Does your credit report make sense? Note that I didn't ask whether you have good credit or bad credit. The question is whether your credit bureau files are accurate. The odds of accuracy are not good.

When my wife and I applied for a loan last month, our friendly mortgage broker gave us a multi-page printout of our credit report. These reports are cryptic to the point of being nearly incomprehensible. Among the bizarre items was a 30 point difference between my lowest credit score and my wife's highest credit score. After two decades of marriage and completely enmeshed finances, I thought our credit scores ought to be pretty much the same. We are, after all, responsible for each other's debts. How can we have different credit scores?

Your "credit report" is really a mix of two different sets of information from three different sources. Each of the three national credit bureaus tracks and reports detailed information on your credit card accounts--whether you make payments on time or late, and similar information. Each credit bureau also calculates a three digit "FICO score," which summarizes how good your credit is. Because the FICO scores are easily understood, they're the primary basis on which lenders evaluate your credit. On a $300,000 mortgage, a 30 point difference in your FICO score can raise the interest rate enough to make a $100-per-month difference in house payments.

And it's not just lenders and credit card companies who use your credit report nowadays. Everyone from landlords to insurance companies is peeking. I told the story about our strange FICO scores to a real estate agent, a pretty savvy guy. He told me that he'd recently discovered that he and his wife were paying a couple of hundred dollars extra on their insurance based on their credit report. His wife spent hours and hours getting errors on their report corrected, and their insurance payments went back down to where they belonged. You probably have a friend or neighbor with a similar story.

In my family's case, the few minor dings on our credit report say that the credit card balances we're carrying are too high relative to our credit card limits. Apparently, the fact that we pay off our entire balance each and every month doesn't enter the calculations. Maybe it's got something to do with the fact that one of the three credit bureaus has a different card number on file for our main credit card than the other two? Who knows?

Or maybe it has something to do with the Lamont's card that shows up on our report? (If you're a long-time Washingtonian, you might have had a Lamont's card, too.) I guess the credit bureaus haven't heard that Lamont's folded nearly a decade ago.

These reports are just plain sloppy, and there's a good economic reason for this. Lenders, sensibly enough, want to charge more to people who are credit risks and less to those with good credit. But lenders don't care about you as an individual. From the lender's point of view, positive and negative mistakes tend to average out, so the accuracy of your personal report doesn't matter so much.

You, on the other hand, do care about your individual report. If I were running the world, credit bureaus would have to pay for their mistakes -- but I'm not, and they don't. So it's up to you to protect yourself. Here are three options.

Living in Washington, you are entitled to one free credit report each year from each credit bureau. Lots of folks want to sell you your own credit report. Don't pay for a report you can get for free. Go to www.annualcreditreport.com and request a free credit report. Then check it for errors.

Unfortunately, the free credit report does not include your FICO score. If you want a FICO score, you will need to pay for it. You can buy a copy of your FICO score plus credit report from one of the credit bureaus for $10-$15, or you can pay $45 for a combined report covering scores and reports from all three bureaus.

Alternatively, at http://www.bankrate.com/brm/fico/calc.asp you can get a rough estimate of your FICO score by answering about 90 seconds worth of questions.

If you're thinking about a major purchase, or anything else where your credit might matter, don't wait until you're ready to buy (as my wife and I did) to check your credit. Fixing errors in this consumer-unfriendly system can take months. Checking your credit now will surely buy you peace of mind, and just might save you quite a bit of money, too.

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Dick Startz is Castor Professor of Economics and Davis Distinguished Scholar at the University of Washington. He can be reached at econcol@u.washington.edu

Bellingham Herald, Aug. 20, 2005.