How The Financial World Judges You
Today, your credit report and
credit score dictate how much you pay for credit, insurance and
other services. It is the measurement others use to determine their risk in doing business with you. Having a professional
review your credit report and
credit score
with you are critical to saving money, avoiding
identity theft and having access to credit when you need it.
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Less than 10% of the population looks at their credit report annually. If you are not reviewing your consolidated credit report at least once a year you are more likely to have errors and problems with your credit that can cost you money.
Your credit score is a numerical measurement of your
perceived credit worthiness. Your score can be low simply due to errors or it can be lower than it should be due to mistakes
you have made in organizing your credit. With professional help, these mistakes can be corrected. For example, recently we
assisted someone who was able to raise their credit score 100 points in just one day by making one small adjustment with
one of their accounts. This increased score allowed them to qualify for a mortgage at a lower rate saving them tens of
thousands of dollars.
How much money are you wasting by not reviewing your
credit report and score?
How Credit Reporting Errors Can Occur
Errors can appear in several ways:
Sometimes a credit bureau's internal processes make mistakes when trying to create precision in an imprecise world.
Are John, Jack and Johnny, who live at the same address, the same person? Is the Mary Ellen Watson in San Diego in 1996 the same as the Mary Ellen Watson in Los Angeles in 1997? And is the Richard Martin on Willow Street the same as the Richard Martin on Willow Avenue?
Sometimes human error is at fault. A clerk, for example, might make a typographical error or misread a hand-written credit application. In both cases, an incorrect letter or number can become part of a credit file.
Sometimes a consumer introduces errors into a credit report by obtaining credit under different names (Robert and Bob, for example, Margaret and Peg, or J. Michael and James Michael); providing an inaccurate Social Security number when applying for credit; or omitting the "Senior" or "Junior" when father and son share the same name.
Sometimes a consumer's payment history is reported to credit bureaus incorrectly. For example, an error in your credit report may occur when a payment is applied to the wrong account.
What You Can Do to Prevent Errors
To ensure you get the credit you deserve, here are a few simple steps you can follow when applying for new credit:
- Always use the same name on all your credit cards, loans and lines of credit. For example, Jonathan Q. Consumer should not omit his middle initial in some accounts, use the name J. Quincy Consumer for other accounts or use his nickname, Jon, when applying for still other accounts. Doing so can introduce inconsistencies and incompleteness in his report. It also can lessen his chance of getting the credit he asks for.
- If you're a "Junior" or a "Senior," ALWAYS include your generation code (sometimes called a "suffix") after your name. Omitting it almost guarantees that credit grantors and credit bureaus will mix up your credit accounts. (Separating the accounts requires special intervention.)
- Always provide your Social Security number when applying for credit. This helps prevent your credit information from being mixed up with other consumers in the United States with the same or similar name.
- Always list your address and your previous addresses for the past five years on your credit applications. This will help credit bureaus link together pieces of your credit history, even if you move across the country.
Understanding What an Error Really Is
When you're reviewing your credit report, it's important to know what really is an error and what isn't. Credit bureaus and credit grantors sometimes have unfamiliar definitions to certain common words. When you see those words used, you may think your credit report has an error when, in fact, it doesn't.
Two examples:
- "Current": If you see this term to describe one of your accounts, it means you're making—or you have made—your payments on time. Even if your balance is $0—or even if the account is closed—it still will appear on your credit report as "current." Though you probably would define "current" to mean "up to date" or "at the present time," the credit industry uses it to mean the opposite of "delinquent."
- "Paid:" You probably think a "paid account" is one that's paid off. Wrong. Credit bureaus and credit grantors consider a "paid account" to be one that is closed. So even if you've paid off a credit card account, for example, it won't be listed as "paid" unless it also is closed to new charges.
Two other common situations may cause you to think there's an error in your report when there really isn't: late payments and joint accounts.
If you make a late payment, a record of that delinquency will remain on your credit report for seven years from the date the payment was due. This is true even if you later pay your bill in full. (Similarly, you may be surprised to find out that a bankruptcy will appear on your credit report shortly after you file papers with the bankruptcy court. It will remain even if you later change your mind or the judge does not grant you the bankruptcy. Most bankruptcies remain on your credit report for 10 years.)
If you get divorced, you still are responsible for paying the joint accounts you had with your ex-spouse. This is true even if your divorce judge orders your ex-spouse to assume responsibility for particular debts. Why? The fact that you no longer are married does not affect the legal contract you made with your credit grantors to pay back your debts. Much more helpful information about consumer credit reporting, including an entire section about how divorce can affect your credit, is available at Myvesta's articles and publication directory.
The True Test of Credit Reporting Accuracy
Critics, journalists and the credit reporting industry can argue — and have argued— for years about accuracy. What matters most to you, though, is how accurate your own credit report is. Credit bureaus encourage consumers to review their credit reports on a regular basis—at least every one to two years —or before purchasing a major item such as a home or car.
If you find an error in your report, let the credit bureau know. They can ask the source of the information (a credit grantor, for example, or a government agency) to verify your dispute. Once it's verified—no more than 30 days later, but often much sooner —they will remove the item from your report. This service is free of charge.
It's important to remember that no one benefits from an inaccurate credit report. As a consumer, you expect to be rewarded for your responsible use of credit with new financial opportunities and a higher living standard. The retailers, credit card issuers, banks, finance companies and other businesses that purchase credit reports also demand accuracy. It gives them confidence that they're making correct credit-granting decisions.
