Even if you have not fallen on hard times, you need to know about your credit rating and how to make sure it accurately reflects your credit history.
The credit bureaus and your rating
Negative information in your credit report can adversely affect your ability to get credit or get the best loan interest rates.
Information about your credit history is collected by credit bureaus, who then sell this information to lenders and others who need it in connection with loans, getting a job, or other financial applications you may make. You must authorize the credit bureaus to give out this information by signing a waiver on an application you make.
There are three primary credit bureaus in the United States who collect and disseminate this information: Equifax, Experian, and TransUnion. You should obtain a copy of your credit report from each of these bureaus at least once a year to verify that the information they have is correct.
Why your credit rating is important
You build your credit report every time you apply for and use credit. Creditors send information about your credit history with them to one or more of the credit bureaus. Most of the information is accurate and timely, but sometimes it is not. When you miss loan payments, pay late, default on a loan, or have a debt dropped (called a charge-off), that information goes on your credit report. Even legal information, if you have lawsuits or judgments against you, may find its way on to your credit report. When you authorize a potential employer, creditor, or other person to get this information, they will make a judgment about you and your creditworthiness (trustworthiness).
So, it is important that the information in your report at least be accurate and, better yet, positive information. Generally, information remains on your credit report for seven years. If you file for bankruptcy, that information may remain on your report for up to 10 years.
Dispute any false information
While no one can legally remove accurate and timely negative information from your credit report, you do have the right to request a re-investigation of the facts and to dispute inaccurate information. So, if you find that you have questionable information on your credit report, you should contact the reporting agency for a dispute form, or send your own letter with a copy of your report clearly showing which items you are disputing and why you dispute them.
The credit bureau is required to investigate and send you their findings along with a corrected credit report if changes are made. If your dispute is not resolved, then you have a right to have the credit bureau send a copy of your side of the issue along with their credit report to those requesting your report.
A good credit report comes from a good credit history
The best way to improve your credit report is to have a good credit history.
If you are just starting out or if you need to do "credit repair," obtain and use a secured credit card, being sure to pay the full balance each month—you do not need the extra finance charges.
Secured credit cards are issued by some banks, credit unions, and credit card companies that require you keep a minimum balance in a savings account to secure the card.
For example, if you keep $500 on deposit, you can get a credit card with a $500 credit limit.
Be sure to pay all your bills on time—make and stick to a budget.
Dive Deeper: How to manage debt: The full breakdown
This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.
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