Yes, you can get one free copy of your credit report every year from each of the big three credit reporting agencies: Equifax, Experian and TransUnion.

You just can't get your reports directly from them.

You must go to AnnualCreditReport.com.

Before we look at why you should do this, and with identity theft becoming more and more of a financial epidemic, let's look at how to do it.

AnnualCreditReport.com is the centralized service that the three agencies set up that processes requests for free annual credit reports. You will find information about it on each of the three credit reporting agencies' home pages, but you might have to look around for a while to find it.

The home page of each of the companies -- equifax.com, experian.com and transunion.com -- gives the information under a heading that reads something like this: "What is the FACT Act?"

When you click on it, you will find out that it is a relatively new federal law called the Fair and Accurate Credit Transactions Act that allows anyone with a credit history to get a free copy once a year from each of the three major credit reporting agencies. It will also tell you to go to AnnualCreditReport.com.

You can get the reports online immediately. You can also print out forms to mail in or call 1-877-FACTACT (1-877-322-8228) to request copies of your credit reports. If you do order by mail or by phone, however, expect to wait more than two weeks for delivery.

Even though each of the national credit reporting agencies is a separate company, their reports do tend to be similar since they are all reporting basically the same information: how well or how poorly you pay your credit cards, auto loans, mortgage, and so on.

This is the information that a lender will look at before deciding to give you a mortgage. It is also the information that will be used to determine what interest rate you will pay for that mortgage. Some of that information could very well be wrong.

Like the neighborhood gossip, credit-reporting agencies simply report what they are told... or what they think they are told.

They receive millions and millions of pieces of financial information every single day that have to be added to the credit reports of millions upon millions of consumers, and they do not check any of it for accuracy. They simply try to figure out whose credit report each bit of data should go to and add it there.

Sometime they get it right. Sometimes they don't.

To their credit, they acknowledge that your report could have mistakes in it. That is why they have very clear instructions on what you need to do to correct a mistake, challenge a claim by a creditor, or at least explain what happened.

When you file a challenge, the credit-reporting agency will actually go to the source of the information and ask for their version.

You can also have your credit report include a short note from you explaining things. What sorts of things? Maybe you were out of work for several months and you got behind on your payments, but you are working now and clearing things up. Maybe there was a sickness in the family that caused financial problems, but that crisis has passed and you are in the process of catching up on your bills. Or, maybe you are the victim of identity theft, and you are working on straightening things out and undoing the damage the crook did to you, your credit report and your good name.

The growth of identity theft is one of the biggest reasons why you should be on top of your credit report.

That is also why Equifax, Experian and TransUnion offer various subscription services that allow you unlimited access to your credit report. In some cases you can get access to one company's credit report for roughly $10 a month. Other plans allow you unlimited access to all three credit reports for about $15 a month.

There are also plans that will give you your credit score, the "grade" you get on your credit history. The higher the score, the better your credit and the less you'll pay in interest on any loan.

Specifically ask for your FICO score. It rates your credit worthiness on a scale of 300 to 850 using a widely used and accepted formula developed by Fair Isaac Corp.

Some consumers are being stuck with their VantageScore, which is calculated using a new system Equifax, Experian and TransUnion created to compete with FICO. It rates your credit on a scale of 501 to 990, so Vantage scores are almost always higher than FICO scores, and we don't know of any major lenders who use it.

Don't want to spend the money? You can get a free estimate of your FICO score at the official FICO Web site.

It's also important to remember that the three major credit reporting agencies operate AnnualCreditReport.com, and that it is the right place to go to for your free annual credit report.

There are other websites that claim to offer the same thing, but when you read the fine print, you will see that you get it "free" only when you agree to buy one or more of their services.

By Stef Donev

Interest.com Contributing Editor

Have a question about your finances? Ask us at editors@interest.com