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This article was last updated Oct 09, 2017, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.
Every time a card is swiped, a purchase is made, or a bill goes unpaid for another day, that information is harvested, sorted, organized, tabulated, and shared with creditors and potential lenders. Then companies that sell insight about consumers to financial institutions crunch all of that data through their proprietary algorithms. Each credit agency has its own way of ranking credit worthiness, and normally the exact methodology used remains a closely guarded trade secret. But there is no secret to the fact that credit scores and credit report profiles can make or break one’s financial credibility.
If you want to know what your credit reports say about you as a consumer, follow the guide below. Here are some tips for reviewing and monitoring your credit files.
Secret Formulas and Confidential Data
Everyone uses credit and borrowing as a means to a financial end. Even those who dislike credit cards and prefer to pay in cash, for example, still need some form of credit to perform routine tasks like online shopping, car rentals or booking of hotel and airline reservations. That’s why it’s so important for every consumer to monitor their credit, and the simplest and most effective way to do that is to gain direct access to credit agency files. The files contain information about who lives where, how they pay their bills, and whether they pay on time or have been sued or involved in a bankruptcy. That confidential information is then sold to and shared with banks, credit card companies, insurance companies, and others who are authorized to view credit reports – including potential landlords and employers.
How to Access Credit Reports
Knowing what a file says – and what others see when they view it – is critical. The good news is that by federal law every American is allowed to check their own credit reports once a year, free of charge, at the “Big 3” credit reporting agencies (Equifax, TransUnion and Experian).
The Federal Trade Commission has created a system for doing this safely, securely and free of charge. As explained on the FTC website, just visit AnnualCreditReport.com or call 1-877-322-8228. Those who want to can also mail their credit report request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
But the FTC emphasizes that consumers should not contact the three nationwide credit reporting companies individually, unless they plan to pay for access to their credit reports. The free access is only available through AnnualCreditReport.com, and reports can only be viewed free of charge once a year.
Review What’s in the Reports
Order reports from each of the three agencies simultaneously or one at a time. The law permits one free copy of the report – from each of the three agencies – every 12 months. To view files more often than that, contact the individual agencies. You’ll typically pay a fee of about $15 per report. Review the report checking for any errors, omissions, or outdated information. It’s not unusual, for instance, to find that credit cards or other accounts that were closed years ago still show up on the report as active. Or there may be a discrepancy regarding a debt that was repaid, but the repayment is not yet reflected on the credit report.
One service we like that Experian offers is a one-on-one education session. This consists of a 35 minute phone call with an Experian credit educator agent for a one-time fee of $39.95. This session will allow you to ask any questions about your credit, receive a copy of your Experian report and credit score, get a step-by-step walk through of your report, and provide tips for improvement.
Dispute Credit Report Errors
Consumers have a legal right to respond to these kinds of inaccuracies and should do-so in writing. Provide copies of documentation and evidence to support any claim or complaint, and retain copies of all correspondence for future reference.
Credit reporting companies must investigate the items in question unless they consider the dispute frivolous, and they generally respond within 30 days. They will forward the information to the creditor who provided it, who then has an obligation to report back to the credit agency. If the information turns out to be inaccurate the creditor must then notify all three credit agencies.
If credit companies fail to fix errors, consumers can file complaints through the FTC, their State Office of the Attorney General, or the Consumer Financial Protection Bureau. For more on filing a dispute, check out FTC.gov.
Do’s and Don’ts of Borrower Behavior
The dispute resolution process can take time, which is why routine monitoring of one’s reports is so important. Otherwise a loan may be denied or delayed while the issue is investigated and rectified.
There are also behaviors that many people are not aware of that can have a big impact on their credit. Frequently applying for credit, for example, indicates to creditors that a person may be desperate to gain credit – which makes a borrower appear risky. To avoid that kind of profiling, only apply for loans or credit cards when absolutely necessary. Avoid accepting those point-of-purchase offers for store charge cards, for example, because while they may entitle you to an instant discount they may cost you in bigger ways when you later apply for a car loan or mortgage and get charged higher rates, thanks to having a lower credit score.
One of the most expedient ways to improve one’s credit, on the other hand, is to lower the ratio of debt to income. Pay off revolving credit, for instance, but don’t cancel the accounts completely. Having available credit but not using it shows that you have discipline – a trait that lenders love. Always pay off credit cards and other loan obligations in a timely manner, too, since delinquent payments – even if they are posted to the account only a few hours later – can torpedo a credit score fast.
A Special Tip for Home Buyers
Last but not least, avoid making any new expenditures or racking up any new debt while waiting for a home loan to close. Even if the mortgage has already been approved, banks may still keep an eye on your credit. If you incur more debt they may suddenly increase your interest rate or raise your fees. In some cases they will deny the loan outright, even if you are about to close on your home.
Avoid using credit cards or taking out loans until after the mortgage has closed and funded, just to be on the safe side. Once you have the keys to the house or condo then you can relax and make those necessary purchases of new furniture or appliances.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.