity in your home, and a balance transfer credit card which transfers your credit card balance to a low interest rate, often as low as 0%.

Credit counseling

Credit counseling involves a meeting, either in-person or via phone, with a credit counselor who will review your financial situation and possibly offer you a debt repayment plan, referred to as a debt management plan, or DMP. A credit counseling session can help you get a better picture of your situation, and often there is no cost for the session. A DMP is one in which the credit counseling agency gets your creditors to lower your interest rates, so more of your monthly payment goes towards your principal balances. But, you are no longer allowed to use credit. The monthly fee is usually under $50.

A DMP may not be the right plan for you if your debt is so great that you cannot afford to make adequate monthly payments, or if you are not committed to living life without using credit. Also, your credit report may show that your accounts are handled by a credit counseling agency. However, at the end of the program that notation drops off, and your accounts will be shown as “paid in full.”

Debt settlement / negotiation

These are probably the ads you see most often. If you choose to use a debt settlement company, representatives will tell you to stop paying your creditors and make a monthly payment to the settlement company. Once you’ve saved up a lump sum of money, the settlement company will attempt to negotiate with your creditors to accept a lesser payoff amount.

Settlement companies typically charge an upfront fee of 10 to 15 percent of your total debt, even if they cannot successfully negotiate your debt. Some companies require their clients to sign over power of attorney. You run the risk of being sued by your creditors since you’ve completely stopped paying them. If your creditor forgives more than $600 of your debt, you will be required to pay income tax on the forgiven amount. Also, your credit report will reflect that you settled the account for less than you owed, which is a red flag to future lenders.

If you do choose to go the settlement route, you can handle the negotiations on your own without paying a company exorbitant fees. Just make sure you get any agreement with your creditors in writing and make sure you understand the implications to your credit report, credit score, and taxes.

Examine your needs and choose wisely

Take some time to look at your financial situation, your circumstances, and the pros and cons of all available options.You can probably create your own debt consolidation plan, but the other options require you to work with another company and your creditors. Ultimately, it’s up to you to decide which method is the best to pay off your debt.

Kristen Doerschner is the public relations coordinator for a non-profit debt relief agency and a freelance writer. Through her writing, Kristen covers a variety of topics, but specializes in issues related to financial education.

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Related Articles:

1. How to Find a Reputable Debt Relief Company
2. DIY Debt Consolidation Options
3. Do You Know How Much Interest You Are Paying Each Month?

Second mortgages are a lot more common now than they were just a few years ago. There are several reasons for this – many people took out a second mortgage to make home improvements, consolidate their debt, or because they purchased their house with a small down payment and wanted to avoid Private Mortgage Insurance (PMI).

Regardless of the reason someone has a second mortgage, there is a near universal truth regarding second mortgages – they usually come with much higher interest rates. These higher interest rates can be deceptive because the monthly payments tend to be small, but stretch out for long durations, often as long as your primary mortgage, or up to 30 years.

Should you pay off your second mortgage early?

I recently received a reader question regarding his 2nd mortgage, and whether or not it would be a good idea to pay it off early. A condensed version of his situation is below:

I have a second mortgage which I am considering paying off early. Here is my situation:

• I recently refinance my first mortgage and am now paying about $1,680/mo (5.25% 30yr fixed). The total amount of the refinanced loan is $245,000.
• I still have a second mortgage of $28,800 (7.875% 30yr fixed) and I’m paying about $223/mo.
• I personal savings is about $70K which is only earning 1.9% interest.
• The second mortgage company is offering a promotion to give me $500 if I payoff my second loan.

Should I take money out of my savings and payoff this second loan?

I figured 7.855% vs 1.9%… I’m better paying off this second loan. But are there tax implications and possible other factors that I have not taken into consideration. What else should I consider??

Thanks for the question. There are several considerations – the interest you are currently paying, how much your savings is earning, what else you may need the money for, taxes, and peace of mind.

Financially, paying off the mortgage is the clear choice

The numbers don’t lie, and financially, paying the mortgage off makes sense by the numbers: not paying 7.855% interest beats earning 1.9% interest every day of the week. In addition, you get a $500 bonus as part of your lender’s promotion. Score!

If you want more proof of how the numbers will work for your situation just visit an online mortgage calculator and run the numbers (or use the numbers you provided). The lifetime cost of the second mortgage is over $80,000! ($223 * 12 * 30 = $80,280). I’m not sure how much of your second mortgage you have already paid, but paying off your mortgage now could save you close to $50,000, most of which is interest.

How much interest are you paying? Try this quick exercise to see how much of your debt payment is actually going straight to interest each month, and how little is actually paying off the principle.

Tax considerations of paying off your mortgage early

You can usually write off mortgage interest as a tax deduction, but honestly, the tax savings on the interest you are paying each month would be negligible compared to the interest savings of paying off your mortgage, plus the $500 bonus. It also doesn’t make much financial sense to continue paying money, just to save money. This is really a non-factor and shouldn’t affect your decision.

What else will you need the money for?

This is a big one. $70,000 is a nice chunk of cash, and it is probably enough to make you feel very comfortable in your financial situation (assuming your mortgage debt is your only debt and you aren’t drawing on that $70k each month to meet expenses). Many people recommend keeping a large cash cushion as an emergency fund, which can be used to help deal with any unexpected expenses that come along.

How big should your emergency fund be? That depends on your lifestyle, job security, risk tolerance, and many other factors. Many “financial experts” recommend 3-6 months of living expenses. If you kill that second mortgage in one fell swoop you will have roughly $40,000 left in your savings. If that still covers your emergency fund and any other major expenses you are expecting, then it might not be a bad idea to consider doing it – from a numbers standpoint.

Peace of mind

All of this brings us to the final consideration – peace of mind. Will you rest easier knowing you no longer have a second mortgage at a higher interest rate? Will the extra $223 in cash flow help with other financial goals? Or does having $70,000 in the bank feel better than paying off your loan?

Is it better to pay off your second mortgage early?

By the numbers, paying it off will net you the best result by far. Other benefits include increasing monthly cash flow which will allow you to replenish your savings or work toward other financial goals, and removing a debt from your life. If you really want to speed things up, pay off your second mortgage and use that extra money toward your primary mortgage each month – you will shave off almost 10 years of mortgage payments – and tens of thousands of dollars in interest.

But personal finance is about much more than just numbers. If you have a need for the funds or feel more comfortable holding on to the cash due to economic, professional, health, or other concerns, then by all means, do what is best for your situation.

Readers – did I miss anything, or do you have other ideas to consider?

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Related Articles:

1. Comparing 15 Year and 30 Year Mortgage Terms
2. Do You Know How Much Interest You Are Paying Each Month?
3. Pay Off Your Credit Cards in Half the Time

Your credit score is important – it’s the first thing a lender is going to look at when you apply for a loan and it directly affects the interest rate you pay. Your FICO credit score is based on your credit history, which can be found in your credit report. You can get a free credit report from AnnualCreditReport.com, but most companies charge you for your credit score.*

Unfortunately, your credit score isn’t something you can just look up any time you want – you often have to pay for it, usually anywhere from $5-$15, depending on where you get it. However, you can get a free copy of your FICO credit score if you are willing to do a little legwork.

*Note: Your credit score and credit report are different. Your credit report covers credit history and your FICO credit score is a number based on a weighted and proprietary formula.

How to get your free FICO Credit Score

The Fair and Accurate Credit Transactions Act (FACT Act) requires each of the 3 major credit bureaus to provide you with a free credit report once per year upon request. The credit bureaus are not required to provide your credit score,  but they are happy to offer you an upsell.

The good news is that many companies are willing to give you a copy of your credit report and credit score free if you sign up for a free trial of their monthly credit monitoring service. The credit monitoring service gives you the ability to check your credit report, credit score, verify your credit history is correct, and verify that there are no unauthorized items on your report. You should receive your credit report and credit score when you sign up and you can always cancel the credit monitoring service before the free trial period ends if you don’t wish to continue paying for it. Your credit score will be free as long as you remember to cancel in time.

Where to get your free FICO credit score

The FICO credit score is the most commonly used credit score in the US. The following companies either offer a free FICO credit score, or a proprietary credit score that should approximate the FICO credit score.

• MyFICO ScoreWatch. MyFico is owned by Fair Isaac Corporation (FICO), creators of the FICO credit score, pretty much the gold standard of credit scores. Signing up for the 30 day free trial of MyFICO ScoreWatch gives you a copy of your credit report and credit score from Equifax. You will only be charged if you elect not to cancel your service within the 30 free trial period.
• Equifax Credit Watch Gold with 3-in-1 Monitoring. Equifax is one of the three major credit bureaus and provides credit reports and scores. Signing up for a free credit report from Equifax gives you a 30 day trial of their service, which includes your free FICO credit score and a 3-in-1 consolidated credit report from the three credit bureaus. The monthly fee is $14.95 if you do not cancel within 30 days.
• TrueCredit. TrueCredit is owned byTransUnion, another of the 3 major credit bureaus. The TrueCredit credit monitoring service gives you immediate access to all three credit reports AND scores, and you can set up alerts to notify you when your credit report or score changes. TrueCredit also offers $25,000 of identity theft insurance with their service. The monthly fee of $14.95 will not be charged if you cancel within the 30 day free trial period.
• CreditReport.com. CreditReport.com offers your credit score along with 3-in-1 merged credit reports from the three national credit bureaus: Experian, Equifax and TransUnion. The monthly fee is $14.95 and comes with a 7 day free trial.
• FreeCreditReport.com. FreeCreditReport.com is famous for their catchy commercials. But if you read the fine print, the only way to get a free credit score from their site is to sign up for the 7 day free trial membership in Triple Advantage, then cancel before the end of the free trial period (you actually have 9 days to cancel without being charged). FreeCreditreport.com’s Triple Advantage service provides you with a  Monthly Statement with your Credit Score, Alerts digest, and a summary of the key financial information that lenders use to rate you. The cost is $14.95 per month if you maintain the service.
• CreditReportsandScores.com. CreditReportsandScores.com offers Triple bureau credit monitoring, credit monitoring updates, and a 7-day trial period in which you can cancel at no charge, otherwise $14.95 per month.

Why should you get your free credit report and score?

Knowing your credit score comes in handy if you plan on applying for a loan or if you have a need for credit in the near future. For most people, it is a good idea to have an idea of your score, but it may not be necessary to know the exact number. However, reviewing your credit report frequently (at least every few months) is a good idea.

Credit monitoring services get a bad rap because many of them have the reputation for tricking people into signing up for a service which is difficult to cancel. The good news is that the FTC cracked down on these practices requires them to notify you that you can receive free credit report from AnnualCreditReport.com.

The truth is that credit monitoring services aren’t necessary for everyone, but they offer a great service for people who have been exposed to identity theft or a breach in their personal information. Credit monitoring services allow them to receive notification if their credit report or credit score changes.

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Related Articles:

1. How to Get a Free Credit Report From AnnualCreditReport.com
2. Free Credit Score From Equifax – Limited Time Only
3. Difference Between Credit Score and Credit Report

No doubt you have seen and heard hundreds of commercials about getting your free credit report – the television and radio are constantly bombarding you with the message that you need to know your credit history and score. And you know what? they’re right.

Your credit report and score play a big role in determining your ability to receive a loan, the interest rate you will pay, your ability to rent a house/apartment, buy a cellphone plan, and possibly even get a job or security clearance. The need is there, but what many of these companies don’t want you to know is that you can get a copy of your credit report for free through AnnualCreditReport.com.

Do you know the difference between your credit score and credit report? Your credit report is a history of your credit, while your credit score is derived from a weighted formula based upon your credit history.

Free credit report from AnnualCreditReport.com

The AnnualCreditReport.com website was set up to comply with the Fair and Accurate Credit Transactions Act (FACT Act), legislation that requires the credit bureaus to provide consumers with a copy of their credit report once per year. It is the only official site to get a free copy of your credit report from the three major credit bureaus: Experian, TransUnion, and Equifax.

How to get your free credit report

You can request your free credit report online, over the phone, or via the mail system. To get your free copy of a credit report online, head on over to https://www.annualcreditreport.com/. Then select your state from the drop down box, click “get report” and fill out your information. You will need your previous address if you have lived in your current residence for less than 2 years.

Select credit bureau(s). After completing your personal information you will be required to select which credit bureau you wish to receive your report from. You can select one or more credit bureaus. I chose the first option, TransUnion. At that point I was transferred to the TransUnion website.

Watch out for the upsell! The legislation only requires the credit bureaus to provide a free copy of your credit report, not a free copy of your credit score. The credit bureaus are more than happy to give you a copy of your credit score if you are willing to pay for it. TransUnion owns the company TrueCredit, and you have the option of purchasing your credit score for $5.95. I checked my score about a year ago, and haven’t had any major changes in credit, so I declined – I’m only interested in my credit report at this time.

Fill out your information. You will need to provide your personal information, including your name, DOB, SSN, address, etc. Once you enter your information you click return and your credit report will show up on the screen with the option to print. If you opt to print your credit report, be sure to select the option to only show the last four digits of your SSN when you are filling out your personal info – that way you aren’t leaving your full SSN on any paper that could be seen or stolen.

Get a free copy of your credit report every four months. You can receive a free copy of your credit report from each bureau every 12 months. Since there are three bureaus, you can stagger your requests to receive a report every four months so you have better access to recent information. It’s easy to keep track of which bureau you use and when you need to request another free report – just set up calendar reminders on Google Calendar, MS Outlook, or another calendar system.

What About a free copy of your credit score?

Unfortunately, legislation does not cover a free copy of your credit score with your free credit report from AnnualCreditReport.com. And your credit score is the number that is actually used by lenders to determine your loan eligibility and interest rates.

You can get a copy of your free credit score from these companies with a trial offer of their credit monitoring service (be sure to cancel if you do not wish to be charged).

• MyFico. Owned by Fair Isaac Corporation (FICO), creators of the FICO score.
• Equifax Credit Watch Gold with 3-in-1 Monitoring. Owned by Equifax, one of the major 3 credit bureaus.
• TrueCredit. Owned by TransUnion, one of the major 3 credit bureaus.
• FreeCreditReport.com. The site famous for its catchy commercials.

You will note that all of these companies offer a free credit score and a copy of your credit report. However, receiving your credit score requires you to sign up for a free trial period for each respective company’s credit score monitoring service, generally ranging from $10-$15 per month. The free trial period ranges from 7 – 30 days, which is plenty of time to sign up for the service, get a free copy of your credit score, and cancel the service if you do not wish to continue monitoring your score.

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2. Difference Between Credit Score and Credit Report
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