I’ve been privy to a number of people’s credit reports when they have allowed me to help them with their personal finances. While I have never judged someone or rejected them because of the information in the report, it does provide a lot of useful insight into the way they manage and organize many aspects of life.
Today, your bank and I may not be the only ones interested in this information. Employers, utilities, and landlords may also want to review your financial history. Many people will find this annoying and intrusive.
Why should a prospective employer need to know your credit history?
Why do you have to pay installation fees when they are waived for those with a better credit score?
Who decides what “good credit” is anyways?
For now, let’s ignore the “credit score” and address the credit report itself. When I look at a credit report, I am not even concerned about the score at first. The credit history is what really matters. Your history shows how you handle making payments over the time you’ve had each account. If you have a pattern of late payments, whether you are a day late or months behind it will show.
Why You Need an Annual Credit Checkup
It’s a good idea to check over your credit report every year. There are many companies that offer to pull this report for you, and even to let you see your credit score for free. Be very careful giving any of these your personal information. Many are gimmicks or scams, or designed to get you to sign up for costly credit monitoring services. There is one very safe, legitimate and free program to access your credit report, AnnualCreditReport.com. You may use it to get one copy of your report from each of the three credit reporting agencies every year. You can even stagger them by requesting one every few months. (This, along with normal self-monitoring of your bank accounts and credit cards, ought to be plenty of monitoring.)
If you have never accessed your reports, or haven’t in several years, it is a good idea to request all three at once. Equifax, Experian and Trans Union each obtain your information through different channels and often contain very different data.
This was the case for my husband. We pulled his credit reports through AnnualCreditReport.com last year. He had never requested them before and was not sure what they would show. He knew he had some problems in the past that might affect his credit and probably a low score. I explained that avoiding checking it out could only make the situation worse.
We requested the three reports without the credit scores. On this website you pay a small fee to obtain the credit score from each bureau. We needed to first see what was contained in the reports and correct any errors. Sure enough, the reports had inaccurate information. This meant that he was being scored on information that is incorrect.
There were also new, positive factors that should be in his history that were not being reported to the agencies. In his case, the reports should have him listed as an authorized user on my credit cards, which would give him positive data. Addresses, employment and other information was also out of date or incorrect. It is important that the information contained in the reports be accurate, because it is cross referenced with account updates and used to verify your identity.
Make Your Credit Report Shine
On the credit reports, there is information about how to contact each bureau to update or correct information. There is also an explanation of what to do if you want to dispute information about an account. You may also want to add details to the notes section about an account. For instance, if an account is just listed as “closed” you can ask that it state “paid in full and closed by consumer,” if that is the case.
Carefully check the history of each account. Make sure the status is correct, the payment history accurate and the balance correct. If you find any errors, try to find proof, such as a bank statement showing a payment was made, etc. If an account has been closed, you can ask the company holding the account to report that to each of the bureaus. Also ask that you be given written confirmation when this is completed.
The reason why all this matters is not just to have a good credit score, although there are many benefits to having a high score. A credit report documents a window of your history: where you lived, what you did, what you needed money for and how you managed it. If you are disorganized, make payments late, or are living on borrowed money, it shows. If you frequently try to open new accounts to switch money around or take out new loans, it is in your report. Even frequent moves and job changes are noted. That isn’t to say these are all strikes against you. It just is good to know exactly what someone else sees about you, your lifestyle and history when they pull up your credit report.
Lenders make decisions on whether to give you access to money based on how you have managed it in the past, and how much you can realistically borrow. Employers may judge your ability to manage money, be timely in payments and manage accounts as a way to assess your ability to handle aspects of a job. Landlords will look at your previous housing to see if you paid your rent or mortgage on time, and if there are liens against you for damages.
Your goal should be to paint yourself in the best light possible. Even if there are a lot of problems in your past, you can turn it around going forward. For now, at least get the reports and update or correct the information as best as you can. Stay away from companies that say they can “fix” your credit. These are usually scams and some may even be illegal.
In the next post, “How to Improve Your Credit Score,” we’ll look at how credit reports are scored, what you can do to improve the score, and why you should care.