Credit health check
You could be in for a lot of pain if you don't check your credit reports regularly. And starting Wednesday, it's free.
By HELEN HUNTLEY
Published May 29, 2005
How's your credit?
If you don't know, it's time to find out. And even if you're sure it's great, you might benefit from a free checkup.
Free credit reports become available Wednesday to Floridians and residents of 10 other southern states under the federal Fair and Accurate Credit Transactions Act, which is being rolled out across the country. The Western states went online in December, then the Midwest. Now it's our turn.
Here are three reasons you should jump on the bandwagon now that you can:
- Many credit reports contain inaccuracies that if left uncorrected could damage your ability to get credit or cost you money. If you know about errors, you can fix them.
- Credit reports often provide the first clue that someone has stolen your identity and is running up bills in your name. If you discover the problem, you can take action.
- Reviewing your report is a vital step toward understanding how credit works and how you can improve your own creditworthiness.
It isn't just mortgage lenders and credit card issuers who are using credit reports these days. Increasingly, insurance companies and employers are using credit information to decide who gets insurance or a job. Even if they can qualify for a loan, people with poor credit pay higher interest rates that can cost them thousands of dollars extra every year on a large loan like a mortgage.
"False information that hurts someone's credit rating can mean the difference of whether they can buy a home or not," said Charles Bronson, Florida's agriculture and consumer services commissioner. "It is important to ensure the information is accurate and up to date, especially before making a major purchase."
Basic credit reports such as these, which won't include a credit score, used to cost about $10. So far, the free reports are getting a mostly positive reception. Some people have reported difficulty using the Web site (www.annualcreditreport.com) finding themselves unable to complete their applications or getting tripped up by security questions. But consumer advocates and those in the financial services industry say it's worthwhile to make the effort. If an online request doesn't go through, you can always print out a request form from the Web site and mail it in.
"Being on top of this and being in control of this aspect of your financial life is so important," said Loretta Abrams, who heads consumer affairs for HSBC-North America.
Surveys show that most U.S. consumers know that credit reports affect their ability to get loans but aren't well-informed about how credit reporting and credit scoring work.
Here are some answers to frequently asked questions:
What's in my credit report?
Your credit history, including mortgages, car loans and credit cards. The report typically shows how much you owe on each account, how much available credit you have, when you opened the account and your payment record. Your report also will show any collection actions, judgments or bankruptcies. In addition, it will contain personal identifying information and list companies that recently have requested your credit report.
How can I get a credit report for free?
Starting June 1, Floridians can get a free report online (www.annualcreditreport.com) or can order one to be sent by mail by calling toll-free 1-877-322-8228. Requests also can be submitted by mail, but they require a form that can be printed from the Web site.How am I protected from identity theft if I order online?
Be sure to use only the official Web site (www.annualcreditreport.com) and type in the address rather than clicking on a link in an e-mail offering a free report. When you order, you will be asked questions to verify your identity, which might include the amount of your mortgage payment or details about your car loan.
How often can I get a free report?
Once every 12 months from each of the three major credit bureaus (Experian, Equifax and TransUnion). You can get all three at once, or you can order them one at a time. If you plan to apply for a mortgage or if you suspect your identity has been stolen, it's a good idea to check all three at once. If possible, order the reports several months before a mortgage application to allow time for corrections.
If your primary concern is monitoring your accounts for identity theft, it makes more sense to spread out your requests. You can rotate requests, applying for a report from a different credit bureau every four months. Also, if you are denied credit, you can get a free report at any time by calling one of the credit bureaus directly.
What should I do with my credit report when I get it?
Review it carefully for errors. If it shows an account as delinquent that you know you paid, you'll want to dispute that because it is hurting your credit score. If it lists an address where you never lived, that could be a sign someone has stolen your identity or your credit report has been confused with someone else's. Also check your account balances for signs of unusual activity. Even if you pay your cards in full each month, your accounts will show balances based on what was owed at the time the lender transmitted information to the credit bureau. However, if a balance is surprisingly large, call the lender to investigate.
If you see an account you don't recognize, call the lender (the number will be on the credit report) for more information. It might be legitimate - company names change and accounts sometimes are sold - but it also might be a sign of identity theft.
What should I do if I find errors?
Contact the credit bureau and follow its procedures for disputing items online, by mail or telephone. The credit bureau will contact the company that provided the information and ask for verification of its accuracy. You'll get an updated copy of your credit report showing any changes the company agreed to make. If you are not satisfied, you can ask that a statement be added to your credit file explaining the item.
You should always try to correct inaccurate negative information. If the error is simply that accounts you closed still show on your record as open, there's no need to correct that or to call to close them; old accounts on which you owe nothing generally help your credit score.
What should I do if I find evidence of identity theft?
First call each lender involved and speak to the fraud department. You will need to close accounts that have been compromised and fill out an affidavit regarding charges you did not authorize. Call one of the credit bureaus to place a "fraud alert" on your file; the other two bureaus also will be alerted. File a police report and get a copy, which you will need to place an extended fraud alert on your credit file. Be prepared to vigilantly monitor your credit record for more problems. Go to www.ftc.gov for more information on identity theft.What should I do if my account has negative information that's true?
Change your ways. Your most recent credit behavior counts the most heavily in determining your credit score, so paying your bills on time eventually will pay off.
Most negative information stays on your credit report for seven years from the time an account first became delinquent. If it has been longer than that, you can dispute the item with the credit bureau. Two exceptions are bankruptcies, which stay on your report for 10 years, and tax liens, which will be there indefinitely.
How does my credit report relate to my credit score?
Your credit score is a number between 300 and 850 based on a weighted analysis of the information in your credit report. The FICO score, which most lenders use, gives a weight of 35 percent to payment history, 30 percent to amounts owed, 15 percent to length of credit history, 10 percent to new credit (including recent applications) and 10 percent to types of credit in use.Is my credit score included with my free credit report?
No, but you can order a credit score by paying $6 to $8 at the same time you order your free credit report. You also can get a free estimate of your credit score by using an online calculator at www.bankrate.com click on "Calculators," then on "See your FICO Score Range". Scores of 720 or higher are considered excellent, while those below 600 are considered poor.
What can I do to improve my credit?
In addition to paying bills on time, pay down credit card balances. For the best credit score, continue using your credit cards but keep balances below 30 percent of the credit limit on each card.
Be careful about new credit applications, which lower your score in the short term, although handling your new accounts responsibly will help in the long term. Don't apply for any new cards if you expect to apply for a mortgage or a car loan in the coming year. Don't shop for a loan until you're ready to get down to business. Credit scoring lumps together all inquiries made in a 14-day period for a car loan or mortgage. If you find a loan within 30 days, these inquiries will not affect your score.
--Helen Huntley can be reached at huntley@sptimes.com or 727 893-8230.