How to Evaluate Your Credit History

Understanding your credit report is easier than it first appears.

Difficulty: Moderate

Instructions

1. The first step in evaluating your credit history is to actually review your credit report. You can request copies of your report from the three major credit bureaus: TransUnion, Equifax, and Experian. The federal Fair Credit Reporting Act requires each of these national consumer reporting companies to provide you with a yearly free copy of your credit report upon your request. You are also entitled to a free credit report whenever your application for credit is denied.

2. Look at your credit report for information that could result in you either being denied credit or receiving a higher interest rate. Common warning signs on your credit report include excessive applications for additional credit, a short credit history, a high debt ratio, and late payments to previous creditors. Negative information will stay on your report for seven years, except for a special ten year listing for bankruptcy filings. To help improve your credit report, pay your bills on time, always remember to close unused accounts, try to use less than your total available credit, and don't apply for unnecessary credit cards or loans.

3. Contrary to popular belief, the information on a person's credit report isn't always accurate. Luckily, the Fair Credit Reporting Act allows you to dispute mistakes or outdated items for free. Ask the credit reporting agency for a dispute form or submit your dispute in writing. Have the credit bureau include your version of the dispute in future reports if the investigation does not satisfactorily resolve the matter.

4. If you have delinquent accounts on your current credit report, remember that debt negotiation should be considered a last-resort measure before bankruptcy. A lender has little motivation to accept a pay off for less than the full amount unless the debtor is already months behind on bills. Additionally, it's a good idea to remember that any forgiven debts of $600 or more are considered income to the consumer. The creditor will send both you and the IRS a Form 1099-C at the end of the tax year.

Tips & Warnings

• Credit repair services are increasingly preying on desperate individuals. Some companies will advise you to dispute all information in your credit report or take action such as applying for an Employer Identification Number to use instead of your Social Security Number. If you follow illegal advice and commit fraud, however, you may be subject to prosecution. Making false statements on a loan or credit application is considered a serious federal crime.

[joyful327]

on 4/14/2008 Good tips.