A credit report is a lot like the adult version of a report card. It provides potential lenders, landlords and other businesses with a quick overview of how well you've performed in terms of managing your finances - specifically, how often you pay your bills on time. Of course, a credit report is often much more important than a report card, especially since you can't receive some extra allowance from your mom and dad for having a great FICO score last month. Still, good credit confers real benefits like lower interest rates on home loans, so it's in your best interests to improve your credit as needed and maintain it for years to come.
The thing that frustrates people the most about credit scores and reports is how much seemingly small issues can add up to be a big problem. For example, a credit score of 620 is considered "fair" or even "poor" in the eyes of many creditors, even though it's far from the rock-bottom FICO score of 350. However, raising that score by just 100 points could catapult you from "fair" to "good" credit, and in a short time, perhaps even "excellent" status.
Plenty of us might have sub-par credit scores for one reason or another. Fortunately, there are tried-and-true methods to bring your score up that require relatively small amounts of time and effort on your part. In general, improving your credit involves resolving any errors on your credit report, putting the brakes on spending and paying off past-due bills.
Fixing credit report errors
The first step in anyone's quest to improve their credit involves a close look at the credit report itself. If you have a credit report, you should be able to view a free copy by visiting annualcreditreport.com. This government-mandated service allows consumers to access one credit report from each of the three major credit monitoring agencies (Equifax, Experian and TransUnion) for free each year.
Take time to view your report from each agency and check it for accuracy. While it is rare, mistakes can make their way onto credit reports and result in lower credit scores. According to a study from the Federal Trade Commission, an estimated 5 percent of U.S. consumers may have errors on one of their credit reports. These mistakes inflict real costs to borrowers, who as a result may be paying more for financial products like loans or insurance than they should be.
Credit report errors can take several forms. It could be something as simple as a misspelling of your name or address. Or, in a worst-case scenario, someone may have used your personal information to open fraudulent credit accounts and leave behind unpaid debt.
In any case, if you find an error on one of your credit reports, you should take immediate action to correct it. The process for doing so is similar to what you would do in response to a negative mark on your credit report that is in fact accurate.
Credit report disputes
Whether or not something on your credit report is inaccurate, consumers do have the right to dispute the contents of their own credit report with the agency that compiled it. In most cases, a dispute made in writing and containing adequate information about the issue should be resolved by the credit agency within 30 days.
To dispute a mistake or error in your report, go through the agency that reported it. Each credit monitoring agency has options for consumers to file a dispute claim online, over the phone or by mail. You will need to gather evidence of the false information as well as proof that it is indeed false. For example, you might include copies of your driver's license or recent utility bills to prove the authenticity of your real address or identity.
If you find an error in a credit report that indicates you may have been a victim of identity theft, this same dispute process should be followed, but with the additional step of contacting law enforcement. Filing a police report is a crucial first step if you have been a victim of fraud or identity theft. You may also visit www.identitytheft.gov, a website managed by the FTC that allows consumers to file a report and get additional assistance in the wake of identity theft.
Resolving past payment issues
Finally, if there is negative information on your credit report that is in fact accurate, you may need to first contact the creditor that reported it to the monitoring agency, rather than the agency itself. Late or missing payments are common reasons for low credit scores, and these may be reported by credit card companies, banks, insurance providers, utility providers, landlords and many other businesses.
Even if the negative mark has already appeared on one credit report, you may be able to get it removed by working with the creditor that reported it initially. Contact them and see if you can make a payment or establish a plan to pay off any outstanding debts. If the missed payment came on the heels of a financial emergency or personal crisis, it might help to explain these circumstances to the creditor. While they are probably under no obligation to forgive a legitimate debt, there is often more room for compromise than we assume. Honesty and commitment to improvement go a long way when it comes to fixing problems with your personal credit.
Once the error or issue is cleared up with a creditor, you might still need to check with the credit reporting agency to see that the negative mark in question is amended or removed. Make sure you have documentation of the process you followed with the creditor to resolve the issue before going to the reporting agency with a dispute.
Credit reports and scores should not be a major source of stress. Work with the resources available to fix mistakes on your credit report, get back in the good graces of creditors and finally move on to greener pastures in your personal finances.
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