Often, people ask me how to improve their credit score. I usually respond by asking if they have checked their credit report. Usually, the answer is, no. Sometimes I hear that they have free credit monitoring and fraud alert through their bank, credit card, or some combination thereof. This is not checking your credit report.
You need to actively check your credit report. To do so, you need to enroll with a service that allows you to see changes to your accounts, their histories, and your overall credit score. A couple of good options are Credit Karma (fair disclosure, it’s my preferred site) and Credit Sesame. Another good site is AnnualCreditReport.com. You can also go to the Federal Trade Commission, Consumer Information site to learn more about credit reports in general.
By actively checking your report, I mean that you should at minimum be looking at your report every six months. In fact, I put this on my Money Do list for my clients. If you are trying to repair your credit or have recently had an incidence of fraud, check even more regularly. What are you looking for?
First of all, start with all the basics. Make sure that your credit report is accurate and reflects your personal details such as name, address, and date of birth.
Next, do all of those accounts look familiar? Check credit lines, balances, anything related to your debt and spending. Be sure to look at the history of the account as well.
Look for old items that should have been removed by now such as tax liens, bankruptcies, foreclosures, etc. Check the statute of limitations for your state and if any are hanging around on your credit report, petition the bureau to have it removed.
Finally, just make sure all of the information in your report is accurate. If it isn’t, notify the bureaus immediately to start rectifying the situation. If there is an error, or worse, fraud, it can take a long time to resolve.
Items that affect your FICO score most heavily are payment history (do you pay on time?), credit usage (are you carrying high balances?), and derogatory remarks (do you have a lien or foreclosure?). These three areas have a high impact on your credit score. People worry about what’s called a hard inquiry, when a lender checks your credit. Surprisingly, a hard inquiry for credit actually has a low impact on your score. This can change however if you suddenly have an abundance of hard inquiries. Your credit age and number of accounts have a medium impact on your FICO score. Again, it’s the Goldilocks’ zone; you don’t want too many, nor too few.
Are you having credit problems? It’s time to take a hard look at why. As an independent CERTIFIED FINANCIAL PLANNER™, I can help you. Contact me and let’s get started on building a better credit history. #talktometuesday #retirement #FICO, #Credit #creditreport #CFPPro #todolist #moneydolist