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Believe it or not, your credit rating affects most areas of your financial world. Even something as simple as applying for an apartment lease may require a credit check. Planning to purchase a house? Make sure your credit is in good shape first!
Checking Your Credit
The first step in keeping your credit clean is to rid your credit report of inaccuracies.
1. Check your credit report frequently – at least once a year. The three major credit reporting agencies – Experian, Equifax and TransUnion – will release a copy of your credit report to you for a minimal charge, usually between $5 and $8. If you have been turned down for credit in the last 30 days because of information gathered from a credit report, you are entitled to a free copy of your credit report from the reporting agency.
2. Report inaccuracies and misinformation on your report immediately, using the instructions supplied by the reporting agency. By law, credit reporting agencies must investigate all reports and respond or correct mistakes within 30 days. Keep track of all correspondence exchanged with the agency. Also, be sure to check with the other credit reporting agencies to make sure the same information is not being reported on their files.
3. Remember the “seven-year” rule. In general, most credit problems, such as late payments or delinquent accounts, will be purged from your credit report after seven years. Federal law allows you to place an explanation or notation in your file explaining the circumstances in the meantime.
4. Avoid “credit repair” scams. Legally, you are the only one who can make changes to your credit report. Credit repair scams promise to “fix” your credit for a nominal fee. They may send you pre-printed forms to fill out and send to the agency – forms which are not required and many of which are provided by the credit reporting agency at no charge. Some credit repair scams offer to sell you information on how to “legally” obtain a new Social Security Number so you can “start fresh.” The United States Federal Trade Commission (FTC), however, warns there is no legal way to obtain a new Social Security Number and attempting to do so can result in severe penalties.
If you are interested in programs that can legally help you repair your credit, look in the phone book for Consumer Credit Counseling Services. These are non-profit organizations that help you identify credit problems and work with creditors to set up payment plans so you can avoid bad credit ratings.
Maintain Your Good Credit
The best and most obvious way of maintaining your good credit is to pay your bills on time. But there are other steps you can take to ensure your credit rating remains favorable:
1. Close any unused credit accounts, including department store accounts. Although it may seem like the more credit you have available, the better your credit rating, in reality most creditors see numerous open accounts as a possible credit risk. The more disposable credit you have available to you – such as charge cards – the higher the possibility that you may go into debt.
2. Keep your balances low, and pay them off as soon as possible.
3. If you’re in the process of building credit, open new accounts, pay them promptly and then close them when finished. This demonstrates to potential creditors that you are a “good risk,” someone who is financially responsible and watchful of their credit.
4. Check your credit report for “solicitation” notations. Many credit reporting agencies sell your name and some financial information to credit card companies looking for new clients. If you want to be added to a “No Solicitation” list, contact the credit reporting agency and ask for specific instructions.
Protecting Your Credit
You have good credit, you’re financially responsible and you’ve made sure your report is clean. But that isn’t the last step – you also need to protect your credit, and your identity.
1. Never give out your Social Security Number unless the person asking for it gives a good reason. Don’t write your SSN on checks (offer your Driver’s License number instead). If someone calls and asks for your Social Security Number, find out why they want it; if they are vague or claim they are calling from your bank or financial institution, hang up immediately. Any financial institution you use, including banks, credit card companies and loan agencies, have this information on file and the only time they would ask for is to verify your identity (if you were calling them) or when filling out an application.
2. Avoid giving out private information, such as your SSN, account numbers, date of birth, mother’s maiden name and other information, without good reason. Again, most agencies already have this information on file, and no agency will ever call you out of the blue asking for this information.
3. Never use identifying information on the Internet, unless you are going through a secure and reputable site (for example, processing an order). If a site asks for your Social Security Number, find out why they need it and what they would use it for. Many identity-theft scams are setup to look like job offers and ask you for identifying information, which they then use to open new charge cards and other credit accounts.
4. Shred financial documents, credit card pre-approval offers, old checks and any other documents that have legal or financial information about you. “Dumpster-diving,” where crooks dig into dumpsters searching for discarded financial information, is becoming very popular among identity theft rings.
5. Keep tabs on your accounts, statements and credit report. If you suddenly stop receiving bank account statements, contact your bank immediately. Check your statements – credit and bank – thoroughly, noting all charges and amounts. Contact your financial institution immediately if you suspect someone else is posting charges on your account or has changed your address.
6. Have mail-order checks and other sensitive financial information sent to a Post Office Box or secure mailbox. Although mail theft is a federal offense, thieves steal and use checks, account numbers and other information to create new phony accounts.
Your credit report is essentially a photograph of your financial life and the key to many of your financial decisions. By checking, maintaining and protecting your good credit standing, you are ensuring a healthy financial outlook as well as practicing good fiscal management. Remember to do this every year, sooner if you conduct a lot of transactions or use the Internet to conduct your primary shopping. Your credit rating will thank you!
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