your credit report and credit score play
a vital role in your financial
well-being
therefore you want to use them to your
advantage
credit reports and credit scores are
different from each other and you should
understand upfront what they are
and aren't your personal credit reports
are a compilation in history
assembled by the three major credit
bureaus equifax
experian and transunion of your various
credit accounts
your credit report details when each of
your debt and loan accounts was opened
the latest balance your payment history
and so on
it specifies your track record of making
payments in a timely or late
fashion including bankruptcies and
whether you failed to pay off previous
debts
your credit report also shows who has
made inquiries on your report when
you've applied for credit
your credit score is a three-digit score
based on information
in your personal credit report because
each of the big three credit bureaus
equifax experian and transunion issues
its own report
you actually have three different
although typically similar credit scores
the higher your credit score the lower
your predicted likelihood of defaulting
on a loan
conversely consumers with low credit
scores have dramatically higher historic
rates of falling behind on their loans
thus people with low credit scores are
considered much riskier borrowers
and fewer lenders are willing to offer
them a given loan
those who do so charge relatively high
interest rates on those loans
you have many credit scores not just one
the reason you have multiple scores is
because each of the three major credit
bureau reports
has somewhat different information about
you and generates a unique score
but most consumers find not surprisingly
that their three fico scores from the
big three credit bureaus are fairly
similar
credit scores change over time as your
credit reports change
if you have a low score the potential
for change is good news because you can
improve your score
perhaps significantly in the weeks
months and years ahead
the bureau's weigh current behavior more
heavily than past behavior
though increasing your score is harder
to do than decreasing it
to have a credit score you need to use
credit the fico scoring system requires
you to have at least one account open
for a minimum of six months on your
credit report
and one account that has been updated in
the most recent six months
it can be the same account the factors
that determine your credit score
include the following your payment
history
your record of paying bills determines
about 35 percent of your credit score
your score decreases with a recent
negative mark a late payment for example
with a high frequency of negative marks
and with the severity of the negative
mark
for instance a 60-day late payment is
worse than a 30-day late payment
how much you owe this factor which
accounts for 30
of your score examines the total amount
you owe as well as the amount by type of
loan
the more you owe relative to your credit
limits the more adverse the effect on
your credit score
most americans use less than 30 percent
of their available credit
with revolving debt credit cards credit
lines
the greater the gap between your balance
and your credit limits the better
also paying down installment loans for
example
mortgages auto loans relative to the
amount you originally borrowed will
boost your credit score
how long you've had credit generally
speaking
the longer you've had credit the better
your credit score
this factor which comprises 15 percent
of your score
considers the average age of your
accounts as well as the age of your
oldest account
your last application for credit
applying for and opening new accounts
especially multiple new accounts can
reduce your credit score
this factor accounts for ten percent of
your fico score
the types of credit you use the fico
score rewards you for having a healthy
mix of different types of credit
such as mortgage credit cards and so on
although fico is vague about what the
best mix is
this factor accounts for 10 percent of
your credit score
generally the higher your credit score
the better the loan terms
especially the interest rate you receive
and the more likely your loan
applications are approved
having a high credit score can save you
tens and perhaps hundreds of thousands
of dollars
additionally you can earn more money by
being able to borrow money to make
investments
such as in real estate or a small
business
lenders aren't the only ones that use
credit scores the following individuals
and organizations or companies
also use credit scores landlords
a high credit score can lead to the
approval of your apartment rental
application
insurance agents a high credit score can
help you qualify for lower rates on
certain types of insurance
prospective employers significant
problems on your credit report can cause
some employers to turn you down for a
job
if you're just starting out financially
you may not have a credit score yet
simply because you don't have enough
information on your credit report
don't despair to obtain a credit score
if you don't yet have credit
the following actions help establish a
checking in savings account
and even a debit card doing so
demonstrates financial responsibility
and stability
get added to someone's credit card as a
joint or authorized user
make sure this person is very
responsible and shares your goal of
keeping a terrific credit report in
score
have someone with good credit co-sign
alone with you
i would only advise doing this with a
relative and only if the two of you have
a long discussion about what could go
wrong
and have an agreement in writing to
minimize the potential for
misunderstandings
apply for a credit card after turning 21
years old and when you have a job
because approval is relatively easy just
be sure to get a card with a low annual
rate and no
or low annual fee consider a rewards
card if the benefits you can earn are
something you value
and will use and be careful not to rack
up balances you can't immediately pay
off every month
most important don't use credit cards if
having them causes you to spend more
than you otherwise would
if you can't get a regular credit card
apply for a department store or gas
charge card
doing so is generally easier but watch
out for high interest rates and other
fees if you can't pay your bill in full
each month
alternatively find out why you don't
qualify for a regular card
then work at addressing that shortcoming
and reapply when your credit report and
credit score have improved
apply for a secured credit card this
type of card requires that you keep
money on deposit in the bank that issues
the card
given the importance of your personal
credit report you may be pleased to know
that each year you're entitled to
receive a free copy of your credit
report from each of the three credit
bureaus
equifax experian and transunion
if you visit annualcreditreport.com you
can
view and print copies of your credit
report information from each of the
three credit agencies
your credit reports don't include your
credit score because credit bureaus
aren't required to include it by the
federal law mandating that the three
credit agencies provide a free credit
report annually to each u.s citizen who
requests a copy
thus if you want to obtain your credit
score you generally need to pay for it
an exception you're entitled to the
credit score used by a lender who denies
your loan application
because your credit score is based on
the information in your credit report
the first step to improving your score
is to review each of your three reports
head to annualcreditreport.com where you
can access your credit report
information from each of the three
credit agencies carefully look through
your credit reports for any potential
inaccuracies
if you find any errors you want to get
them corrected quickly
follow these steps to ensure that you
properly vet each report
one review the identifying information
to be sure that other folks information
hasn't gotten mixed up with yours
look for the following errors names that
aren't yours
incorrect social security numbers
incorrect date of birth
addresses where you haven't lived two
inspect the credit accounts for problems
such as accounts that don't belong to
you
negative entries that don't belong to
you such as late payments and charge
offs
which are amounts you supposedly
borrowed that a lender no longer expects
to get back from you
negative entries that are more than
seven years old
debts that your spouse incurred before
marriage incorrect entries due to
identity theft or a credit bureau
snafu that mixed up someone else's
information with yours
three examine the collection actions and
public records section of your report
for the following errors
bankruptcy more than 10 years old or
ones that aren't listed
by a specific bankruptcy code chapter
lawsuits judgments or paid tax liens
more than seven years old
paid liens or judgments that are listed
as unpaid
loans that went into collection that are
listed under more than one collection
agency
any negative information that isn't
yours
if you identify any errors you can
submit corrections by using one of the
forms for disputing incorrect
information that accompany your credit
reports
all credit bureaus are mandated to
investigate and correct errors within 30
days
your persistence may be required
after you get your credit report cleaned
up here are some ways to improve your
credit score
pay your bills on time the better your
credit score the more
late payment harms your score because
such a change in behavior may indicate
increasing financial difficulties to
avoid making late payments
consider putting your bills on an
automatic payment system either through
your bank's online bill pay service or
the company's auto pay option
if they offer one if you've never used
automatic payments and you're skittish
try the system first with one company
you trust the most
another option is to put the charges on
your credit card
only do this however if you always pay
your credit card bill in full each month
be cautious charging large bills on your
credit card because using a big portion
of your available credit can reduce your
credit score
also be sure that the companies you're
paying don't charge an extra fee for
using your credit card for payment
pay down your debt paying down your
debts over time is exactly the kind of
responsible credit behavior that lenders
want to see
in the folks to whom they lend money the
lower the portion your balances are of
your credit limits
try to keep them under 30 percent the
better your credit score will be
for this reason you should avoid both
consolidating debts
and charging so much on a card in a
month that you near the card's credit
limit
avoid closing credit card and other
revolving accounts
closing accounts makes your remaining
balances look that much bigger in
comparison to your total available
credit
also closing older accounts lowers the
average age of your credit accounts
which reduces your credit score apply
for credit sparingly
applying for credit more frequently
lowers your credit score
victims of identity theft can suffer
trashed credit reports
reduced ability to qualify for loans and
even jobs
with employers who check credit reports
out-of-pocket costs
and dozens of hours of time to clean up
the mess and clean their credit records
in name
here's how to greatly reduce your
chances of falling victim to identity
theft
don't provide personal information over
the phone unless you initiated the call
and you know well the company or person
on the other end of the line
and don't fall for incoming calls that
your caller id says are coming from a
particular business
because folks have found ways to dupe
caller id systems
suppose you get a call from someone
saying he is with chase credit card
services
and is calling about a problem with your
credit card account
if you have an account with chase ask
the caller to provide you with his
contact information and name
end the call then get out your credit
card call the phone number listed on the
back of your card
and ask the representative you speak
with to verify whether the call you
received was legitimate or not
ignore email soliciting personal
information or action
online crooks are clever and can
generate a return or send or email
address that looks like it comes from a
known institution
but really does not this unscrupulous
practice is known as
fishing and if you take the bait visit
the site and provide the requested
personal information
your reward is likely to be some sort of
future identity theft problem
never click on links and emails and only
access your online accounts by typing in
your bank's url
or by using your own created bookmarks
review your monthly financial statements
although your bank mutual fund and
investment company may call
text or email you if they notice unusual
activity on one of your accounts
some people discover problematic account
activity by simply reviewing their
monthly credit card
checking account and other statements
review line items on your statement to
be sure that all the transactions are
yours
you can simplify this process by closing
unnecessary accounts
the more credit cards and credit lines
you have the more likely you are to have
problems with identity theft and
overspend and carry debt balances unless
you maintain a separate card for small
business transactions
or carry an extra card or two due to the
rewards those cards offer you
you really need only one piece of
plastic with a visa or mastercard logo
give preference to a debit card if you
have a history of accumulating credit
card debt balances
periodically review your credit reports
some identity theft victims have found
out about credit accounts opened in
their name by reviewing their credit
reports
because you're entitled to a free credit
report from each of the three major
credit agencies every year
you could review one agency report every
four months to keep a close eye on your
reports
and still obtain them without cost is it
necessary
to review your credit reports that
frequently and do i personally do this
the answer to both of those questions is
no but you may want to scrutinize your
reports that often if you've had
problems or otherwise have reason to be
concerned about the security and
integrity of your
credit freeze your credit reports
many states enable consumers typically
for a fee to freeze their credit
information
doing so puts you in total control of
who may access your credit report
but freezing also means that you have to
give permission every time
someone wants to examine your credit
report unless you place a temporary
thought on the account
avoid placing personal information on
checks
information that's useful to identity
thieves and that you shouldn't put on
your checks
includes your credit card number
driver's license number social security
number and so on
i also encourage you to leave your home
address off your pre-printed checks when
you order them
otherwise everyone whose hands your
check passes through gets free access to
that information
when writing a check to a merchant
question the need for adding personal
information to the check
in fact in numerous states it's against
the law to request and place
credit card numbers on checks use a
debit card instead for such transactions
protect your computer if you keep
personal and financial data on your
computer
use up-to-date virus protection software
and a firewall
and password protect access to your
programs and files
protect your snail mail stealing postal
mail from most mailboxes is pretty easy
especially if your mail is delivered to
a curbside box
consider using a locked mailbox or a
post office box to protect your incoming
mail from theft
consider having your investment and
other important statements sent to you
via email
or simply access them online and
eliminate mail delivery of the paper
copies
minimize your outgoing mail and save
yourself hassles by signing up for
automatic bill payment for as many bills
as you can
drop the rest of your outgoing mail in a
secure u.s postal box
such as those you find at the post
office if you continue receiving paper
statements
consider getting a shredder to shred
documents you want to dispose of
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