The ABCs of credit reports and credit rating: check your credit rating from a credit reporting agency at least once a year for your protection

Alaska Business Monthly, Dec, 2004 by Michelle J. Martin

The credit scoring system allows lenders to evaluate a potential borrower's creditworthiness. The system predicts financial risk over time, and is used by lenders, insurers, landlords, employers and utility companies to evaluate your credit behavior, determining management of financial responsibility. When preparing for a new credit card, loan or extension of credit, check credit reports from all three credit reporting agencies: TransUnion, Equifax and Experian. Researching prior to a loan application allows you a complete picture of your credit profile.

Currently, a credit report costs $9. If you have been denied credit, employment, insurance or rental housing recently, based on your credit report, go to the reporting credit agency directly within 60 days for a free copy. The Fair and Accurate Credit Transaction Act has been signed into law, and requires a free annual credit report beginning Dec. 1, 2004. To order a copy of your credit report from Equifax, write to P.O. box 740241, Atlanta, GA 303740241, or call (800) 685-1111; from Experian (formerly TRW), write to P.O. box 2104, Allen, TX 75013, or call (888) EXPERIAN; from TransUnion, write to P.O. box 390, Springfield, PA 19064 or call (800) 888-4213.

KEEP IT CLEAN

Credit information will include specific account information, such as date opened, credit limit or loan amount, balance, monthly payment and payment pattern. The report also states whether a joint account holder or cosigner is responsible for paying the account. Positive credit information may remain on your report indefinitely; bankruptcy information can remain on your credit report up to 10 years; unpaid tax liens can remain for up to 15 years; other public record information can remain up to seven years. Your credit profile does not contain data about race, religious preference, medical history, personal lifestyle, political preference, friends, criminal record or other information unrelated to credit.

Upon receipt, check your credit report for incorrect mailing addresses, wrong Social Security information, signs of identity theft, errors in credit accounts, and late payments. When a lender or business checks your credit, it causes a hard inquiry, taking a small amount of points from your overall credit score, so it is important to look for unauthorized inquiries. Look at your payment history--on-time payments help boost your credit score. Analyze outstanding debt--balances above 50 percent of credit limits harm your credit. Aim for balances under 30 percent. Additionally, examine your credit account history--having an established credit history makes a less risky borrower.

You or your creditors may add "Statements of Dispute." When you challenge an account's status, creditors may report a temporary dispute statement. This statement is no longer reported when the dispute is resolved. If you and your creditor cannot agree on an account's status, you may have a "statement of dispute" added, which remains for seven years.

CORRECTING ERRORS

If you find erroneous entries on your report, contact creditors or send letters of dispute to the credit bureaus to have those errors on your credit report corrected. To dispute information in your report, you may also call the phone number provided on your credit report. By law, the credit bureaus have 30 days to investigate your claim and make appropriate corrections. If there are no errors on your report, but your report is lacking, identify problem areas and make a plan for improvement. If you've had a hard time paying your bills on time, sign up for an automated payment service or contact your creditors to set up a payment schedule. If your debt levels are above 50 percent of your available limit, create a payment plan to reduce your balances.

Check your credit again 30-60 days after disputing errors and changing your behavior to see how much your credit scores have improved. If any inaccuracies remain, continue to negotiate their removal. You may also ask to have a consumer statement added to your credit file that may better explain any disputes to potential future creditors.