Maintaining A Good Credit Report
Although maintaining a good credit report is one of the most important things you can do to ensure good financial health, many people have never taken the time to access their credit report and have no idea what their credit score is.
Having good credit makes it easier to borrow money from lenders at lower interest rates, translating into smaller monthly payments.
Having a bad credit history can hamper your spending and savings efforts – and sometimes even your earning potential – for a long time. A bad rating may create difficulty in getting approved for a credit card, buying property or getting a car loan. Bad credit can even cause problems in being approved for a lease on property or even applying for jobs.
As a result of the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACT Act), each of the three nationwide consumer reporting companies – Equifax, Experian and TransUnion – must provide you with a free copy of your credit report once every 12 months, as long as you request it. The act is being implemented in waves and will be completely in effect nationwide by September, 2005.
What is a credit report?
By being aware of your credit score and by regularly checking your credit report, you can ensure that the accounts and balances listed are accurate and up-to-date. You now can obtain a copy of your report from all three agencies from one website, www.annualcreditreport.com, or by calling (877) 322-8228. You can also make a request by mail to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. You will be asked your name, address, Social Security Number and date of birth and may be asked other questions to verify your identity.
When providing you with your credit report, the agencies must also provide you with a list of everyone who has requested your report within the last year, or the last two years if the inquiries were employment-related.
The credit report has four sections:
- Identification and employment information including your name, birth date, Social Security Number, employer and spousal information. It may include your employment history, home ownership, income and previous addresses.
- Payment history includes a list of your accounts with different creditors, how much credit you have, and whether you are current on your payments. If you have an overdue account that has been turned over to a collection agency, those will be listed here.
- Inquiries including a list of all creditors or potential employers who have asked for your credit report.
- Public record information including bankruptcies, foreclosures and tax liens.
How do I correct inaccuracies on my credit report?
If you see any inaccuracies on your credit report, you should immediately send the credit reporting company a written request for an inquiry. Tell them what you think the inaccuracies are and include copies of any receipts or documents you have to support your position. The credit reporting company is required to investigate your request and forward all the data you provide to the creditor in question. When the investigation is completed, they must provide you with a copy of their findings, and give you another copy of your credit report if changes have been made.
What is a credit score?
When you check your credit report, you should also access your credit score. (However, unlike the credit report, you must pay for your credit score.) A credit score is a tool creditors use to help determine whether to give you credit and how much to charge you for it. It takes pertinent facts from your credit report – including information about bill paying history and outstanding debts – and uses a statistical formula to award points for each factor. The score, which can range between 300 and 850, is used to predict how likely you are to repay the loan and make the payments on time. Any score over 700 generally qualifies you for the best interest rates.
How do I fix a bad credit score?
Once you get your credit report and have verified that all of the information is accurate, there is no quick or easy way to fix a bad or mediocre credit score. While infomercials on television or websites on the Internet may claim to do so for a fee, the only legal way to repair a credit report is through the passage of time and by improving your credit habits. Credit reporting companies report most accurate negative information for seven years and list bankruptcy information for 10 years.
The good news is, once you’ve decided to improve your credit score, you can start to do so immediately. The first step is to keep your existing accounts in good standing by making your payments on time and by making more than the minimum payment.
If you’re having problems obtaining credit, consider asking a relative or friend with good credit to cosign a loan application with you. After a year of maintaining the account, apply for a new account in your name. Or, try to establish better credit through a secured bank card that is backed by money you deposit into a bank account.
If you feel like you can’t get your finances under control, consulting with a legal professional may help. Many credit unions, military bases and universities offer nonprofit counseling programs that help you work with your creditors to come up with a payment plan you can afford. Many creditors are willing to accept reduced payments if you are working to create a debt repayment plan with a reputable program.
How do I maintain a good credit score?
You can maintain a good credit score or improve a mediocre one as long as you budget your money well and make regular, on-time payments to your creditors. Make sure you apply only for the credit you need, and clear up any credit disputes you have before they are sent to a collection agency.
By being patient, responsible and persistent, you can improve your credit report within a year and be one step closer to financial freedom.