PersonalFinance: Keeping watch on your credit file

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern@aol.com.)

By Linda Stern

WASHINGTON (Reuters) - Credit scores and reports are important, and not just for home buyers. Folks standing in line July 11 to buy a new iPhone will find they won't be able to activate it without paying AT&T a $250 deposit if they fail their in-store credit check.

Landlords, employers, banks, car dealers and insurance companies all want to know what kind of borrower you are before they do business with you.

But that doesn't mean you need to go overboard, like some monitoring firms would have you believe. Watch their commercials, and you get the feeling that if you don't stay home from work to watch your credit file 24/7, you'll face financial ruin and lose your identity, too. It shouldn't come as a shock that many of those services also charge fees for information that costs nothing elsewhere.

There are easy, genuinely free ways to stay on top of your credit files and use them to save money.

Here's what you need to know now to do that.

-- Understand the difference between your credit report and your credit score. Your credit report is the record of all of your credit transactions: your loans and credit cards, your credit limits and your payment history. Your score is a single number that is derived by feeding all of the data from your credit report through a complex algorithm.

-- You should check your credit report at least once a year to make sure there are no mistakes in it. Credit reports are created and kept by three separate credit reporting agencies: TransUnion, Equifax and Experian. All three should have the same facts on their reports. You can get one free report from each of them every year by going to the website annualcreditreport.com. You may want to monitor your credit report more often than that, if you are getting ready to buy a house or take out a large loan for some other purpose.