The most important step you can take in managing your credit is to insure that your credit report is accurate. Your FICO score relies on your credit report as the base of information in calculating your score. If this base is incorrect then your FICO score will be incorrect and that could impact on what kind of credit is available to you and at what rate. It's important then, to regularly review your report from all three Credit Reporting Agencies. So, where do you start?
If you have not ordered free credit report in the past 12 months, the quickest and easiest way to get all three copies is to visit annualcreditreport.com. This service allows you access to all three Credit Reporting Agencies and allows you to download each of their reports. Remember, this is just your report. If you are married your spouse should run his/her report as well.
If you have been denied credit, employment or insurance you will receive a notice of adverse action from the Consumer Reporting Agency (CRA) that provided the information. You have a right to see what information was provided that led to this adverse action and your notice will have instructions on how to receive your free copy. Remember that this is only the CRA that is reporting the information. Get copies from the other two as well to compare info and see if there is an opportunity to dispute.
You can always visit the CRA's website and request a report directly from them. There will be a fee involved obviously, because selling your information is their business. You have to just love it. You give them the content for free and they sell it to others.
Once you have your reports, the challenge is trying to figure out how to read them. Basically the reports are divided into four sections.
Personal Information - This section will have your name(s), addresses, employer, date of birth, social security number and your spouse name if married. Make sure all the information is correct and belongs to you. The first thing to attack here are old addresses as they serve no purpose to a creditor. You may see variations of your name. Obviously you only have one spelling and the others should be removed. This can usually be removed with a call or a letter to the CRA.
Public Records - This section deals with anything that is a public court record, such as bankruptcies, liens, judgments and felony convictions. Our court systems are not exactly a model of efficiency and documents will pass through several hands before becoming the public record. Review these carefully to insure accuracy. If you find an error, send a certified letter return receipt requested to the CRA requesting the removal or correction. Be careful not to send supporting documentation as it may be used to counter your request. If the CRA needs documentation let them ask for it specifically.
Credit history - This is the nitty-gritty of your history. Loans, credit cards, mortgages, leases and collection accounts will appear here along with your payment history for each. An important item to look for is the date of last activity. Generally speaking, the information on these reports has a Statute of Limitation (SOL) of seven years. Exceptions to this are bankruptcies which will remain for 10 years. A negative item will fall off the report after seven years since the last date of activity. Positive items may last forever but no less than 10 years. Each account will be identified as to its type (R=revolving, I=installment) and then payment frequency coded as below:
0 Too new to rate
1 Pays account as agreed
2 Not more than two payments past due
3 Not more than three payments past due
4 Not more than four payments past due
5 At least 120 days or more than for payments past due
7 Making regular payments under W.E.P (wage earner plan)
8 Repossession
9 Bad Debt; placed for collection; skip
There will also be information regarding credit limits. For installment loans it will be the amount of the original loan. For revolving credit like credit cards, it will be the credit limit of the card. Creditors will look at these total credit limits and determine how much you are actually using. An inaccurately reported low credit limit will increase the calculation of your credit usage and give you a lower score. The current balance will be posted. The status of each account will be posted as to it being open or closed. If it is closed it will say who closed it, the creditor or you.
Inquiries: This will list chronologically, all the organizations who have pulled your report. Not just anyone can have access to your credit report. Under the Fair Credit Reporting act the inquirer must have Permissible Purpose to buy your report. Permissible purpose is something you initiate by: Applying for something like insurance, credit or employment where you have given your permission on the application. By virtue of having an open account you give permission to the creditor to pull your report. Have passed on your right to pull your own report via a power of attorney. If you see that there is an organization listed that you have not given your expressed permission to, you can have the inquiry listing pulled, but more important, that organization is subject to a $1000.00 fine in federal and some state courts. Hard inquiries are inquiries made by your creditors or potential creditors. Those made in the last two years carry the most weight as it indicates if you are seeking new credit or having an issue with an existing creditor. Consequently, if there are any non-authorized inquiries you want them gone. Soft inquiries are those made by yourself or credit providers who are building a marketing list to offer you a card. These inquiries are not visible to creditors and have no effect on your credit score.
Credit Score - You may see a credit score on the report but it is most likely a score calculated by the CRA and rarely used by creditors. FICO is the one score that is almost universally used, although maybe differently, by all creditors. So now you have your report and a feel for what you're dealing with. What do you do next? That's another article.
