Having a good credit score can save you money. It makes you eligible for lower interest rates when you need to borrow money. It can make your insurance rates lower. Some employers now use credit scores as part of deciding whom to hire. The FICO credit score scale runs from 300 to 850. Above 700 is good, above 750 is excellent.
Www.creditkarma.com is a good free resource. They show you most of what a credit report would show you, right there online. Some credit cards will show you your FICO score on their websites.
Everyone is entitled to one free credit report from each of the three bureaus every year. You can get them at http://www.annualcredit report.com or (877) 322-8228. (Do NOT confuse this with the freecreditreport.com site with the catchy ads. Their report is only “free” with a paid membership.)
The three credit bureaus can be contacted at:
- Equifax http://www.equifax.com 1-800-685-1111
- Experian http://www.experian.com 888-397-3742
- TransUnion http://www.transunion.com 800-888-4213
Different bureaus may have different errors. If you’re getting ready to apply for something big like a mortgage, you’ll want to check all three. If you’re not, then checking different ones a few months apart will monitor your credit more closely than one yearly request of all three at once.
Finding and correcting errors on your credit report is an important first step to improving your credit score. In the identifying information section, look for wrong spellings of your name and for names that aren’t even yours. Look for an address you never had, wrong birthday and wrong social security number. This part is very important, to prevent suffering for someone else’s bad credit. If you have a common name, or are a Jr. or a Sr., this is vital.
In the credit accounts section, look for anything you will want to dispute with the credit reporting companies. These include:
- Accounts that aren’t yours
- Negative entries (except bankruptcy) that are more than seven years old
- Negative entries your spouse received before your marriage. (Positive ones can just as well be left there.)
- Entries that show as past due even after it was wiped out in bankruptcy
- Negative entries that aren’t true. It’s your account, but you never paid late.
- Watch for repeats: sometimes the original creditor reports an account and then a collection agency reports the same account.
In the credit inquiries section you’ll see a record of anyone who asked about your credit, such as if you applied for a credit card. Having too many of these will look bad. If you find any that you didn’t authorize or that are more than two years old, you can dispute them. Your own inquiries about your own credit don’t count against you.
In the public records section you can dispute any paid tax liens or judgments that are over seven years old. You can dispute bankruptcies more than ten years old that don’t have a specific code such as chapter 7, chapter 13, etc.
Send the list of disputes to the credit bureau. They then have to check with the reporting entity to verify it. If the creditor doesn’t respond, or admits it’s inaccurate, the bureau will remove the entry from your record.
If the creditors don’t update their records, they may send in the same wrong information again the next time they report to the credit bureau. For this reason, it’s smart to do this kind of cleanup just before applying for something important. That way any stubborn errors won’t have come back yet during your application process. Then follow up at least every year to make sure the errors stay gone.
What if you have a negative item which is true, but there are reasons for it such as illness or divorce? You are allowed to send a one-page letter to the credit bureau with a request that it be made part of your file. An effective letter will explain briefly and calmly what happened. Most importantly, it will show why such a thing is unlikely to happen again in the future.
What if you have no credit history or have bad credit? One option is to get a pre-paid credit card. You pay the company up front and your limit on the card is the amount you paid them. This allows you to have a credit card on your credit record, without getting in over your head spending too much with it. They do charge fees for this, so do the math to see if it’s going to be worth it to you. Having a bank account and a phone or other utilities in your name is also a good start to building or rebuilding credit.
Marie Brack is the author of Frugal Living for the 21st Century: Adventures in Using Your Money Wisely. It’s available on Amazon.com in both Kindle and paperback versions.