As we recover from a mass of faulty loans, and the credit market continues to tighten, it’s more important than ever to keep an eye on your credit report. If you don’t, and anyone accesses your credit--for a home, car, a job, or even your insurance--you may face an unpleasant surprise and be denied or pay unnecessarily steep interest rates.
By that time, it’s too late. It takes months to correct errors or improve poor credit. The time to take action is well before you expect to need to draw upon your credit. How can you stay ahead of the game and protect yourself?
Pull your credit reports.
Federal law has now made credit reports from each of the three main credit bureaus—Experian, TransUnion and Equifax, available for free to consumers once a year. If you haven’t checked your credit recently (in the past 12 months), obtain all three to see where you stand, correct errors and for signs of identity theft or other unauthorized activity. If you have seen your credit report within the last year and addressed errors, financial experts recommend you access one report every four months.
To get your free credit reports, visit www.annualcreditreport.com to request them online or to download the form you’ll need to complete if you would prefer to request them by mail. You may also call 877-322-8228.
This web site is the only truly free credit report delivery service. Others—many with similar names—offer credit reports, but with a catch—you must buy another service to get the reports—most often a credit monitoring service. Although annualcreditreport.com will offer you the opportunity to buy your credit score when accessing your reports, doing so is not mandatory.
A past survey from public interest advocacy organizations (state PIRGs) reveals that 25% of the credit reports reviewed contained errors serious enough to result in the denial of credit, while 79% contained mistakes of some kind.
Carefully review each entry for accuracy. Compare your records with the credit bureau’s account of your credit history to make sure that each open account listed is open, that the payment history is true and that each loan is actually your loan.
If you locate errors, you may initiate a dispute online through the bureau’s Web site. Or, you may send a certified letter, with supporting documentation, to the credit bureau. (The Federal Trade Commission provides more detail and a useful sample dispute letter.) Instructions for either option are located at the end of your credit report. You’ll also find these steps explained in the company’s Frequently Asked Questions section of their site.
If you find fraudulent charges, you’ll need to:
- request a “fraud alert” from each of the bureaus;
- file a police report; and
- file a complaint with the Federal Trade Commission (FTC).
The FTC provides detailed information on how to complete each of these steps when fraud is suspected.
If you have negative notations on your credit report, but they are factual, don’t file a dispute. Doing so is illegal. Derogatory information, including late payments and loan defaults can remain on your credit report for up to seven years, except bankruptcy, which often remains on the reports for 10 years, both making it very difficult to prove that you are a responsible consumer. If negative information lasts longer than these time periods, you may request that it be removed.
Unless the bureaus consider your disputes to be frivolous, according to the Fair Credit Reporting Act, they must respond to consumer disputes within 30 days.
As you dispute errors and if you report fraud, keep meticulous phone logs and copies of all of your correspondence. For Web submissions, keep screen shots of your requests and any email confirmations you receive from the bureaus.
In your log, track the date you spoke with someone, the name of the person, and what he or she said. To be particularly meticulous, summarize the content of your call and send it by certified mail to the person you spoke with. These notes may prove valuable if you have trouble resolving your issues with the bureaus or creditors.
Improve your credit.
Most of us are able to improve our credit. Doing so will help us qualify for better interest rates and terms on loans in the future. Several factors from your credit reports determine your credit score:
- Payment history 35%
- Outstanding debt 30%
- Credit history length 15%
- New credit applications 10%
- Your credit mix 10%
Improving your credit score and your credit are virtually the same thing. There are no quick fixes, but five simple principles applied over time will improve your overall credit standing:
- Pay your bills on time.
Past delinquencies have a decreasing effect on your credit as time passes.
- Reduce your debt and keep it low.
Although no credit card debt is best, a good goal is to keep overall debt (not including housing) payment below 20% of your monthly budget.
- In general, do not close old, unused lines of credit.
Add up the maximum available credit on each of your cards and take 20% of that number, in this case, $4,000[what does this amount refer to?]. Your credit card debt shouldn’t exceed that 20% of your available credit. Keeping the older cards open helps keep this “utilization ratio” in balance and shows stability.
- Limit inquiries and applications for new credit.
Most applications for credit result in an “inquiry” on your credit report. Too many inquiries in a short period of time can have a negative impact on your credit. Apply for new credit judiciously.
- Monitor your credit report for mistakes and evidence of identity theft.
About ClearPoint (www.clearpointccs.org)
ClearPoint Credit Counseling Solutions is a national 501(c)(3) nonprofit credit counseling agency licensed to operate in all 50 states. Accredited financial specialists provide credit, housing and bankruptcy counseling in person, over the phone or via the Internet. ClearPoint’s credit counselors teach consumers how to manage their money better, pay down debt, and save for a secure financial future. ClearPoint is a system-wide BBB Accredited Business, a member agency of the National Foundation for Credit Counseling, and accredited by the Council on Accreditation.