Finding and Understanding Your Credit Score

In an environment where even major banks go under, it is no wonder that lenders pay attention to their customers’ credit reports. They don’t want to go out of business, so they need to know that they will get their money back when they lend it. We all know what this means. If we ever want to be able to borrow money again, we need to make sure that report is tip-top. You need to be proactive about beefing up your credit score to protect you and your business during the current recession.

Getting Your Hands on Your Report

The first step toward a stellar credit report is to get yourself a copy of it, so that you can assess where you stand. There are three main credit-reporting agencies: Experian, TransUnion, and Equifax. As they all collect and process information slightly differently, both your score and the entries on your report will differ slightly between them. For the sake of your financial health, you should therefore look at all of them. You can get free copies of your reports from www.annualcreditreport.com.  Be very wary of swindling companies trying to get you to “subscribe” to your credit report for a monthly fee, with the first month free. Many people report severe problems when trying to cancel these arrangements.

What to Expect from the Report

Your credit report (no matter what reporting agency) will list every debt account you have ever had, as well as every payment you’ve made to each of them. It will also list any late payments as well as how late they were. For those not accustomed to credit reports, seeing their payment history in black and white may be a bit of a cold shower. But the more you know about the workings of your credit report, the easier it becomes to make it better.

Checking Your Report for Accuracy

While not particularly common, it happens that one or several credit reporting agencies have entered erroneous information on your report. It can be anything from a late payment when you actually paid on time, to a mortgage you don’t have. If you believe an item on your report has been put there in error, you need to write a letter to the lender that reported it. The lender then has 30 days to respond and back up its reasons for putting it there, or the false record is off your report. The best part? Apart from postage, this cleanup doesn’t cost you a dime.

Your Credit Score

Your actual credit score (700, anyone?) is a snapshot of your creditworthiness at any given time. It takes into consideration such things as number of late payments and how late they were, available credit, percentage of available credit you have been using and are currently using, and the length of your credit history.

Is your number not as high as you had hoped? Don’t worry. The good news is, as the credit score is a snapshot of your creditworthiness, it changes frequently. When you clean up your report and get your finances under control, it will get better and better.

Upping That Number

The longer you’ve had your accounts (most commonly credit cards), the better. Many times, when you’ve had an account for a while and made your payments on time, the lending institution will up your limit. This ups your available credit, lowers the percentage of your available credit in use, and pushes your credit score north.

Making your payments on time helps, too, as does paying down (or even better, off) balances – or at least paying more than the minimum each month. Ideally, you want to use less than a third of your available credit.

While your good deeds won’t show up right away, after a couple of months, your efforts will start to pay off and your credit score will start to rise. And now that you know how to access your reports, you can keep monitoring and perfecting that score so that when you do need, say, a mortgage, you’ll be sure to get it.