By FPA member Amy Jo Lauber, CFP®
Last Updated: March 29, 2011
Many Americans want to obtain and maintain good credit, but may struggle with past mistakes that may have affected their credit score. Still others may have been a victim of identity theft and some may not even know they’ve been victimized. Here are some tips for keeping your credit report accurate and safe, and how you can repair your credit score for future purchases.
Your Free Credit Report
There are many credit report and credit score checking services offered online (you may also request them by mail). Keep in mind that, while most companies will offer to provide your credit report free of charge, there is typically a charge to obtain your credit score. Most often, it is not necessary for you to obtain your score, as any time you apply for credit, the company offering you credit will check your score. You may want to find out what your score is for your own knowledge and/or curiosity, but it is not necessary.
Check Your Credit Report Frequently
You are entitled to one free credit report per year from each of the three credit reporting agencies. It is a good practice to check each major credit reporting company (Equifax, Experian, TransUnion) not all at once, but staggered throughout the year. For example, you would check Equifax in January, Experian in May and TransUnion in September. This way, you are able to monitor your activity on a semi-regular (three times per year) basis and are more likely to catch any errors or instances of identity theft than if you check all three agencies in January and then have an issue arise in April. You can check them all as many times as you wish, but you are only entitled to one free report from each company per year.
There are services you may purchase that will monitor your credit daily for you and others that may help you recover from identity theft.
If There is Anything Incorrect
If you find any errors on your credit report — whether the charge no longer should be listed or if you never made the purchase — contact the company directly to rectify the problem. If there is an instance of identity theft, contact the authorities immediately.
Getting Out From Under the Debt
There are many agencies to help you with your credit problems. Look for a not-for-profit agency that can guide you through the process of restoring your credit score, paying down any debts and negotiating with creditors. Many agencies also provide payment programs (for a fee). Remember that you may be able to negotiate directly with creditors to reduce either the amount of the debt and/or the amount of interest due. This makes it more likely that you will pay the debt off; making it a worthwhile outcome for the creditor. If your debt amount is reduced, bear in mind that forgiveness of debt is a taxable event and you will receive a 1099 at the end of the year for the amount of debt forgiven (reduced). Be sure to set aside money to pay the associated income taxes when due.
Check Those Statements
Be sure to check your credit card statements every month (or online as frequently as possible). You can identify any unauthorized purchases and alert your credit card company before you are required to pay for the purchase (some companies require you to pay for the first $50 of unauthorized purchases, while others remove the entire amount from your bill, once it has been verified as fraudulent).
It is also wise to check your bank account statements carefully each month or online as frequently as possible.
FPA member Amy Jo Lauber, CFP®, is President of Lauber Financial Planning in West Seneca, NY.