Although it’s hard to put a price tag on your credit report, it is one of the most important assets you have as a consumer. Credit reports — and the credit scores they help create — play a big role in your interest rate on car loans, credit card eligibility and even job applications to certain employers.
So how can you ensure your credit report is clean — or, if it’s a mess, how do you clean it up?
The first step is to review your borrowing history by obtaining a recent credit report. This is actually quite easy and comes at no cost. Simply visit AnnualCreditReport.com, which, under federal law, allows you access to one free credit report each year from each of the three main credit bureaus — Experian, Equifax and TransUnion. Each report will look slightly different, but all are meant to be comprehensive histories of your borrowing habits. Simply follow the instructions on the website.
Unfortunately, many Americans don’t even take this simple first step. A 2014 study by the National Foundation for Credit Counseling, sponsored by Experian, revealed that 65% of adults hadn’t reviewed their credit reports in the last 12 months.
“There are a lot of possible reasons that people may not check their credit reports,” says David Proctor, senior vice president of consumer information services at credit reporting agency Experian. “They think it’s in good shape so don’t feel they need to request it, they think it’s in horrible shape and don’t feel like checking it will help them … (or) they simply don’t know they can or should get a free credit report annually.”
This is a big mistake, says Syd Ally, the chief credit officer for lender DRB and a financial industry executive with more than 20 years of experience dealing with consumer credit.
“You’d be surprised what things you might find on a credit report, intentionally or unintentionally,” Ally says.
He offered one example from an applicant who wanted to refinance student loans, but had an old college phone bill that had been unpaid and delinquent for years. The prospective borrower simply forgot about it and moved away, but that old debt was a red flag to new lenders.
Worse are items on your credit report from criminals who have been running up debts in your good name.
“In the age we live in, with identity theft and so forth, the onus is on you to ensure everything you’ve contracted for credit-wise is what it really should be on your report,” Ally says.
Your first step should be making sure everything on your credit report is accurate. But after you’ve cleaned up old accounts and checked for identity theft, there still are a few more simple ways you can improve your credit report without spending too much time or effort.
“The most important factor is your payment history,” Proctor says. “Paying your bills on time shows that you can be trusted to repay the money you borrow. Your payment history is weighed heavily, about 35% of most credit scores.”
The next big item, Proctor says, is your “utilization rate,” or how close you are to maxing out your credit cards. “A high utilization rate is a sign that you may be experiencing financial difficulty or overusing your available credit and is a strong indicator of lending risk,” he says, adding that this utilization rate typically accounts for “an additional 30% to 35% of the credit score.”
On the whole, though, the easiest way to improve your credit score and your credit report isn’t to worry about whether your number is 720 or 740, but simply to practice good financial behavior, Ally says.
“Generally, don’t overextend yourself, pay on time, and that will take care of your credit score,” he says.
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