Your credit report is an accumulation of information about your bills and loans, your repayment history, your available credit, and your outstanding debts. These reports are typically used by lenders when deciding whether or not to accept a loan or credit application. A healthy credit report can help you secure the funding you need to purchase a new home or car, pay for a child's education, or start your own business. The following guidelines can help you maintain a healthy credit report:
Establish and maintain a good credit history. Your ability to pay off debt over time can help paint a more complete picture for a lender inquiring about your financial habits. Therefore, you may want to consider maintaining your oldest credit card. Credit companies often suggest that you also maintain a few accounts to demonstrate your commitment to managing multiple debt sources.
Close extra accounts. After receiving your new customer gifts offered by credit card companies, you may forget about these accounts. However, having numerous open accounts on a credit report may be a red flag to a lender, indicating that you could find yourself in financial danger due to the large amount of readily available credit. Consider closing any accounts that you do not use. This may also minimize your risk of identity theft. Remember, cutting up the credit card itself or simply not using it does not mean the account is closed. To officially close an account, you must call or write to the company with your request.
Make the minimum payments. Delinquencies on payments remain on your credit report for seven years, even if you have since settled the account balance and paid the debt. Therefore, always try to make at least the minimum payments by the due date requested by the creditor or lender.
If you are in a tight financial situation and decide to ignore an account for a period of time, be aware that accounts sent to collection agencies or charged off by creditors (meaning the debt is written off as a loss) also remain on your credit report for seven years. So, if you are unable to make the minimum payments, you may want to contact your creditor, rather than ignore the problem.
Pay down and keep your debt in line with income. Determine your debt-to-income ratio by adding up the balances of all your loans and credit cards, and comparing that with the amount of income you receive annually. If your total debt exceeds your income, lenders may be hesitant to grant you more credit. If you have a large amount of debt, develop a strategy to pay it off gradually within your budget. In the meantime, curb excess spending and avoid further debt.
Control your number of credit inquiries. A large number of inquiries on your report may signal to a lender that you are in need of a lot of credit or are preparing to take on a large debt. Neither situation bodes well for your ability to take on additional debt. Keep in mind that each time you apply for a new credit card, even if it is only to receive a free gift, an inquiry will appear on your credit report and remain on your report for two years.
Opt-out of inclusion on marketing lists. While soft inquiries, those made by marketers and others wishing to sell you something, do not usually appear on the version of your credit report shown to lenders, these inquiries indicate that your personal information may be available and used by the companies listed, increasing your exposure to identity theft. Many marketers receive lists of potential customers directly from credit bureaus. You can "opt out" of being included on lists sold to these companies by either writing to each of the three credit bureaus or calling 1-888-5-OPT-OUT. Doing so will remove your name from marketing lists for two years.
According to the Fair Credit Reporting Act (FCRA), you can request a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and Trans-Union) once a year. For your convenience, you can access all three agencies through a single website at www.annualcreditreport.com. To maintain healthy credit, monitor your credit report regularly and take actions toward building and maintaining good credit.
The information contained in this newsletter is for general use, and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. The information provided is not written or intended as tax, legal, or financial advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any securities. This newsletter is written and published by LIBERTY PUBLISHING, INC., BEVERLY, MA