Credit Tips
Why should I check my credit
Whenever you apply for a loan, a job, or an apartment, your credit comes under scrutiny. Your credit history and credit score are used by lenders to assess the amount of risk you represent. Lower credit scores or adverse credit history will result in higher interest rates that can cost you thousands of dollars in the long run. That is why improving your credit is so important.
What is credit monitoring?
Credit monitoring is a service in which an authorized agency notifies you whenever an update is made to your credit report, such as the opening or closing of an account, a change in address, or the processing of a loan payment. It’s a great way to keep track of your credit standing. It’s also one of the only ways to catch identity theft early, before any serious damage is done. Identity theft is the fastest-growing crime nationwide, affecting an estimated 10 million Americans last year alone.
How can I improve my credit score?
- Reduce your debt-to-credit ratio. Avoid leaving your account balances near the maximum credit limit, even if you can do so and still remain well within your budget. Credit bureaus interpret this as a sign that you are borrowing almost as much as you can handle, which they assume makes you a higher risk. A good rule of thumb is to keep your balances below 50% of your credit limit.
- Correct errors in your report. These are surprisingly common. A utility company or lender could mistakenly report one of your payments as late, which could adversely affect your credit rating until you correct it. Be advised that correcting an error can take as long as 90 days, so it helps to monitor your credit report and fix mistakes early.
- Make all your payments on time. This is particularly important in the months before you plan to apply for a loan or job when an employer might check your credit report. Why? A recent late payment will affect your score more than, say, a late payment from several years ago.
- Consider leaving old accounts open, even if you don’t use them much anymore. The length of your credit history – how long you’ve been borrowing – is a factor in your credit score, so it pays to keep these accounts alive. Also, closing an account will reduce the total amount you can borrow, which increases your debt-to-credit ratio.
- Pay off debt rather than shuffling it between accounts. Unless you are severely behind in debt and are taking steps to resolve it, closing some of your accounts will adversely affect your debt-to-credit ratio.
How can I protect myself from identity theft?
- Shred or tear up the “pre-approved” credit card offers you get in the mail. A common tactic among identity thieves is to raid trash sites and fill out these offers in your name.
- Don’t print your social security number on your driver’s license or personal checks, and don’t give it out unless it’s absolutely necessary.
- Monitor your credit by obtaining your credit report, preferably a consolidated 3-in-1 report with information from all 3 bureaus.
- Consider enrolling in a credit monitoring service that alerts you of possible suspicious activity.
Building Your Credit History
Even if you don’t think your credit history is good, or if you don’t think you have any at all, consider checking your credit report to find out just where you stand. You might be surprised. If you notice negative information on your report, confirm that that information is accurate. Most derogatory information, such as a loan payment that was 180 days late, must remain on your credit report for at least 7 years. However, if a negative record is not accurate, be sure to send a letter of dispute to the credit bureau that reported the error. See the section below on disputing errors. The next step in building or rebuilding your credit history is to get a credit card. You may have to start with a secured credit card, in which a savings account is used as collateral for your credit. Also consider special-interest cards that are oriented to your purchasing habits, such as a gas card or department store credit card. No matter what card you decide to get, be sure to read the fine print and watch for high APR rates, setup fees, annual fees, and short grace periods. Be sure to use your new card responsibly and make all your payments on time.
Disputing Errors on Your Credit Report
When you check your credit report or account statements from financial institutions and notice suspicious or inaccurate information, you should first try to contact the creditor or company responsible for the inaccuracy. Their contact information will appear in your credit report. Minor errors can often be corrected over the phone. If this is unsuccessful, or you wish to dispute the information with the credit bureau that has reported it, it must be done in writing, either online or by mail. Send them a brief letter describing the error, and include a copy of your credit report with the error(s) highlighted. Also include any documentation you have that proves your position (for example, that you have paid an account that is marked on your report as delinquent). Be sure to include your full name, date of birth, social security number, mailing address, the name and of the creditor you have a dispute with, and your reason(s) for the dispute. Send the letter by certified mail and keep a copy for your records. By law, the credit bureaus are required to investigate your claim. However, they will not necessarily find that the item is an error.