Whether you like it or not, the ugly truth is your credit report and credit score have a great deal of power. They serve as key tools that measure the financial risk you pose to lenders. The higher the score, the lower the risk. Credit scores and reports are used to determine whether or not you are approved for a mortgage, loan, or even a bank account and can positively and negatively affect the interest rates on your credit cards and other borrowing methods. Therefore, it is extremely beneficial to do what you can now to improve your credit score and resolve any errors on your report. This will prevent this information from haunting the remainder of your financial life.
According to a recent Federal Trade Commission report, more than one-in-four credit reports contain errors. Make sure to check your credit report for errors or potential fraud once each year. You can order a free copy of your credit report from the three major credit reporting agencies once every 12 months by visiting www.annualcreditreport.com. The site is run by the three credit reporting agencies: Equifax, Experian, and TransUnion. Keep in mind that this is the only free resource to receive your official credit report. Do not fall for any other company that advertises “free” credit reports because these companies will make you sign up and pay for other services.
After you check out your credit report, the next step to take is to fix any errors. Contact each of the three reporting agencies to report the errors, and begin the process to correct them. This often requires sending in a letter, including your name and address, exactly which items you’d like to dispute and why. Include copies of supporting documentation and a copy of your report with the errors circled or highlighted. Also contact the provider of the incorrect information and have it fixed on their end, so the problem does not reappear in the future. If you still encounter issues, visit The Federal Trade Commission to learn more about your rights when dealing with credit reporting agencies.
It’s always good to be building good credit because this will help you out in the future. Here are some quick and easy tips on how to maintain a good credit score or make some necessary improvements:
- Keep track of your bills and make sure to pay them on time.
- Do not max out your credit cards. Keep your credit card balances low, and try to limit your purchases to less than 25% of your credit limit at any time, even if you always pay off your bills in full.
- Limit the number of credit cards you open, including retail store cards. They may come with great perks, but many cards show lenders that you tend to borrow money at high rates over short periods of time, which signals risky borrowing behavior.
- Keep open old cards with a long credit history. They may help your credit score because the length of your credit history accounts for 15% of your score. The higher the average age of your accounts, the more it could improve your score.
- Remember to pay traffic or parking tickets or even library fines. If these bills end up at a collection agency, it could drop your credit score by as much as 100 points! Make sure to also keep records of these sorts of payments, in case you need to dispute an error.
For more information, visit BBB’s Managing Credit – Made Simpler. There you will find tips on paying off balances, managing your budget, getting financial help, and protecting yourself from credit fraud.