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Your Credit Report: Improving Your Score the Right Way

For most people, credit ratings are as baffling and obscure as quantum physics. This chapter by Liz Weston will help you to understand how your credit rating is generated, and what you can do to improve it without causing yourself even more headaches.
This chapter is from the book

Okay, now you know your score, and you have a good idea of what goes into creating it. So, how do you make it better?

Step 1: Start with Your Credit Report

Because your credit score is based on your credit report, you should begin by ordering your reports from all three credit bureaus and reviewing each one for accuracy. You can get your reports from a service such as MyFico.com, or order from each bureau separately online or by phone:



Trans Union

Canadians can also get their credit reports online:

Equifax Canada
http://www.equifax.com (click on the "Canada" link)

Trans Union Canada

Northern Credit Bureaus, Inc.

If you're accessing your reports online, you might want to print out the files to make the review process easier. At the very least, grab some paper and a pen to make a list of the changes needed as you go through the reports.

Exactly how your information is organized varies from report to report. But the basic sections are pretty similar and proceed more or less in the order outlined in this chapter.

Check the Identifying Information

At the top of each report is identifying information about you. Watch especially for the following:

  • Names that aren't yours (not just misspellings of your own name)

  • Social Security numbers that don't belong to you

  • An incorrect birth date

  • Addresses where you have never lived

These are the kinds of errors that could indicate someone else's information is in your file.

You might find other errors, such as an employer listed that you no longer work for or a misspelled address. You can ask the bureau to fix those problems as well, but that shouldn't be your highest priority.

Carefully Review the Credit Accounts

The next section lists credit accounts that you've opened, along with such information as the date you opened them, whether the account is still open or now closed, the type of account, the account number (typically abbreviated), your payment history, your credit limits, and your balances.

Scan this section closely for the following:

  • Accounts that aren't yours

  • Delinquencies that aren't yours (including late payments and charge-offs)

  • Late payments, charge-offs, or other negative entries—other than a bankruptcy—that are more than seven years old

  • Debts that your spouse incurred before marriage (unless they improve your credit history—more on that later)

  • Any other incorrect account notations, such as showing a debt as past due when it was wiped out in a bankruptcy filing

If you find a number of incorrect entries, especially if they're delinquent or unpaid accounts, you could be a victim of identity theft. You'll find more information about how to handle this situation in Chapter 7, "Identity Theft and You."

On the other hand, you could be suffering from a credit bureau mix-up that accidentally merged someone else's information with yours. Although the bureaus say they have improved their systems to reduce the chances of this happening, it still occurs. I hear about it most often when two family members share similar names.

Don B. and his father have the same first and last names and share a middle initial. They live in different states (Florida and Indiana, respectively) and, of course, have different Social Security numbers. That hasn't prevented the credit bureaus from getting the two men confused.

When Don bought a piece of property recently, the bank pulled his credit reports from all three bureaus. He discovered that his and his father's credit information had been mixed together.

"For example, his car payment is on my report, but my car payment does not show up on my own report," Don said. "I was shocked at the number of discrepancies I found on each of the reports. As important as one's credit history is, one would think that these agencies would take the necessary steps to ensure accuracy."

You might find other errors, such as accounts you've long since closed still being reported as open, or not indicating accurately that you—rather than the creditor—closed the account.

The FICO scoring system doesn't really care who closes accounts, so you needn't worry too much about fixing those notations. And don't rush to change the notation on your closed accounts if they're listed as active; as I'll explain later, they could be helping your credit score.

Parse Through Your Inquiries

Inquiries show who has asked to review your credit report. Your credit score doesn't count inquiries made by lenders looking to make preapproved credit offers or your own requests to see your credit history. These are known as soft inquiries.

The inquiries that matter are the ones from lenders that resulted from you applying for credit. These are called hard inquiries.

What you do want to look for are these:

  • Credit inquiries older than two years

  • Hard credit inquiries that you didn't authorize

Add these to your list of items to dispute with the credit bureaus.

Examine Your Collections and Public Records

The final section of your credit report includes any collection actions or public records—including bankruptcies, foreclosures, garnishments, lawsuit judgments, and tax liens. Here's what you want to look for here:

  • Bankruptcies that are older than 10 years or that aren't listed by the specific bankruptcy code chapter (Chapter 7, Chapter 13, and so on).

  • Lawsuits, judgments, or paid tax liens older than seven years.

  • Paid liens or judgments that are listed as unpaid.

  • Duplicate collections, such as a loan that's listed under more than one collection agency. (An account you didn't pay often is listed twice, once with the original creditor and once with a collection agency, but there shouldn't be more than one collector listed at a time for the same debt.)

  • Any negative information that isn't yours.

If in this review process you didn't find errors of note, skip to the next step. If you did, read on.

Dispute the Errors

Your credit report comes with a form for disputing errors by mail (if you ordered by phone) or online, depending on the way you ordered your report.

Credit bureaus are required by law to investigate any mistakes you bring to their attention and report back to you within 30 days. Typically they ask the creditor that reported the information to check its records. If the creditor can't vouch for the accuracy of what it reported or doesn't respond, the offending item is deleted from your report.

That doesn't mean the error stays off. Unfortunately, some creditors persist in reporting inaccurate information. A consumer might follow the rules to get a problem removed, and the creditor simply reports it again a few months later.

That's what happened to Stan, a homeowner who encountered problems when his mortgage was transferred during a bank merger. The new bank made a mistake and reported to the credit bureaus that he was late with a $232 payment.

When Stan discovered the negative mark on his report, he contacted the bank and a representative agreed to fix the problem.

"She worked with me by giving me a letter stating [that the late payment was] reported in error," Stan said. Several months later, the late payment showed up again on his credit report. Stan contacted another bank official, who again promised to fix it after Stan faxed him the first representative's letter. When Stan pulled his report 60 days later, however, the delinquency was still there.

As you can see, the creditor holds a lot of power in this process. Although many errors are fixed promptly, permanently, and without fuss, an unethical or indifferent creditor could make your life difficult by verifying to the credit bureau that incorrect information is, in fact, accurate or simply rereporting an old error. If you run into this problem, check out the information in "What to Do If a Credit Bureau Won't Budge" in Chapter 7.

If you're successful in getting errors removed from your report, you might—or might not—notice an improvement in your credit score. It all depends on the information remaining. The following section presents the best and most effective ways to make sure that information reflects well on you—and in your score.

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