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5 Ways To Improve Your Credit Score – Lesson 5

Over 40% of all credit reports have some form of inaccurate information on them.  Do you know what yours looks like?

Inaccuracies on credit reports are as old as credit reporting itself.  But, in today’s world, it is much worse than it has ever been in the past.  Identity theft is the fastest growing crime in America, and the average victim spends 100 hours fixing the problem.  Not only is this incredibly irritating, but it can cost you time from lost work, money from expenses associated with correcting the problem, and it can cost you even more money in interest rates should you decide to do nothing about it.  And the icing on the cake, less than 25% of these crimes are prosecuted.

More than 70% of all identity theft is committed by a family member or trusted “friend”.  I use the term friend loosely because someone that would open credit accounts in your name is a criminal, not a friend.  Even though I believe that these parasites on society should be hung in front of the courthouse, that type of judgment is not going to happen.  Until then, the responsibility is on you to fix it or prevent it.

The first step is to pull a copy of your credit report.  You can do this at AnnualCreditReport.com.  It is free to get access to your credit report once per year through this website, and I highly suggest you do at least that.  In addition, I believe that you should check your credit every 6 months.  For the second report that you will have to pay for, I recommend going to FreeCreditReport.com.  While this service is not completely free as the web address might imply, they will give you a copy of your credit report if you sign up for their credit monitoring service.  If you are not satisfied, you can cancel at any time.

Once you have pulled your credit report, go through each section line by line to search for inaccuracies.  This could be as simple as a misspelled address, or as complicated as identity theft.  Once you have identified the information that needs to be corrected, compile a letter to each credit reporting agency (Equifax, Experian and TransUnion) describing the items that need corrected and send them to the bureaus by certified mail to confirm that they received them.  You can get a sample credit dispute letter by doing a google search for “credit dispute letter”.  There are hundreds available online, just choose one that fits your needs.

There are also a number of identity theft protection services.  But. by far the best one is LifeLock.  They offer a $1 million guarantee to protect your identity, and fix the problems up to $1 million if someone gets through on your identity.  They also work extensively with law enforcement to prosecute the offenders (that’s my favorite part).

I hope you have found this series of blogs to be informative and helpful.  I will be adding more useful information next week.


LifeLock Take Control

5 Ways To Improve Your Credit Score – Lesson 4

How does the number of open accounts affect your overall credit?

This topic is more subjective than scientific.  I wish I could give you the equation for the perfect credit profile, but I don’t know that one even exists.  What I can tell you based on experience, is that the habits of individuals are predictable based on their credit score.  Or maybe it is the other way around.  Either way, consistently, the highest credit score borrowers that I see all have one thing in common…simplicity.

Of the thousands of credit reports I have seen, I can count on 2 hands the number of reports that have had a score in excess of 800 (850 is the highest score allowable in the system).  What all of those individuals had in common is an overwhelming sense of responsibility when it comes to credit.  I suppose that is an obvious answer, but not everyone cares that much about their credit, and it shows.  Almost everyone in that category had 1 mortgage (usually for many years), 1 car loan (with at least a years worth of perfect payment history), and no more than 3 other active accounts.  Most of the them had at least one credit card that they have used for more than 10 years.

Virtually anyone with a score over 740 would be considered platinum credit by most standards.  But, by any standard, a score over 800 can call their own shots when it comes to borrowing money.

In the mortgage industry, there are few loan programs that require you to have a score higher than 720.  In fact, most people can qualify for a mortgage loan with scores as low as 600 (580 in some rural areas of the country).  But with Fannie Mae’s recent implenentation of tiered rates based on credit scores, your low score will lead to higher rates, more fees, or both.  The difference can add up to hundreds more per year in loan costs, and thousands over the life of the loan.  With this in mind, your credit score is more than just a status symbol, it can affect your wallet in a significant way.

Here is a fun game.  Take out a financial calculator and look at the affect in real dollars.  If your credit score creates a situation where you have to pay $50 more per month on your mortgage than someone with perfect credit would pay, it might cost you $100,000 more than your good credit counter part over the life of the loan.

For instance: $50 per month equals $600 per year; That $600 per year spread out over the length of a 30 year mortgage is $18,000.  That is assuming you just used the cash, but what if you took that $50 per month and put it into a money market account yielding 3.5% (there are a number of places where you can get that kind of return on your money in a liquid account)?  After 30 years at $50 per month, you would have $31,770.63.  That is great, but what if you decided to invest the money?  In a mutual fund yielding 10% average annual return (again this is easy to find in any number of mutual funds), you would have $113,024.39 and a paid for home in 30 years.  I could also make the argument that you would not even have to suffer in lifestyle to get to that point.

Based on that equation, you can see in real dollars why banks have marble floors and wood paneling.  The next time you are jealous of someone with more money than you, be reminded that the only difference could be the choices that you made.

Lesson 5 – Credit Disputes