Whether or not you plan to buy a house or a car or something else large in the near future, you should have a general idea of how your credit looks. When you sit down to refinance your mortgage is the wrong time to find out that your credit score leaves much to be desired.
There are multiple sites on the internet claiming to obtain your credit report for you for free but which ultimately charge you for the privilege. (“Oh, we did obtain the report for free. But if you want to see it, that’s gonna cost you extra!”) You are entitled to a free copy of your credit report once every year, and you should obtain it and look it over for problems or discrepancies. Online, you can use this site to query the three major credit agencies. Or you can call them directly; once a year, they have to issue you a report free of charge if you ask.
Once you have your report(s), here’s what to look for:
- Closed accounts. Do you think you closed out an account that isn’t appearing as such on the report? Every open account weighs against your potential debt (and can lower your score), so be sure to call those companies and lean on them to report to the credit agencies that your account is closed.
- Open accounts you no longer use. Did you sign up for a Gap credit card that one day when they were offering 20% off your purchase and then never use that card again? Just throwing the card away doesn’t mean it’s gone. Call and close the account—being sure to ask for a letter confirming that you’ve done so—then be sure to check your report next year and verify that it was reported.
- Accounts that aren’t yours. If you are divorced, you need to be particularly vigilant about this. Credit agencies don’t care that your ex-spouse is lousy with money while you’re a financial maven if you’re being reported as still having joint credit. Even if you’re not divorced, every now and then someone has the same name as you. Or a company just plain screws up. Make sure everything on your report is really yours.
- Late payments. Nothing will sink your credit score faster than a history of late payments. If you really did pay late, well, 40 lashes with a wet noodle for you and don’t do it again. But if you didn’t, and it’s being reported that you did? That’s a problem.
- Collections and Public Records. This is often listed in a separate section of your report, and shouldn’t be overlooked. Again, you may think this doesn’t apply to you. Hopefully it doesn’t. But you’d better check to be certain that no one else’s mistakes are showing up on your report.
If you find a discrepancy, pursue correction. You’ll need to contact the reporting institution, typically, rather than the credit agency. Keeping your credit score healthy is important, and it needn’t be mysterious. Get your yearly reports and be proactive in keeping them accurate.
By the way, the quickest way to destroy your FICO is to pay your mortgage late. If you have a mortgage, and you have financial woes, pay the mortgage first and deal with the other bills afterwards. Also remember that just about any company to which you owe money has one main goal: Getting money from you. If they have to choose between getting nothing and getting something, they’re always going to go for something. If you’ve run into problems, don’t just stick your head in the sand. Call and ask for accommodation. Most of the time folks are willing to work out a payment plan.
If you are an anal-retentive spender and budget-handler (not that anyone around here is anything like that) and somehow manage to miss a bill at some point, be sure to call and beg for forgiveness. If you have a clean payment history the late fees and interest will probably be waived, plus you avoid having it turn up on your credit report.
You’ve got to keep that credit score high so that you can borrow money at a reasonable interest rate when you need it, for things like houses and cars, and still have money left over for things like pretty shoes. Priorities, people.