TIPS ON TAKING CONTROL OF YOUR FINANCIAL LIFE
Cleaning Up Your Credit Record
American consumers are more in debt than they have ever been before. Many of us have access to credit that we use too much and, therefore, abuse. We end up owing more to creditors than our income allows us to pay off. We then fall into a vicious circle of incurring large balances with accruing monthly interest. If we look at our credit records, we need help. If your credit is less than perfect now, checking your report will help you identify lingering problems so you can deal with them and move on toward an improved credit rating.
Don’t rely on “credit repair clinics” that promise a quick fix. They can do no more legally to fix a credit report than you can do for free. Many military bases operate non-profit financial counseling programs that can help you.
Know What’s On Your Credit Report
If you have tried to obtain credit and have been refused, then you probably already know that you need to look carefully at your credit report. However, most of us don’t pay enough attention to our credit report until it’s too late and we are refused additional credit or suffer the consequences of a mistake on the report.
You can easily obtain a copy of your credit report. Contact all three of the major credit reporting companies: Experian at www.experian.com (1-888-397-3742); Equifax Credit Info at www.equifax.com (1-800-685-1111); and Trans Union Consumer Relations at www.transunion.com (1-800-916-8800). You should review your credit report from these three major credit bureaus once a year, and especially before you apply for a major line of credit. If you have been denied credit, the company must advise you of the name of the credit reporting agency from which they obtained information about your credit history. Under the Fair Credit Reporting Act, you are entitled to a free report in this case. Ask for it in writing.
What You Might Find on Your Credit Report That Needs Cleaning
Your credit reportis based on reports provided by your creditors. Each time a payment is late, inaccurate, underpaid (i.e. not paying the minimum amount required) or missed may be noted on the credit report. A pattern of these negative actions creates a weak credit report.
Debt levels that are too high is another cause for a weak credit report. Potential creditors will be concerned if your credit report shows you already owe a lot of money because additional debt might hinder your ability to repay. Creditors will look at how much you owe compared to your income. If the percentage of debt relative to your income is too high, they might not approve you for a loan or might charge a higher interest rate to compensate for the seemingly higher risk.
Sometimes the reason for high debt levels is too many credit cards. If you open several credit card accounts with retailers to take advantage of tempting promotions (such as free gifts or no payments for six months), these accounts may linger in your credit file and end up costing you money the next time you get a loan, especially for a major purchase.
Too many inquiries may be harmful, as they might imply that you may be having financial troubles or that you could be on the verge of getting too deeply in debt. Inquiries are notations of any time you’ve recently applied for loans elsewhere. Inquiries remain on your credit report for two years.
There may also be errors. With more than 190 million individual credit files, it is inevitable that some credit reports, perhaps yours, will contain errors. Mistakes sometimes occur if you have a common name that is confused with another individual, if you move, if you don’t always use your full legal name in formal situations such as opening a bank account or applying for a job, and if you have many different credit lines that comprise many details that might be misreported.
What Stays on Your Credit Report
Accurate negative information generally stays on your credit report for seven years. However, bankruptcy information may be reported for ten years. Negative information that has no time limit includes credit information reported in response to an application for a job with a salary of more than $75,000; information about criminal convictions; and credit information reported because of an application for more than $150,000 worth of credit (such as for a mortgage) or life insurance.
Contacting your Creditors
The federal government, reputable credit card companies and non-profit credit counseling services all agree that the best path is to act responsibly as soon as possible whether you see errors or are having difficulty managing your credit by contacting the credit bureaus or your creditors respectively directly and in writing.
Your Choices of Actions
To build a solid credit history, you need to pay your bills on time. You can begin to clean up your credit report immediately by making at least the minimum payments on time.
Other ways to help you improve your credit standing include applying for a major credit card (rather than a local card), closing old unused accounts that may have high interest rates, and checking the number of inquiries in your report. Keep balances on credit cards as low as possible. Apply for and open new credit accounts only as needed. Pay off debt rather than moving it around. In summary, avoid overextending yourself and applying for credit needlessly.
Get rid of credit cards and department store cards you rarely use or don’t carry a balance on. Select the cards that you have had for the longest time and that you have handled well by always paying on time to keep. Cancel and cut up the rest. Transfer any balances from these cards onto the few you plan to keep. Notify the card issuer in writing that you want the account closed at your request, and with no balance remaining. Save a copy of the correspondence for your files. Some advisors even recommend sending correspondence by certified mail.
Avoid unnecessary inquiries. An inquiry is added to your report any time you authorize a creditor or other business to check your credit report. If you have a lot of inquiries, creditors may conclude that you are either applying for too much credit because of financial difficulties or that you are taking on more debt that you are able to repay.
Keep your level of debt reasonable. The Better Business Bureau recommends, for instance, that non-mortgage debt payments should not exceed 10 to 15 percent of your take-home pay each month.
If you move, change your name or want to close an account to reduce unnecessary credit load, call each of your creditors to notify them. Keep a record of whom you spoke to and the date of the conversations. It’s a good idea to also follow-up in writing.
Fixing Errors on Your Report
If there are errors on your report, the Fair Credit Reporting Act ensures your right to dispute any inaccuracies in your credit report without charge. Consumer credit reports have instructions for disputing inaccurate information at no charge. Inaccurate information will be changed or deleted.
Contact the credit reporting agency or agencies that have credit reports on you with errors. Keep all of your original documents, especially receipts, sales slips and billing statements. If requested by your credit agency, send a copy. Never send the original. Keep copies of all correspondence, clearly dated, and in chronological order for easy reference in case there are additional problems.
Keep Working At Improving Your Credit Report
If you choose to act responsibly, within a few months it will be obvious that you are managing your credit better and a new, stronger credit report will reflect your efforts, to your advantage. Only time, an effort on your part and a plan for repaying your debt will improve your credit record. Keep at it. It’s worth it.
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