As of September 1, credit reports -- those exhaustive dossiers of your financial life with everything from your student loan payment history to your Saks Fifth Avenue spending habits -- are free to all Americans. Thanks to the Fair and Accurate Credit Transactions Act (FACTA) of 2003, you can now go to www.annualcreditreport.com and get free annual copies of your credit report from Equifax, Experian and TransUnion -- the "big three" credit reporting agencies.
Are you thrilled to your core?
I admit it. Like a lot of important things in life, credit reports are important, but not fun or exciting. They seem pretty mundane next to epic natural disasters and history-making events. Even to me, a money columnist, looking up my credit report sounds about as fun as a dentist appointment.
In a way, I guess, they're similar. (With apologies to any dentists reading) neither are very fun, or very comfortable and you can put them off with an, "Oh, yeah, I'll get to that." But with both, if you don't get to them, eventually there may be some pain.
What You Don't Know Can Hurt You
If you want to apply for a car loan, student loan, mortgage or credit card, your lender will be studying your report. Mistakes (in accounts or payment records or credit limits) can lead to higher interest rates or an outright denial of credit. By checking your report now, you can correct any mistakes before the lender sees it. (Your credit report will detail how to do this.)
Take my friends Bill and Susan. They're the picture of financial respectability. With a pair of graduate degrees, a pair of successful careers and a pair of adorable kids, you'd think most banks would jump to get their business.
And Bill thought that too, until recently, when he was denied a new credit card request. The reason: "negative information" on his credit report.
Come again? Bill, who has taken out and made good on several loans and mortgages, was surprised. What happened?
Turns out, back in college, Bill moved out of his apartment before the end of the semester. Though he left enough money for his roommates to close out the bills, one bill -- which was in his name -- didn't get paid.
Fast forward 12 years and, without warning, the creditor reports it. Just as Bill and Susan were thinking of selling their home and buying a new one. Not the best time to have "negative information" on your credit report.
In this case, the information was technically correct, but not an accurate reflection of the situation. Fortunately, Bill was able to rectify it by paying the charge (without any help from those old roommates), but only after many phone calls and sleuthing to figure out where the charge had come from. It would have saved them a lot stress and time if he had been able to jump online and catch the problem early -- something you have the right to do now.
The possibility of inaccurate information, leads some financial experts to advise that you not limit yourself to just looking up one of your reports.
"Looking at one is a useless endeavor; you need to look at all three," says Howard Dvorkin, president of Consolidated Credit Counseling Services on bankrate.com. "People tend to pull one and think everything is the same on all of them. That's not normally the case."
Others suggest that since you only get one free report from each agency each year, you should "rotate" them by requesting one from a different agency every four months.
Rotating might work down the road, when you've already got a baseline of information. However, I advocate taking the plunge. Go for all three, at least the first time you pull your reports. Better to make sure from the get-go that there are no mistakes.
Even if you're not planning to buy a new home or undertake any other major financial obligations in the next year, your credit report will still be scrutinized if you're applying for a job, attempting to rent or even buying a cell phone. So make sure it's right.
Ever heard that elephants don't forget? Well, think of a credit reporting agency as a gigantic, continent-crossing, all-knowing herd of elephants.
They know your financial successes, but also know your failures. Whether you've bounced checks, maxed out your credit cards or been late making payments -- credit reports capture it all.
Of course, if you're in financial distress, the last thing that you probably want is to be reminded of it. But confronting it now can save you even more headaches down the road.
In his book, Credit Card Nation, author Dr. Robert D. Manning tells the story of Jeff, a graduate of Georgetown. While in school, Jeff moved from using credit cards for "emergencies" only, to charging school expenses to charging everything.
"Everyone has to take on debt to go to college... everyone is expected to have student loans... Even in my Midwestern [culture] which emphasizes that debt is bad, college loans are viewed as good debt," Jeff said.
After four years, 11 credit cards, $20,000 in credit card debt and a $10,000 debt consolidation loan, Jeff headed out to find a job.
"Unfortunately," Manning writes, "Jeff's promising career is encountering obstacles from an unexpected source -- his credit cards. During a recent interview with a major Wall Street banking firm, Jeff was asked, 'How can we feel comfortable about you managing large sums of our money when you have had such difficulty in handling your own [credit card] debts?' Jeff was stunned. It was obvious that the interviewer had reviewed his credit report -- without prior notification -- in evaluating Jeff's desirability to the firm." All along Jeff had banked on a high salary to finance his college bills. But now, Jeff wonders, "How can I pay them back when their credit reports are hurting my chances of getting a good job?"
Will your credit report do the same thing?
Hoping your credit will get better "later" -- when you get a job, or pay off student loans, or get a raise -- isn't an effective plan, experts say. Instead, sit down with your report, be honest with yourself about how much you owe, and tackle the problem now. That may mean going it on your own -- cutting up the credit cards and aggressively paying off debt. Or it may involve the help of a credit counselor.
Either way, it needs to be now, not later.
But beware of those claiming to "repair" your credit for a fee. Even the big three credit agencies will try to make a quick sale, offering you services like "credit ranking," "credit watches" and the like. But most are a waste of money -- money that could go to pay down one of your debts.
As mundane as it sounds, credit is repaired only by paying off debt and by time -- neither of which any "credit repair" company can give you. It may take a while, but don't give up.
"A good name is to be more desired than great wealth," Proverbs tells us. If you've been financially disciplined and preserved your "good name," congratulations. Just make sure that your report reflects that too.
If you haven't, face that report and start redeeming it. These days your name will follow you everywhere -- and a good name has never been worth more.
This story ran on Boundless WebZine on September, 2005.