Rebuilding Credit Step 1: Know Where Your Credit Stands
If you have poor credit, you probably know it. This knowledge may be based on a hunch (you know you haven’t honored your financial obligations). You may have applied for a loan, a credit card, an apartment, or a job, and been turned down based on your credit. If you are like me, there is a part of you that wants to hide under a rock and never face the credit challenges you have. However, if you choose to do this, I can guarantee that things will never get better… in fact, they will probably get much, much worse.
Avoiding vs Facing Credit Problems
Avoiding problems is something that I have spent a lot of time and energy doing, especially when it comes to finances. For example, there have been many times that I have avoided looking at my bank account, or balancing my checkbook, because I knew intuitively that something was wrong. The crazy thing is, the more I avoided, the more stressful the situation became to me internally. When I would finally face up to the situation, I felt better, no matter how bad things actually were. For example, knowing that my bank account was in the red, and how far it was in that direction, felt much better than just feeling like I probably spent too much money. I felt empowered to actually take steps to rectify the situation when I was willing to face it.
Knowledge is power. This is especially true when it comes to your credit. I want to tell you a few ways that you can gain solid knowledge about your credit status. It may be embarassing and painful to initially find out exactly where you stand. However, once you are armed with this information, you will be able to make goals and plans for where you want to go.
Over the years, I have checked my credit report and credit score many times, and I have never paid a dime to do it.
Free Credit Reports
First of all, Americans have the legal right to receive a free copy of their report from each of the 3 major credit reporting agencies (Transunion, Experian and Equifax) one time per calendar year. The process is simple and can all be done online at AnnualCreditReport.com . In my opinion, the best way to take advantage of this service is to request only one report at a time (ie from one agency), quarterly. This way, you will be able to get a free report every 4 months to keep tabs on what is on your report. Some might feel they need or want to compare the reports from agency to agency. I however have not found a huge amount of variance between the Transunion, Experian, and Equifax, so I do not feel a need to get all my reports at once.
Be aware that if you are turned down for anything based on your credit, you have a right as a consumer to get a free copy of your credit report. When you are denied access to the service you have applied for (whether it be a loan, credit card, apartment, job), the entity that has denied you is required to send you a letter stating that you are entitled to view your credit report. Follow the instructions on this letter to access your information. On the letters I have received, there was always a way to either access my report immediately online, or send a request through the mail.
Obtaining Your Credit Score
Note that obtaining a credit (or FICO) score is not the same as obtaining a credit report. The report is often provided free of charge (as explained above). Usually, when you look at your free report, you will be given the option to purchase your credit score. Usually the price range is anywhere from $5-10. I personally have never purchased my credit score, but I have checked it many times.
I frequently receive e-mail ads offering me a 30 day trial on various credit monitoring services. Often, they offer to provide me with a free credit score and 30 days of free credit monitoring. To do this, I am required to give my credit card information, although nothing is actually charged until the 30 day trial ends. In the past I have signed up for the trial, obtained my credit score, and cancelled within the same hour. I have also gone the route of using the monitoring service for the trial period and then cancelling the service. Either way is free, but with the latter, it is important that you remember to cancel if you don’t want to pay for the monitoring services.
If you don’t receive direct offers from the credit monitoring companies, they are easy enough to find if you do a google search for “credit monitoring”,etc. One site that has offers along these lines is Free Credit Report.
Interpreting Your Credit Score
Once you obtain your credit score, it is important to have an idea of what the number means. A very generalized description of scores is:
- Above 650 People with these scores will usually find obtaining credit quick and easy, and will have a good chance to get it on favorable terms.
- 620-650 Indicates basically good credit, but also suggest to lenders that they should look at the potential borrower to assess any particular credit risks before extending a large loan or high credit limit. People with scores in this range have a good chance at obtaining credit at a good rate, but may have to provide additional documentation and explanations to the lender before a large loan is approved.
- Below 620 May prevent a borrower from getting the best interest rates, as they may be considered a greater credit risk (obtained from ConsumerInfo.com).
Make Sure Your Report is Accurate
The way you can most quickly affect your credit score is to make sure your credit report is correct. As you review your report, look for the following:
- Be sure all the accounts listed on the report are actually your own.
- Dispute negative information if it is wrong.
- If positive information is missing, insist that your creditors to report it.
You will find instructions on the credit reporting bureau websites regarding how you can dispute information on your report. Once you make a dispute, the credit bureau must open an investigation on all non-frivolous claims within 30 days. They send your challenge to the creditor that gave them the disputed information. Within a specified amount of time, you will receive information as to whether the disputed information has been confirmed and changed on your report or not.
I have challenged some of the items on my reports in the past, and as a result, the credit agency has corrected the items in most instances.
Conclusion
The first step toward better credit is knowing where you stand right now. Take my advice and do your homework. Armed with the knowledge of your current strengths and deficiencies, you will be able to make informed decisions and set concrete goals for the future!
Keep checking back for more advice on rebuilding your credit!
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September 3rd, 2007 at 3:01 pm
[…] number one in rebuilding your credit is knowing where your credit stands . Keeping that in mind, we are ready for step number two, which is paying down your debt […]