The Bottom Line: Reviewing your credit is easy to do and pays back big dividends. By reviewing your credit, you can verify that incorrect negative items are not showing up on your credit report, or even worse that your identity has been stolen. By reviewing your credit, you can take stock of the liability side of your financial picture. Carefully review your payment history, balances, and monthly payments. Use that information to help build your financial plan.
Everyone knows that credit scores are important.
A low credit score can prevent you from qualifying for a loan or other financial product. Your credit score affects the interest rate you get on a mortgage, auto loan, personal loan or credit card. In addition, property owners, employers, utility companies and cell phone companies use your credit score.
However, don’t forget that your credit score is determined by your credit history, which is recorded in your credit report. It is important to order, review and correct your credit report. Reviewing your credit will help you keep track of your finances, and improve your credit.
Did you know that a 2012 FTC study showed “that one in five consumers had an error that was corrected by a credit reporting agency (CRA) after it was disputed on at least one of their three credit reports”?
Your credit report contains your reported financial history. The two main reasons you need to review your credit are to:
It is very easy to review your credit history. You are entitled to a free credit report each year from each of the three main Credit Reporting Agencies (CRA), Equifax, TransUnion, and Experian. You can order the report through www.annualcreditreport.com. If you stagger the requests, you can view one bureau’s report every four months and monitor your credit three times a year at no cost. If you find unusual activity on one of the reports, then order and review all three at once.
Once you receive your credit report, carefully review all of the information. This includes your personal details (name, address, social security) and each account that is listed. In general, negative information is kept on your credit reports for 7 years after the initial period of delinquency (180 days). Some information remains longer.
If you see any information that is inaccurate, then you should file a dispute with any bureau reporting the error. Currently all three of the CRAs have an online dispute process, making it easy to file and track your dispute.
Just as important as correcting incorrect negative items on your credit report is the need to monitor and deal with accurate negative items.
Your credit report can be a reminder of late payments, over utilization of credit, and too much debt, all of which harm your credit score. It takes time to build up a credit score. Too many inquiries ding your score slightly and a late payment will moderately harm your credit. However, a foreclosure, public judgement, or charge-off can seriously damage your credit.
Regularly tracking your credit report is another way for you to stay on top of your debt. Write down your getting out of debt goals and implement them into your budget. By integrating your credit review into your overall financial plan, you will manage your debt payments more efficiently.