Protecting Your Credit

Your credit report is not always a true and accurate reflection of your credit activities. With millions of data entries coming and going between merchants and credit bureaus every day, there are bound to be mistakes that are made which could adversely affect you and your credit report.

The other issue about your report is that the information may be accurate but not positive. There are ways for you to clean up your credit report, which will ultimately help you get the money that you want when you want it.

Monitoring Your Report

There are three major credit reporting agencies in the United States:

(Canada has two major agencies, TransUnion Canada and Equifax Canada) You are able to see your credit report at any time. You are entitled to one free report per year. You may also receive a free report if you are turned down for insurance or for a job, or denied credit for a loan. Although it may be a limited report, it can give you an idea of what is on the report. For a detailed report, you might pay as much as $30.00 but it is well worth the cost if you truly want to get your credit cleaned up. By law, the company that has rejected you based on your credit must send you written notice of the reason for the rejection. You then have 30 days from the date of that letter to request a credit report.

It is important that you check your credit report at least every two years, ideally every year. By checking the report it will allow you to keep up with any changes on the report. Often there are incorrect entries on a report and if the time frame for checking a report is prolonged it is more difficult to get things corrected.

When you receive your report, you will also receive a credit score, often referred to as a FICO score. These scores are very important and will determine the percentage of interest that you will pay on a loan. The higher the score (760-850) the lower the interest rate. These scores allow the lender to determine how much of a risk you are for repayment. Other factors that come into play are traffic tickets and DUI or other legal offenses. Obviously committing fraud is a big red flag against you. This information can be obtained by credit lenders as well. For information, check out the FICO website.

Fixing Errors

In the United States, inaccurate credit reports are a common source of consumer complaints to the Federal Trade Commission. (In Canada, credit reporting legislation is regulated at the provincial level.) Although the three national credit bureaus try to resolve problems within 30 days, there is no guarantee. Often it is best to go to the lender that posted the error. Keep accurate records of everything and remember not to send anything to anyone without keeping a copy. Also it is best to date everything, get the name of the person that you spoke to and send the information directly to that person if at all possible. Call to follow up. This keeps the issue fresh in that person's mind.

Financial Planning Tip:

Be the "squeaky wheel."

To fix an error, refer to the credit report itself for the instructions. There may be slight differences in procedures depending on the agency. Start working directly with merchants since they are required by law to correct these errors. They have 30 days to post changes on your report. Note that it is very important to have the merchants correct their data entered on the report. If you cannot get them to make the necessary changes, then contact the credit reporting agency. They then will attempt to make the corrections if you can prove to them that the accounts in mention are in fact incorrect. Good record keeping is essential as the burden of proof rests with you.

Financial Planning Tip:

Keep a file on each company, take notes and keep all your statements.

Do not get rid of that file for 5 years.

Beware of the mail and the internet, which are full of offers to monitor your credit, get your credit report, and repair your credit. Experts say most of these offers are scams or are misleading at best. My advice is never to give out your social security number or credit card number (or, for Canadians, your social insurance number or credit card number) to anyone over the phone or the internet unless you are sure of the legitimacy or if you know the company. You have a right to sue anyone who obtains a credit report of yours illegally or for illegal purposes. Also, if the credit bureau does not respond, you can complain to the Federal Trade commission in Washington, DC, who will contact the bureau on your behalf. (In Canada, complaints are made at the provincial level.)

Having your own say

By law, you can have the credit bureau place a statement (100 words maximum) in your file explaining your version of the dispute. The bureau must also include your statement in any report it sends out. This is a particularly good idea if you have gotten divorced, been laid off for a long time, or had a medical illness that has created a negative financial situation. It also helps if you have taken some positive moves to correct your credit report. We all know that bad things can happen but without an explanation on your report the lender has no idea what is going on.

Financial Planning Tip:

Be proactive when it comes to your finances.

When you apply for a loan, a lender will see the statement and take it into account. You may also want to explain a period of delinquency caused by some unexpected event or anything that drastically reduced your income.

I hope that the tips provided in this article will assist you in a two-fold way. First and foremost, your credit report is an extension of you. It is your financial "report card" and can determine whether or not you are able to pay back a loan and be a good credit risk. Secondly, a corrected report will show that you are willing to "step up to the plate" in a financial sense, correct the situation you are in and move forward to improve your past financial history. Admitting that there were problems in the past and moving to correct them is the only way to prove credit worthiness to a lender. Ignoring what has happened will only make it more and more difficult for you to obtain credit and the lower interest loans for life's larger ticket purchases.

Cindy Diccianni is a Registered Nurse, a Certified Senior Advisor (CSA), a Certified Long Term Consultant (CLTC), a Registered Investment Advisor and a Registered Representative with Leigh Baldwin & Company member NASD and SIPC. She is affiliated with Ortner, O'Brien & Ortner Advisory Group, Inc., Malvern PA. Her passion is assisting clients in creating financial freedom. You may contact her at Cindy@taxlegalfinancial.com.

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