When someone asks for your “number,” can you rattle it off without a thought? No, not your phone number, but your credit score. According to Bankrate.com, the answer is likely a resounding, “No.” A 2007 poll by the financial Web site showed 32%, or approximately 1 in 3 people surveyed, have never checked their credit and have no idea where they stand credit wise.
Unfortunately, the impact of ignoring your credit situation may prove more detrimental than just paying a higher interest rate on a car loan or mortgage. The information contained in your credit report includes personal data and credit history, but may also show a trend of identity theft or the passing of incorrect information to creditors. Plus, many employers now require a background check, including a run of the potential employee’s credit history. If the results are damaging, it’s likely the applicant will not get the job.
With the weak economy, creditors upping requirements for doling out cash and the huge impact an unfavorable credit score can have on so many financial and personal areas, smart women need to understand how credit reports work, what is contained in them and how to use them as a tool to get ahead.
Putting your credit report to work for you begins with requesting one. As a result of the Fair and Accurate Credit Transactions Act (FACT Act), AnnualCreditReport.com was born, which grants consumers access to their credit reports, free of charge. This centralized service, endorsed by all three credit-reporting agencies, Equifax, Experian and Trans Union, allows users to view and print credit reports once every 12 months from each agency. A variety of companies tout similar offers of a free credit report, but, according to the Federal Trade Commission, these sites mislead visitors with the promise of a free report, but only if they purchase an expensive credit monitoring service. Perhaps the only exception to this rule is myFICO.com, operated by Fair Isaac, the company who invented the benchmark by which lenders judge credit risk, the FICO score. myFICO.com offers inexpensive packages that include your credit report and FICO score to better gauge your credit worthiness.
When you first pull your credit report, you’ll find several different categories of information within the details:
Identifying Information — Name, address, telephone numbers, employment information and social security number.
Credit Accounts — Also called “trade lines,” these items are reported by your creditors and include the type of account, balance and payment history.
Inquiries — Every time a lender or company requests your credit, whether it’s voluntary or not, each query appears on your credit report.
Items of Public Record/Collections — This is where information from collection agencies and any judgments, bankruptcies, wage garnishments or liens appear.
Educating yourself as to what cannot appear on your credit report is nearly as important as knowing what can. Any notice of bankruptcy older than 10 years, any debts dating back further than seven years, and certain personal information such as age, status of marriage, race, or medical information cannot appear anywhere on your credit report.
There are a few important instances where items may remain on your credit report indefinitely or beyond the standard 7-10 year range. Those are:
- Any credit transaction exceeding $150,000 or more
- Unpaid tax liens, which remain on your report 15 years after filing date
- Employment in which you earn more than $75,000
- Applications for credit or insurance worth more than $150,000
Credit reporting limits exist for good reason. They allow consumers to keep any positive information open and active indefinitely, as well as letting negative history fall off, so individuals may regain a favorable credit standing over time.
Gone are the days of your credit report existing simply to determine your eligibility to receive financing for credit cards, a car or a home. Today, some organizations use your credit report to rate your dependability and risk factors in other areas. It has become a common practice across industries to request that potential employees vying for a position be subject to a background check, including a credit review.
Most commonly, government agencies, and the organizations they contract, require background and credit checks of candidates. Outside of the government sector, unless you would be employed in a financial capacity or to be regularly handling money, odds are you may not be required to authorize a peek into your financial habits. Keep in mind not just bank tellers handle cash and valuables. Retail professionals, museum curators, even Pharmaceutical professionals deal in precious commodities, both tangible and informational, which may require a clean bill of credit to handle the job.
Also, if you’re taking a job that requires travel, and you may be issued a company credit card, it’s likely your credit will be checked out, too. No employer may legally view any potential hire’s credit history without written, signed consent from you, as the Fair Credit Reporting Act (FCRA) requires it.
Insurance companies and phone providers also use credit scoring to determine risk of customers. When applying for car insurance, some companies include your credit score as they factor your risk. The higher your credit score, the better chance you’ll receive the service you seek without providing a hefty deposit, and likely, the less you will pay for those services, too.
If you find yourself with a less than stellar track record of credit, don’t throw in the towel. There are several simple, free and legal actions you can take immediately to begin rebuilding your credit:
- First, begin by paying all your bills on time, starting immediately. A consistent payment history plays a huge role in rebuilding your credit. Over time, this alone may help your cause to give your credit a bit of a boost.
- Next, don’t max out the credit you do have. MSN’s Money Central recommends keeping your debt to credit ratio below 50%, meaning you should only use less than half of the credit you’re extended.
- Review your credit often and thoroughly, and dispute any incorrect or misreported item. Each credit reporting agency provides its own steps for disputed items, so check with the three major CRA’s for more information.
- Lastly, steer clear of companies that advertise credit repair services. The benefits they promise, which can cost thousands of dollars, can be achieved privately and for free.
Remember, there’s no quick fix for improving credit, just time, diligence and paying close attention to payment due dates. Even though the subject of credit reports and credit scoring can appear complex, the most important thing to remember is that your credit history is a powerful tool. Nurture it, be aware of the activity on your credit report, pay your bills on time, and your responsibility will pay off in the long run.