This week I’m going to write some articles related to Credit. I’m prompted to do so by the many questions I get from prospective and current clients regarding their credit reports. With the recent Sub-Prime mortgage meltdown, I think it’s more important than ever for consumers to understand some fundamental issues about their credit reports.
Another reason for this series is to slough away unneccessary information, advertising for credit stuff you don’t need, and my constant desire to just tell it straight.
Here then, some Basics:
1. You can get a free report once a year from each of the three bureaus:
http://www.annualcreditreport.com
Personally, I think that’s all you really need to do: check it once a year. You get one free report a year and that should really be enough to stay on top of your credit score and to correct errors on your report. This should help you avoid spending money on those silly subscription services the three Credit Bureaus (Trans-Union, Equifax, and Experian) are trying to sell you everyday. (More on the bureaus and their marketing campaign later in this series)
If you’re worried about identity theft, you can always put a notification on your report that you must be contacted before any new credit is approved. You can include your telephone number in that credit alert message. A creditor must contact you to verify that you are actually the person who applied for the new credit. This is a simple method to help prevent identity theft.
(I’ll have more on the identity theft issue later in this series)
2. If you check your report and discover mistakes, fix them yourself. NEVER pay anyone to do this. The Federal Trade Commission has an excellent tutorial to guide you through the process of credit repair:
http://www.ftc.gov/bcp/conline/pubs/credit/repair.htm
The cost to you? Your time and possibly some 39 cent stamps (yes, they’re still 39 cents as of this writing!)
The secret to credit repair success? Follow up! (More on credit repair later in the series)
3. Want to know how your credit score is calculated? Try MyFico.com:
http://www.myfico.com/CreditEducation/?fire=1
I can’t tell you how many times I’m asked this question. Unfortunately, there really is no simple answer. The credit score calculation methods used by the credit bureaus are complicated. That having been said, you can learn some basics to help you maintain or improve your scores. (Yup, that’s right, more on this topic later in the series. Do you detect a pattern here?)
4. If you have superb credit, consider opening a credit card with a bank based in the state of Arkansas. The reason most credit card companies base their operations in either Delaware or South Dakota is the law does not provide for an interest rate cap. Arkansas has a very reasonable cap, which in the 16 years I’ve known about it, has made credit cards from that state the best deal around.
5. If you had problems before or you’re new to the credit card arena, ConsumerAction.org is one of the best resources I’ve found on the ‘net for advice on rebuilding or starting anew a credit history:
http://www.consumer-action.org/
(I’ll be writing about “new” credit from the perspective of anyone who’s planning on buying a home)