By now we have done a lot of work to cut down your expenses and improve your cash flow. You should also have a budget to help guide you going forward, and an emergency fund to give you a cushion. Before we look at how you might attack your debt, let’s take a look at your credit and see how tracking and improving it can help your finances.
Photo by Casey Serin via Flickr
Remember how I told you a few articles ago that those things you track you will inevitably get better at? The same holds true for your credit score. And that’s a good thing because your credit score is pretty important these days.
Just a few things you credit can impact:
You could have stopped reading at the first point. There’s not many times in your life that one factor can swing your costs $50,000 in either direction. That’s huge.
Hopefully I’ve got your attention. Let’s get to tracking that credit so that you can know where you stand and work to improve it.
For starters you need to find your credit report. Not score. We’ll get to that in a moment.
Your credit report lists important things like the number of inquiries you’ve had on your credit (either you initiating interest in a credit line or a company looking up your info to send you a pre-selected offer), which accounts you have or had open, and whether or not you’ve been late or behind on payments to those accounts.
Sometimes this critical report that can swing your financial fortunes in the right direction are incorrect. You might show a missed payment when in fact you didn’t have it. That black mark on your report can ding your score and have a lasting impact.
So check your credit report. It’s easy. So easy, in fact, because the government made it easy. Go to AnnualCreditReport.com and enter your information for the free report only on only one of the credit bureaus. (You get 1 report per year from each of the 3 credit bureaus. If you space them out every few months it is like having “free” credit report monitoring.)
The credit bureaus will try and sell you their own version of your credit score, but ignore them. There’s a better way.
(Oh, and if you’re married make sure you pull your spouse’s report, too. Review them together.)
For more information, please read: How to Get Free Credit Reports.
There aren’t many times when you need to know your credit score, but it does happen.
You need to know your score:
There really should be a third thing here, but honestly, that’s about it!
When you go to get your free annual credit report the credit bureaus will sneakily try to offer you a peek at their version of your credit score. Unfortunately that score isn’t exactly the score you are looking for because it uses a different scale than your true credit score. They’re just trying to earn more money off of you, so ignore it.
In fact there is only one way to get your true score: order one from MyFICO.com. FICO stands for Fair Isaac Corporation. They kind of invented the whole credit score thing. You’re looking for the $19.95 “FICO Standard” report that lets you select to get your score from Equifax or TransUnion. You could pull both reports for $40, but there shouldn’t be anything drastically different between the two so just pull one of them. Alternatively, you can utilize these methods of getting your credit scores for free. These aren’t FICO score, but they are close enough.
Then get on with your life and making financial changes so you can start improving your score.
When you’ve got your credit report in front of you, seriously pay attention to it. Look at this bad boy like you looked at the Scantron answer sheet when you took the SAT. Scour it with a fine tooth comb seeking anything that doesn’t look right.
All of these are potentially huge problems. It could be a small as a clerical error, a data entry error, or… your identity was stolen. (Considering it takes about 60 hours of work to recover from identity theft you should probably be paying attention.)
Each bureau has a dispute process for you to combat incorrect information. Make sure you jump through the appropriate hoops and send any correspondence via certified mail. Cleaning up a data entry mess is a lot easier than dealing with collection agencies that start harassing you for a loan you never had.
For more information, take a look at: How to Dispute Credit Report Errors.