Check your credit report
By Gary Boatman
Published: Wednesday, July 24, 2013, 12:06 a.m.
Everyone is responsible for his or her own credit score.
Credit scores do not consider how much income you earn or how many assets you own. Banks and other lending institutions will sometimes be concerned about these two factors when making a loan decision.
Why should you be concerned about your credit score? People with high scores often get lower interest rates.
On a mortgage, this could save you tens of thousands of dollars. Insurance companies often consider credit ratings when deciding whether or not to issue a policy. Prospective employers sometimes review your credit history also.
At least once a year, you should check your own credit report. There are three main credit bureaus: Equifax, Transunion and Experian. Some of their information will be the same and some will be different. This is because some creditors may not report to each of them. They get information about you from creditors and public records. If you file for bankruptcy, it will be on your record for either seven or 10 years depending on what chapter of the law you used. Liens and other negative public filings can be included in your report.
The Federal Trade Commission recently did a study of credit reports. It found that 25 percent of U.S. consumers had errors in their reports that would hurt the consumer. Twenty percent had the errors corrected after the consumer disputed the incorrect information. Eighty percent who filed disputes had their reports modified by the reporting agency. Out of these efforts, 5 percent had a score change of more than 25 points while one in 250 had a maximum score change of more than 100 points.
It is very important to check your credit report every year. Use the official government website www.annualcreditreport.com. It is free once each year. You can either get all three credit bureau reports at one time or some people do one every four months. Be wary of the other free report services that you see advertised on television. They are trying to sell credit monitoring services.
Your free credit report does not include your credit score, but only your credit histories. It might be a good idea to purchase a credit score. FICO is the most widely used by creditors. It will cost about $8. You probably do not need to buy the other offered scores. FICO scores range from 300 to 850. They reflect what is contained in your credit file.
Although the FICO formula is kept secret, we do know a lot about how it is calculated. Thirty-five percent is your payment history. Paying your bills on time is very important. Make at least the minimum payment and mail it five or six days before the due date. You can set up automatic withdrawals with many companies to make sure that your payments arrive on time.
The amount that you owe accounts for about 30 percent of your credit score. They look at the amount you owe in relation to your available credit. FICO wants to see that you have credit available that you are not using.
Because of this, you should not close an account that you have paid off. Lock it up and do not use it, but keep it open. Some people pull it out one time a year, make a small purchase and pay the full amount off at the next bill. Do not apply for a new credit card just to increase your utilization ratio. Too much recent new credit can affect 10 percent of your score.
The type of credit used affects the other 10 percent of your score. A big mortgage will not affect your score the same way as a large credit card balance. Mortgages take time to be paid down and they are secured by property. Scores reflect the type of debt and the quantity.
Someone who has paid his or her bills on time every time, but always used cash probably does not have a credit score. Someone without credit may look at a secured credit card to get started. This is when you make a deposit to collateralize all or some of the debt. This may help if you went through a rough patch and are trying to start or improve your score. Do not believe these companies that claim to fix your credit. It takes time and you can do it yourself.
Check your report to make sure that information is correct. If not, file a dispute with the credit bureau. They must respond in 30 days. They must remove or give you a chance to explain incorrect information, but they are not required to remove correct information no matter how much it hurts your score. Monitoring your credit also helps you protect your identity. It may be a good idea to check the report for your younger children to make sure that someone is not trying to steal their identity.
Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.
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