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Five valuable credit report lessons

Updated: Jul 21, 2014 09:59 AM
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By Andrew Housser

Your credit report is a record of many your finance-related activities, including activity with credit card accounts and loans. It offers information about the balances you carry, how regularly you make payments (or miss them), if you pay on time, and whether a creditor has taken action against you because of unpaid bills. Current and potential creditors, employers, insurers and others can access your credit report to see if you are a good credit risk or how well you manage your money.

However, these entities are not the only ones who can learn a thing or two by examining your credit report. You, yourself, should review your credit report closely at least once a year to get a snapshot of how you are doing financially. You might find insights into your financial habits and history, such as:

1.      Your credit risk. A credit score is a number between 300 and 850 assigned by each of three different consumer reporting agencies: Experian, TransUnion and Equifax. These credit bureaus base your score on complex formulas incorporating all the data in your credit report. The score takes into account your past payment history, total outstanding debt, length of credit history, and the types of loans and credit you have. Even though your actual credit score is not included on your credit report, the information on your credit report can be a good indication of the score.

2.      Your spending habits. Each account listed on your credit report has a section that lists the amount of debt per account. This includes mortgages, auto loans, student loans and credit card debt. Take a close look at the debt associated with each account and ask yourself how the amount fits into your budget. If you are not able to pay off your credit card bill in full each month, determine what changes you can make to do so, and to pay off existing debt. If a big portion of your budget is going toward high car payments, consider trading in your vehicle for something more economical. You also may want to evaluate the option of consolidating debt onto a lower-interest credit card or loan. Be cautious, however, about rolling debt into a home equity loan. This can put your home at risk if you rack up debt again and cannot pay your monthly bills.

3.      Rewards programs temptations. Cards that offer rewards such as cash back, sales discounts or points to spend on travel are tempting. Unfortunately, these cards tend to charge high interest rates and annual fees. Their programs also may encourage you to spend more to earn rewards. If you see a plethora of rewards-based credit cards on your credit report, commit to saying “no” to similar offers going forward. You will likely find that you are better off.

4.      Bill-paying patterns. A poor history of on-time payments is a red flag to potential creditors and employers. This suggests that you may not be responsible or reliable. Late payments can negatively affect your credit report for up to seven years. During this time, you may be subjected to higher fees, penalties and a lower credit score. One way to make sure your payments are made in a timely fashion is to arrange automatic payments with each creditor. Signing up for e-mail notifications when bills are due can help, too.

5.      Identity theft. Carefully review your credit report to ensure the information is accurate and truly applies to you. Confirm your name, address, date of birth, Social Security number and employment history. Look for accounts that do not belong to you, fraudulent addresses, and information that should no longer be on your credit report, such as a bankruptcy that is more than 10 years old. If you find errors, contact the credit reporting agency from which you obtained the report, as well as the creditor that provided the information, to ask for a correction. 

By law, you are entitled to one free copy of your credit report per year from each of the three consumer reporting agencies. You can obtain additional credit reports for a fee. To request your credit reports, visit Annual Credit Report. This is the only website authorized by the Federal Trade Commission to provide free credit reports. 

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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