In today’s fragile economy, the ability to access credit and funding has never been so essential to meeting one’s day-to-day obligations and personal financial goals. Part of the process of maintaining good credit entails staying informed of any changes in one’s credit status.

The government now makes it easier than ever before to access a free credit report online. Understanding how a credit report can affect a person’s financial future is a good first step towards avoiding unexpected disappointments down the road.

Learn how to get a free credit report online at the bottom of this post.

Credit Reports

A credit report is a record of a person’s financial history. For lenders, employers and even insurance companies, this report conveys an individual’s sense of responsibility, both financially and as a person in general. The report itself contains bits and pieces of information about every recorded transaction involving a person’s money habits. Some of the information found in a report includes –

• Loans
• Late payments
• Identifying information
• Credit accounts
• Recent inquiries made regarding a person’s credit

Records on how much a person has borrowed in the past and how any borrowed amounts were repaid, such as early payoffs or loan extensions are also included. As these records ultimately determine a person’s ability to access needed money from future lenders, taking advantage of a free credit report offer is in the best interest of most, if not all consumers.

Credit Scores

Because of the mass of information credit reports contain, lenders and companies refer to a person’s credit score to determine creditworthiness. These scores are generated by a computer that sifts through all the information contained in each report. In the process of scanning each report, the computer generates a credit score based on any borrowing and repayment patterns found in a person’s record. It also looks for red flags, such as bankruptcies and non-payments.

In a nutshell, lenders and creditors use this one score to determine whether a person will default on a future loan or credit offer. While it may seem logical to assume a credit score would be part of the information contained in an online credit report, this is not the case. Fortunately, consumers can still find free credit score information online.

FICO Scoring

While each lender may use their own scoring process (in addition to the information provided through credit bureaus), the FICO credit score is the most commonly used. FICO, also known as the Fair Isaac Corporation, works in conjunction with the three major credit bureaus to calculate scores for each credit report.

The FICO Score uses a formula to determine a person’s final credit score. This formula goes as follows –

• 10 percent of the final score is based on the types of credit a person has had
• 10 percent is based on any new credit lines open
• 15 percent is based on the length of each loan and credit period
• 30 percent is based on the amount a person currently owes
• 35 percent is based on person’s payment history

While various patterns do factor into the process, payment history and amounts currently owed have the greatest impact on a person’s final credit score.

Getting a Free Credit Report and Free Credit Score

Thanks to a federal law known as the Fair Credit Reporting Act, consumers have a legal right to access an online credit report, free of charge. This law makes it possible for everyone to stay informed of their credit status. This provision also helps consumers guard their credit histories against the growing threat of identity theft. The Fair Credit Reporting Act allows for one free credit report per year for each person.

Every consumer has three credit reports on record from each of the three major credit bureaus: Experian, TransUnion and Equifax. When applying for a free report, applicants can request one or all three reports at the same time. A free online credit report is available at Annual Credit Report.

Obtaining a free credit score takes a little bit more effort as many online sites try to sell trial offers in exchange for a free, first-time score. There are, however, sites that offer free scores with no obligation involved.