The whole business of navigating credit reports proves tricky for a number of reasons — starting with the fact that you don’t have one credit bureau to worry about, but three. Imagine if you had to talk to three auto mechanics before you could get your muffler fixed. Yikes.
But one in five Americans have errors on their credit reports, according to the Federal Trade Commission (FTC). Even more compelling, four out of five Americans who dispute information on a credit report get some sort of modification.
So if you’ve made any financial resolutions for 2014, resolving to check your credit report and fix credit report errors should top your list. While the process is straightforward, it can be time consuming — and yes, intimidating. That explains in large part the proliferation of “credit repair companies,” which might as well offer monthly sales specials on the Brooklyn Bridge. (We’ll get to why you should avoid them in just a bit.)
Whether you’re ready to tackle this task, or still need time to work up to it, keep the information in this article handy. It’s your guide to checking your credit reports, getting the mistakes corrected, and steering clear of those who would take advantage of your desire to fix potholes in credit history painlessly.
Getting started: Your credit reports
The trick here is not to order them from each company, but through annualcreditreport.com. Federal law mandates that you can receive a free copy of your report every 12 months from all three companies. You can also call 1-877-322-8228, or complete what’s called an Annual Credit Report Request Form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
Through your reports, you’ll not only see your credit scores–an important calculus when working up to, say, a home purchase–but also catch mistakes in your credit history, or worse. If there’s identity fraud in your history, often in the form of credit cards you never ordered or abused, it will likely show up here first. (In the wake of the Target and Neiman Marcus data breaches, you can’t be too careful about identity theft.)
The three credit reporting companies sell the information in your report to creditors, insurers, employers, and other businesses. They use it to evaluate your applications for credit, insurance, employment, or renting a home. That’s why accuracy in these reports is so important: Mistakes could impact everything from whether a loan application is approved to how much you’ll pay in interest to borrow money.
The best mortgage rates, for example, are reserved for credit-conscious consumers, and that’s especially true in a post-meltdown market where lenders are more cautious than ever.
The credit bureau reports are used to determine your FICO score, a number that was invented by the onetime Fair Isaac Corporation (hence the name). They remain a standard that many mortgage lenders use to check a borrower’s credit-worthiness. FICO scores of 700 or higher are considered good (850 is the maximum).
You can buy your FICO score from a number of sources for $15-20 a pop, but we recommend CreditKarma — a free site that provides an estimated credit score and tools that simulate how your score will change if you pay down debt or apply for new credit.
What to do when you find errors
Let’s say you scan your reports and you find a delinquent credit card you didn’t even sign up to receive. The FTC outlines exactly what to do here.
First, “Tell the credit reporting company, in writing, what information you think is inaccurate.”
The FTC even gives you a sample dispute letter to use with the credit reporting companies. Your letter should:
- Clearly identify each item in your report you dispute,
- state the facts and explain why you dispute the information, and
- request that it be removed or corrected.
Then, the credit reporting companies have 30 days to investigate. If a credit card company, for example, finds that you’re correct, it must notify all three nationwide credit reporting companies so they can correct the information in your file.
You should also repeat this process for the creditor as well.
Why you do NOT need a credit repair service
Experts agree that you don’t need a for-profit credit repair company to do fix report errors. Many of these businesses make false claims, the most prevalent that they can erase negative information from your credit report, regardless of its accuracy.
Fraud.org describes the various dangers associated with for-profit credit repair businesses, which should not be confused with non-profits such as Money Management International and the National Foundation for Credit Counseling which offer legitimate counseling services on managing credit well.
Don’t be fooled when you see taglines such as “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!” and “We can erase your bad credit — 100 percent guaranteed.”
Attorneys at the FTC say they’ve never seen a legitimate credit repair operation making those claims. Though you may crave a quick fix for your credit report woes, there simply isn’t one. The best way to repair bad credit is to stick to a long-term plan of repaying your debts, correcting credit report errors, and making payments on time.
Putting it all together: Not a one-time process
Once you get the hang of how to scan and correct your credit reports, you might want to incorporate it into a yearly ritual of financial housecleaning, either in conjunction with tax time or setting your household budget. It’s important to note that sometimes, disputed errors that you clear off your reports will pop up again. All it takes is an incompetent employee at a credit card company who neglects to delete false information.
I haven’t embarked on the credit report cleansing process for some time, and since I’m married, I have six reports to comb through. Oh, what fun!
But given the positive impact it will have on my family finances, I’m willing to dedicate some hours to this task. The last time I did it, I caught roughly half a dozen errors. Will I catch as many this time? Or more? It’s a sobering thought. But leaving those mistakes there to fester and affect my credit score, and my wife’s, isn’t worth the price of laziness.