Money IQ: How Closely Should You Monitor Your Credit?
By Sarah Hosford
How Closely Should You Monitor Your Credit?
Your credit report provides a financial overview to current and future creditors and is reviewed when lending decisions are made for credit cards, car loans, mortgages, etc.
Lenders take into account your credit score, past delinquencies, bankruptcies, court judgments, tax liens and any other accounts that may have gone to a collection agency.
All of these things factor into calculating your personal credit score and history.
The three most commonly used credit bureaus are; TransUnion, Experian, and Equifax.
Each of these bureaus calculates a credit score based on the information they receive from your creditors. Credit scores can range from 300-850.
Things that the bureaus take into account when calculating your credit score are; previous payment history, current level of debt, age of credit, types of loans currently open and the number of recent credit inquiries.
Each of these items carries a specific amount of weight when your score is calculated.
Payment history and amount of outstanding credit card debt are two of the most important factors.
Making your payments on time will greatly benefit your credit score. The amount of debt that you carry is also important in scoring.
Credit cards that are continually maxed out will have a derogatory effect on your credit score.
A good rule of thumb is keep your revolving debt limited to 50% or less of what is available to you.
Improving a low credit score can greatly increase your chances of obtaining a mortgage loan at a good interest rate.
If your credit report show delinquencies or collection accounts, the best way to help increase your score is to make sure that you get these accounts taken care of.
If you are delinquent, bring it current, if you have an account that has gone to a collection agency; call the collection agency to make arrangements to settle the debt. If your credit cards are maxed out, pay them down.
If you think that you are not going to be able to make a payment on time, contact the creditor to make arrangements.
The embarrassment of calling a creditor to make arrangements is a lot easier to deal with than trying to fix a credit score later.
Errors in your credit report can be just as harmful to your credit score as late payments.
You have a right under the Fair Credit Reporting Act, to dispute the accuracy of the information in your credit report.
An annual review of your credit report will help you spot any inaccuracies.
If you find an error, contact the credit bureau that is reporting the incorrect information to begin the dispute process.
If all three bureaus are reporting it, you will need to contact all three bureaus individually.
All three credit bureaus have websites to initiate a dispute. Typically, it takes 30 to 90 days for any corrections to be reflected on your credit report.
If you have been a victim of identity theft, notify all three credit bureaus right away.
They can issue a fraud alert, which can help prevent additional credit accounts from being opened.
Your credit report and resulting credit score are very important when looking for a loan and can determine if you qualify for a lower interest rate.
When shopping for a mortgage, a local bank with local decision making may be more flexible and understanding when it comes to your score.
Editor's note: Sarah Hosford is the Vice President of Residential and Consumer Lending at Los Alamos National Bank where she manages and mentors a team of more than 30 loan officers, processors and administrative staff located in five branches.
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