CREDIT REPORTS

• Every time you apply for credit
• Every time an entity inquires about your credit
• When a financial transaction becomes a matter of public record
• Perhaps when you apply for employment

Your credit history reflects the degree of seriousness you place on your financial well being and how you follow through with your commitments. From your credit history lenders determine your capacity to borrow and employers determine your steadiness of judgment. It is most important that you know your credit history, how it is used and how to maintain its accuracy.

All three credit-reporting firms (Equifax, Trans Union, and Experian) compile data pertaining to your:

(A) identifying information
(B) employment information
(C) credit information
(D) public record information
(E) inquiries

Point values assigned to each element provide lenders with the information needed to determine whether or not to extend you a loan.

The following information will help you understand which elements of your personal information are incorporated:

1. Identifying Information: This includes: name, addresses (current and previous), date of birth, and social security number. It does not include your race, religion, political preference, or health information; these factors are considered irrelevant in creating your credit profile.
2. Employment Information: Lists your current and previous employers, including length of employment and basics, such as company names and addresses.
3. Credit Information: This includes how many accounts you have, balances of each, payment history, length of each account (including opening dates), and credit or loan amounts/limits. Your income is not a factor in this category.
4. Public Record Information: This includes any federal district bankruptcy records; tax liens and monetary judgments; and state and county records.  Information in this category must come from public records and cannot include your driving record or criminal record, if one exists.
5. Inquiries: The number of times your credit report has been requested and by whom. Information is acquired through the credit-reporting agency and is available for two years, under current federal law.  

IDENTIFY YOUR CREDIT WEAKNESSES
Your credit may not be as bad as you think. Study each report carefully - look for mistakes and outdated information. Match the points highlighted in your FICO Credit Score with each Credit Report. 

DRESSING-UP YOUR CREDIT
Borrowers with the best credit profiles are offered the best terms, such as lower interest rates and smaller down payments. As the number of derogatory items on your credit report increases, the favorable terms decrease. Occasionally, there are enough derogatory entries, such as bankruptcies, foreclosures or repossessions, to completely disqualify the application with most lenders. You will likely be aware of these, but you may not be aware of smaller entries, such as a late payment on a credit card or car loan. You want your credit report to be accurate and complete while showing your credit history in the best light.

• MISTAKES, OUTDATED INFORMATION AND DISPUTES - if there are errors, work with the lender and creditors to clear them up. Contact all the creditors and report what you believe to be errors. Write to the respective credit bureau and explain the disagreement . . . be persistent. Follow-up with additional letters, if necessary. Document all disputes.
• DEROGATORY CREDIT ITEMS - address derogatory credit items immediately. The lender requires a written explanation of each derogatory entry and the circumstances surrounding it, do this as quickly as possible.
• DELINQUENT ACCOUNTS - bring delinquent accounts current as soon as possible then keep the account current. Lenders will make this a condition of any mortgage approval. Be prepared to discuss these items with the lender.
• CONSUMER STATEMENT - add a consumer statement to your credit report to explain the circumstances surrounding a particular entry or group of entries. This is helpful if you are having difficulty in clearing up an entry you believe to be an error or a valid entry with extenuating circumstances.
• FOLLOW-UP - changes on your residential mortgage credit report (RMCT) will not automatically update your individual credit reports. Credit reporting firms update the credit report from merchants, lenders, and consumers only. The consumer or creditor must send the information directly to the credit bureaus to update their databases. Request verification within 30 days, and ask for a corrected copy of your credit, then be sure to follow up. 
  

KEEPING YOUR CREDIT CLEAN
The best way to keep your credit clean is to pay all your bills on time - always. However, life sometimes interferes , making this ideal less than obtainable. If you want to clean up a few smudges on your credit, how do you go about doing that? There are several ways, but be realistic in your approach and about the results you will likely get. Cleaning up bad or even semi-questionable credit is difficult, but not impossible. 

See: Credit Strategies

PROTECTING YOUR CREDIT AND GOOD NAME
Pay your bills on time and clear up any errors as soon as you learn of them. Contact the credit-reporting agency and any businesses involved in the error to start clearing your credit. Include all documentation regarding the dispute, and follow up with each agency/business if they are slow to respond or give you the runaround. Become familiar with the Fair Credit Reporting Act; your creditors are, but probably won't voluntarily inform you of your rights.

Keep abreast of your current credit record to head off any surprises before they compound. A simple way to track errors and/or resolutions of past errors is to compare, side by side, a copy of your previous and most current credit report.  Make sure all past disputes are cleared and new information is accurate.

Check your property tax assessment to be sure the records are accurate. It is not uncommon for a clerical error to be made, increasing your 3-bedroom, 2.5-bath home on 2 acres to a 5-bedroom, 3.5-bath estate on 8 acres.  This could have a seriously negative impact on your taxes which could affect your credit.

Your credit card account could be sold. You should know that your new lender may:

• raise interest rates
• increase late fees
• reduce or eliminate the grace period for late payments
• reduce the period during which you can pay off your balance without incurring additional interest fees

 There are steps you can take to respond to any changes in your account's terms:

• search the Internet for other, better credit card deals
• pay attention to credit-card solicitations since some actually offer reasonable terms
• cancel the card if the terms are no longer desirable to you
• complain to the new bank that owns your account and see if you can agree on better terms

Most importantly, stay informed about all changes to your accounts, since you could end up paying extra in the long run.

Protecting your good name is important, so be tenacious in reaching a resolution regarding errors on your credit report. If you aren't satisfied with the results, file a complaint with the Federal Trade Commission's Consumer Response Center via phone (877-FTC-HELP) or via the Web.

Some advisors warn against co-signing a loan, even with your children.  Ultimately the payment responsibility comes back to you, should the person be unable to make payments. This leaves a mark on your credit report when you were simply providing assistance in good faith. Of course, people still co-sign for loans every day, but it doesn't hurt to consider all arguments when your name is at stake.

Another threat to your good name is identity theft, a very lucrative business that is drawing more and more attention. Should you become a victim, the impact can affect your credit for years to come. Take common-sense precautions, such as:

• be selective about giving out your Social Security number
• shred and properly dispose of any documentation with your personal and credit information
• closely monitor your mail and personal information on the Web

Be sure that anyone you initiate business with is reputable and that you are fully aware of their terms and your rights. In the dog-eat-dog world of personal finances, it pays to look out for the well-being of yourself and your family. 

PROTECTING YOUR PRIVACY
Another aspect to consider when protecting your privacy is to actively grant or deny permission for direct marketing mailings. Consider how many identity thieves gain their information in the first place - from the scores of "junk mailings" we all receive and promptly toss into the trash. Removing yourself from the mailings altogether (including online mailings) reduces your chances for privacy invasion.

This may seem like a lot of work, but it is part of being a responsible credit-holder in today's society. Lenders respond to responsibility with mortgage loans and (we hope) lower interest rates, which was the goal all along.  

ADDITIONAL RESOURCES
Consumer Credit Reports - What Are They And What Do They Say?
How To Dispute Credit Report Errors
Fair Credit Reporting


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