Family Finance: Credit Checkup
Happy 2018! Let me guess: You've made a New Year's resolution.
If you're like most Americans, you've vowed to either lose weight, improve your financial life or both. Those are the top resolutions, year after year, according to market research firm Statistic Brain.
I can't help you lose weight, but I can help with the financial part. Now before you bust out the calculator, make a budget or unveil your shiny new plan tofinally pay off your debts, press pause. Yes, it's good to have goals. Keep them in mind and work toward them. But write this at the very top of your to-do list: Review your credit report.
A credit report, which is used to calculate a credit score, is the spine that supports your entire financial life. It's invisible and easy to forget, but it's always working in the background. Ignore it and it could cost you thousands of dollars a year in interest and fees. It could even cost you a job or an apartment.
Your credit history is used, in part, to help set interest rates on home loans, car loans and credit cards, and rates on home and car insurance. Employers and landlords frequently pull credit reports before they offer jobs and leases. Cellphone and utility companies check them, too, to decide whether to require a deposit.
Companies use credit reports every day to decideif they want to do business with you and, if so, how much they will charge. The better your score/report, the less you'll pay and the more options you'll have. Removing errors in your credit history and actively improving your score will save you money year after year.
Where to start? Ask for copies. You're entitled to one free credit report annually from each of the three major credit agencies: Equifax, Experian and TransUnion. Some experts recommend spreading out requests, say one report every four months. Go to annualcreditreport.com to claim yours. This is the ONLY place you can access your true, free, as required-by-federal-law report. Ignore ads or commercials directing you to other services.
Download your reports, print them and carefully review them. This information is used to calculate your credit score, aka FICO score, which is a number between 300 and 850. Scores above 670 are generally considered “good,” according to Fair Isaac Corp., the company that invented the score in 1958. (Note that while you're entitled to a free report, it does not include a credit score. You can get the number, for a fee. It's handy to know, but you can live without it.)
Check that the names, addresses, loans, debts, accounts, financial and personal information on each report actually belong to you. Mix-ups happen. If someone else has the same name as you, their information can end up on your report. It's called a mixed file, and it happens frequently because credit bureaus aren't required to check that names and Social Security numbers match before adding information to a file. Got a mixed file? Contact the credit bureau immediately.
Next, check for accounts that youdid notopen. An identity thief could be responsible. Contact the identity theft department of the credit bureau right away. The phone number might be printed right there on the report.
Once you make it through those two hurdles, check for accuracy. Red flags: if you paid off a debt, but the report says you still owe money. Or the same account shows up more than once. (This is called a duplicate account.) Or you have an old debt that's still on file. Debts, good and bad, should “fall off” your report if they're more than seven years old.
If there's an error on the credit bureau's end, you'll have to file a dispute in writing, which is likely to include documentation or proof of the mistake. For more information and sample dispute letters, go to the Federal Trade Commission's website atconsumer.ftc.gov/articles/0151-disputing-errors-credit-reports.
This column is the first in a series about all aspects of credit, from reports to loans. Next month, learn more about credit scores and how they're calculated.
Denise Trowbridge is a self-professed money geek who writes about personal finance, banking and insurance. Follow her on Twitter at @DeniseTrowbridg.