Photo courtesy of Steve Dusek, President and CEO Dakota Business Lending (formerly Dakota Certified Development Corporation)
It’s ALL over the news lately – credit scores, credit report, credit agency hacked, credit this…credit that! What’s all the fuss anyway? Well my friends, if you’ve just put your head in the sand with hopes of ignoring it, you may very well be setting yourself up for financial headaches down the road.
Personal credit and credit history are often mysterious concepts. Maybe you have a vague idea of what your credit score is, but are not really sure what is all on your report or why you should care. Finding surprises on credit reports is much more common than you would think. Unfortunately, we see it all the time. In fact, credit issues are one of the most common factors that prevent people from getting the financing they need for their business.
So where do you begin? You can start by gaining an understanding of the three credit reporting agencies: Equifax, Experian and Transunion. These entities are the holders of information about who you owe or have owed money for loans, credit cards or other types of bills like utilities, phone services, etc. Not only does it show who, but the amounts and your payment history. If you had payments that are more than 30 days past due, they will show. If you have skipped town on a small utility bill and thought they would just write it off, it will most likely show. If you ran up a credit card bill and then couldn’t afford to pay it and just walked away, it will show. If you are in deferment on student loans, it will show. If you’ve had medical accounts go to collections, it will show. If you’ve had a bankruptcy or financial judgement, you guessed it – it will show!
Collectively, this information shows how you have handled your financial obligations in the past and is an indicator of your character and the likelihood of how you will pay your debts and bills going forward. The three credit agencies all have slightly different information, ways of reporting the data and calculating your credit score. Overall, scores generally range from about 300 – 850. It is good to be on the high end of the scale. However, if you are at or below 650, you likely have some challenges that need to be addressed.
By law, you can get a FREE copy of your credit report from each agency every year. So best practice is to pull one of the reports every four months and just continue to cycle through the reports. When you pull your report, read it. Read everything on the report – if you have never done this, you will be amazed at what it all includes. Look at every single account that has been reported. Take note of the following:
- Are your name, address and historical names and addresses accurate?
- Look at all the accounts that are closed – do you have any that are showing past due balances, collection amounts or amounts settled for less than full value?
- Look at all current accounts – are you current on everything? Do you have any accounts you don’t recognize? Are there accounts that you no longer use (most common with credit cards) and need to be closed?
- Are there any recent inquiries from banks or credit companies on your report? How many? Are you familiar with why the inquiries were made? This will happen when you apply for a loan or credit card or open a new account somewhere.
- Are there any judgements or collections that you don’t recognize?
If you see ANY discrepancies, it is critical that you contact the reporting agency immediately. With any luck, there just may be errors that need to be fixed. Or worse, you may be a victim of identity theft where someone else has opened credit and purchased goods or services in your name, leaving you hanging with the bill and the bad reputation. It is imperative that you take action to get things corrected, paid up or reported to ensure that your credit report represents you and your history.
Perhaps you’ve gone through some tough times and do have some late pays or delinquencies. Simply work towards getting them paid up. It will take time for your credit to come back, but it can be done.
One final note and recommendation, take the time to put a Security Freeze on all three of your credit reports. It will cost you a measly $5 per report and then $5 per report to temporarily lift the freezes when you do apply for new credit somewhere. This locks down your credit report so that banks or other companies can’t inquire about your credit to open new accounts without your permission. This is a huge deterrent to identity theft.
Your credit is your gateway to living the life you desire as it is a major factor for obtaining loans to purchase a home, buy a new car, get a new credit card or even get financing for your business. Make the effort to monitor and control your credit as much as possible. Failure to do so will cost you so much more in time, in money and… in headaches!
- Take the time to put a Security Freeze on all three of your credit reports. It will cost you a measly $5 per report and then $5 per report to temporarily lift the freezes when you do apply for new credit somewhere.
- You can get a free copy of your credit report from each agency every year so pull one of your credit reports every four months.
- Read through your reports thoroughly to ensure all the information is correct.