Credit Reports
FREE - Means Free
I'm going to jump in here and remind you that you are allowed on free credit report per credit bureau per year. This free report is completely free and DOES NOT require you to sign up for any other kind of service. There are a lot of very deceptive offers out there that make it sound like you are getting your free report when you are actually buying something and they are giving you a credit report as an enticement. Of course, this is a rip off because you are already entitled to a free report.
The one and only website for getting your legally required free credit reports is: www.annualcreditreport.com
Don't believe me, believe the Feds: http://www.ftc.gov/freereports
Important
information from the Federal Trade Commission, the nation’s consumer
protection agency:
annualcreditreport.com is the ONLY
authorized online source for you to get a free credit report under
federal law. You can get a free report from each of the three national
credit reporting companies every 12 months. Some other sites claim to
offer "free" credit reports, but may charge you for another product if
you accept a "free" report.
Anything with a name that sounds like free credit report that isn't this website is a scam. Run, Beware, Avoid! Watch for the fine print that says something like: "By requesting your free credit report you are agreeing to sign up for..." If it requires a credit card number, it is not the legitimate free site. The credit card number isn't for verification it is for billing you.
Credit Report Facts
Credit reports developed as a result of a more mobile and increasingly complex society. Your grandfather, and maybe even your father, can tell you stories of walking into the local bank and taking out a loan based on a hand shake. The reason they could is because the man at the bank probably knew your grandfather, and not just by name. He knew where he lived, who he was married to, who his kids were and how his farm was doing. He knew that as people went, your grandfather was either a man of his word, or the kind of man who might try and squirm out of his responsibilities. So, when your grandfather wanted a loan, he had a pretty good idea of what kind of risk it would be. Of course, the problem with this system is that if you are new to town how would anyone know whether or not you were a good risk?
The Credit Bureaus
The three major credit bureaus solve the problem of not knowing who someone is when they want to apply for credit. Each of the three bureaus collects and records the history of your use of credit in their databases. The institutions that loan you money voluntarily tell the credit bureaus about their experience with you. Think of it as a much more sophisticated form of the eBay system where buyers and sellers rate each other based on how well the transaction went.
The three major credit bureaus are: Experian, Equifax, and TransUnion. They are pretty much equals and one is not considered better than the other. Each one of them keeps a database on you based on your social security number. This keeps you from changing names and moving to a new city with a clean report.
Your Credit Report
The institutions you do business with report a continuing stream of data to the credit bureaus. Not only will they report when you don't make a payment or default on a loan, they also report when you do make a payment, and how much of a balance you have left, as well as how much the loan was originally for, and whatever limit you have. Not surprisingly, this can make for a very thick report depending on your finances. This is where your credit score comes in handy.
Monitoring Your Credit Report - Do It For Free
You will hear about how important it is to monitor your credit report, and that is true, sound advice. Monitoring your credit report is important both to catch identity theft earlier and to make sure there are no mistakes. Mistakes include not just incorrect information about whether a payment was late or not, but also errors in personal information or even having something on your report that applies to another person.
Recent laws have forced the credit companies to allow you to view your credit report for free once per year. Although the 3 reports can vary depending on who reports what information to which companies, the majority of your major events will be on all three reports. Also, since identity thieves don't open just one credit card and slowly and quietly use it, if your identity has been compromised it will show up on all three reports even if one or two of the many accounts that are opened in your name don't appear on all three. This knowledge allows you to monitor your credit on an ongoing basis for free without having to subscribe to some pay service. ONLY USE www.annualcreditreport.com to order your free reports. Anything else is a trick to get you to subscribe to overpriced (and if you follow the tips here at Finance Gourmet) and unnecessary monitoring services.
Because all three companies are required to give you a free report every 12 months, you can check your credit for free every four months by rotating among the credit bureaus. If you request a report from Equifax in January, you can request a report from TransUnion in May, request your free report from Experian in September, and do it all again the next year by requesting your free report from Equifax in January. If you are married and most of your credit is joint credit, you can monitor even more frequently. Because the information on joint accounts is reported under both social security numbers you can monitor the bulk of your credit by alternating reports ever TWO months! You request your report from Equifax in January, your spouses report from Experian in March, your report from TransUnion in May, your spouse's report from Equifax in July, and so on through the year.
Credit Report Mistakes
If you find a mistake on your credit report, report it immediately. It can take some time to clear these issues up as it usually requires contacting the company that reported the information and as you can imagine researching and fixing credit report mistakes isn't going to be their highest priority. In addition, once the mistake is confirmed and it can take even more time to come off your record. Do not wait. Report everything immediately.
The credit bureaus each allow you to put a note in your credit history if there is some dispute. Do this only if the note says that there is a mistake or misrepresentation. Do not put in a note explaining why you didn't make a payment. A note that says "We were moving and forgot to pay" is worse than no information at all because not only did you admit that you were late with the payment, but now it shows that you think there are times when it is ok to be late. This is bad news. However, if there is fact problem and it can't be cleared up a note is better than nothing. For example, "This account was opened fraudulently by my brother and has been reported both to the company and law enforcement" might be helpful. It is important to put your flag in right away. It sounds much more credible if the information has been flagged for a long time. Otherwise, there might be a suspicion that you just did it last month because you are trying to apply for a loan.
I wish I could detail some good information here about how to report mistakes and flag inaccuracies, but unfortunately it varies by credit company and it changes. So, check their website and find it. Do not give up. It is important. Keep at it.
Freezing Your Credit Report
The latest legal requirement (help from the government for abuses or oversights in this area is very slow in coming) is that you are allowed to "freeze" your credit report. When you freeze your credit report, the credit bureaus cannot release your information to any companies until it is "unfrozen". The credit bureaus hate this because they make their money by selling your credit report to other companies. If your report is frozen they can't sell it. Because of this, credit bureaus make it both very hard to freeze and unfreeze your report, and they make it very hard to find out information about it. They also try and scare you from doing it. Check the homepage of any of the three credit bureaus and try and find information about freezing your credit report. Find it? Now try and find a paid subscription to a service to protect your credit. Found that, didn't you?
Depending on what state you live in you may be able to freeze or unfreeze your credit report in certain circumstances for free. Check with your state to find the rules for you.
Here is the straight real life truth about freezing your credit report. Your credit will be much safer and harder to steal if your credit report is frozen. However, this comes at the cost of making it way less convenient. You will not be able to apply for a credit card at the cash register to get 10% off of your purchase. If you plan to buy a car or home or maybe even a cell phone, you will have to plan ahead and unfreeze your credit first. This can be a good thing. Imagine walking onto a car lot to "just look" and then falling in love with a car and before you know it a fast talking salesman is making a deal. A big dose of ice water will come crashing in when he can't run your credit report. You have to unfreeze it by writing and mailing in your request, so you'll have plenty of time to think it over. Maybe with a little bit of distance you won't buy the car after all.
Should you freeze your credit? I recommend that my clients freeze their credit reports if they are not planning to buy or refinance anything that requires a loan in the next 12 months and they currently have the proper number of credit cards and are happy with them. If not, then get your credit in order first, then freeze it.
If you are a victim of identity theft or there is any suspicious activity with your credit, FREEZE YOUR CREDIT REPORT IMMEDIATELY! You could save yourself a lot of trouble down the road.
Other Non-Freeze Protections
You can place a 90 day fraud alert on your credit report without much hassle. This is a great idea if you lose your wallet, or think that something might be going on but aren't sure. A 90 day fraud alert does not lock your credit, but everyone who gets your report gets a notice across the top that there is a fraud alert on the report. This will likely block you (or the bad guys) from getting an "instant" credit. However, if you are buying a car and sitting face to face with the dealer and showing him your driver's license and old registration, they'll probably go ahead. This is perfect because it stops the hit and run credit thieves that might have access, but still allows you to take care of your business. However, keep in mind that it expires in 90 days. If you lose your wallet because you left it on the roof of your car, the bad guys might not find it for 90 days. So, keep a sharp eye out.
Also available is an active duty military freeze. Especially if you are headed overseas where checking your credit might be the last thing on your mind this is a great way to help secure your credit. Again this is a flag on your report, not a lock. But if someone is trying to open an account at an electronics store to buy $11,000 worth of stuff while there is a military freeze on your report it will probably be rejected. My advice, is that if you are headed overseas for 12 months or more, is to freeze your credit report. It is a higher level of security.
Scams
In addition to companies pretending to offer you your free credit report and attaching a subscription or other product there are companies that offer to "fix" your credit report. There is no way to fix your credit other than to add good things to it while allowing the bad things to get older and less important. Anyone who says different is probably selling you a bag of goods.
The Federal Trade Commission (FTC) cautions consumers to be wary of companies that make claims regarding credit repair. These companies, commonly called credit clinics, don't do anything for consumers that consumers cannot do for themselves at little or no cost. Beware of any organization that offers to create a new identity and credit file for you.
So called debt consolidation services are another problem. A finance manager at a car dealership told me that the number one problem he sees is people who went through debt consolidation. When someone "lowers your debt" what they are doing is asking the company that you owe money to write off part of your loan as uncollectable. Yes, it lowers the amount you owe them, but it is the same thing for your credit report as NEVER PAYING THAT AMOUNT BACK! Next to bankruptcy, this is the biggest black mark that you can have on your credit. The other trick they use is to call and ask the company you have the debt with to accept longer re-payment terms. This lowers your monthly payment but it takes longer to pay off. Also, most companies report the deferred part of the payment as late, so every month more and more money is being reported as late. Unless you are facing imminent bankruptcy, do not use any kind of debt consolidation service.
Feel free to call your credit card company or bank and ask if there is anything you can work out. They are more likely to be willing to help if this call comes earlier rather than later. If you've missed your last 10 payments don't expect much sympathy. If you've missed one payment and are struggling to come up with the next one, they are more likely to see if there is something that they can work out. Remember, these aren't charities. They are businesses who need to make a profit so don't expect the sun and the moon for nothing.
Finally, credit counseling is counseling only. They'll show you how to make your payments and setup a budget. They WILL NOT collect payments from you or "lower your debt". They will also not charge you anything. Go through your state government website to find the real credit counseling organizations in your state.
Credit Score
Your credit score is a number that is derived from your credit report. Read all about Your Credit Score