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Some things just look better on paper. We know this from awkward first dates, inept job candidates and disappointing meal selections. Through experience we learn that paper doesn’t always tell the whole story. But there is one story in which paper is everything – your credit story. These days, lenders, insurers and employers are all checking out our credit, so here are our top tips to make sure that the story on paper is really yours and that it’s a good story to share.
Take a Look. Recognize Yourself? Take ten minutes and log on to annualcreditreport.com to review your free report from each of the major credit reporting agencies (Equifax, Experian and TransUnion). While the free version won’t get you your actual score, the report may reveal damaging errors or potential fraud. If you find an error, first, take a deep breath and put your patience pants on. Next, write a dispute letter to the reporting creditor and notify all three reporting agencies (in writing) of your dispute. You may also need to notify other agencies like your bank or investment firm, the IRS or the Social Security Administration if you have fallen victim to identify theft. For more information and guidance, we recommend myFICO.com.
Keep a Good Image: Ultimately, how good you look from a credit standpoint is “graded” by your FICO score. Each major reporting agency has a different formula so your score will vary from one to the other. Guess you could say that credit beauty is in the eye of the reporter! Fortunately, the factors affecting your credit are consistent and there are steps you can take to improve your score with all three agencies. Generally, your score is weighted as follows:
- 35% – payment history (the timelier the better)
- 30% – amount of debt you owe (less is more)
- 15% – length of credit history (the longer the better)
- 10% – new credit inquiries (less is more)
- 10% – ability to manage different types of credit (mortgage, credit card, etc.) (it’s complicated)
Our advice to looking your credit best is to pay every bill on time, pay off your credit cards monthly and avoid charging more than 1/3 of your available credit limit. You’ll also want to avoid opening too many cards and steer clear of tempting 0% store financing plans which are viewed as “credit of last resort.”