Tuesday, June 4, 2013
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Give Yourself Some Credit
If there is one thing we all want in common, besides peace on earth, it's a high credit score. It impacts whether or not we can own a home and what interest rate we'll pay to replace our old clunker when we need a new car. And it's much easier to attain than world peace.
Insurance companies use a slightly different formula to evaluate your risk potential. It's based on your credit score but factors in other criteria as well. They've learned that the lower a person's credit score, the more likely they are to file claims.
Landlords will use a credit score in screening applicants for a vacancy. Their interest here is obvious. If you don't pay your bills, you're not likely to pay your rent on time, either.
Have you ever been promised 10% off your day's purchase by opening a store's credit card? Just answer a few quick questions to earn instant savings. The merchant runs a quick check of your credit score to determine credit worthiness.
Employers are likely to check an applicant's credit score during the hiring process. The higher your credit score, the more conscientious you have proven to be. That's a trait every employer values.
Your credit score is based on your history as reported by creditors to the three major credit reporting bureaus. And it isn't just one score. Each credit bureau maintains their own system as well as the most commonly recognized FICO score by Fair Isaac Corp.
Other entities have introduced their own versions over time, but none have gained popularity. We covered some of the basics here.
Maintaining a pristine credit score is not always easy, despite our vigilance. Life throws too many bumps and curves in the road. Medical bills, job loss and unplanned costly home repairs can make the best laid plans go astray.
Any one of us can find ourselves with a less-than-stellar credit score. But the good news is that it doesn't have to stay that way.
First, assure that all of the information in your credit reports is accurate. You'll need to check all three reporting bureaus separately since they can contain different information, particularly in the case of human error. We discussed how to fix any errors you find here.
If the negative information is accurate, start working quickly towards a fix. Focus on past-due accounts that have not yet been charged off. These are easier to payoff first. Once they're up-to-date, they'll start reporting current and generate the quickest results. The negative data will still appear, but it won't reflect as poorly as had it remained that way.
Next, tackle balances in collection or already charged-off. It won't change your credit score as quickly, but future creditors will look at this more favorably than had you simply ignored them.
Pay down balances on any open credit cards nearing their limit. Keeping your balances at 30% of your credit limit displays good credit responsibility habits.
Once your good credit rating is restored, rebuild positive history by opening new accounts in various categories. An installment loan, such as for a car or furniture, shows you can handle fixed payments as well as manage debt responsibly.
But only apply for new credit if you can afford new payments. Doing it solely for the sake of rebuilding your history can put you right back in the trouble you so painstakingly worked your way out of.
Positive credit information remains on your file for up to ten years from the date of last activity.
Negative information has different limits. Late payment and collection history remain on your file for seven years from the date the account first became past due.
Judgments appear for seven years from the date filed, whether paid nor unpaid. If you pay a tax lien, it disappears seven years from the date the lien was released. Unpaid tax leans will haunt you indefinitely.
Chapter 7 or 11 bankruptcies, or a non-discharged or dismissed chapter 13 bankruptcy, follow you for ten years from the date filed. A discharged chapter 13 bankruptcy disappears in seven years from the date filed.
Inquiries are usually shown for one or two years, depending on the reason your credit file was accessed.
Good credit is synonymous with your good name. Without it, you have nothing.
What Is A Security Freeze?
A security freeze is a tool to help protect your privacy and prevent identity theft by stopping credit, loans, and services from being approved in your name without your consent or knowledge. Most businesses these days will not open a credit account without first checking a customer's credit history. A security freeze prohibits a credit reporting agency from releasing information in your credit report file without your express authorization or approval. By placing a security freeze on your credit file, chances are slim that someone with your name and Social Security Number will be able to open an account in your name.
If you want to place a security freeze on your credit file, you must contact all three credit reporting agencies individually. Contact information for the three credit reporting agencies is listed at the end of this article. Credit reporting agencies must place the freeze on your file no later than five business days after receiving your request.
Fees for placing a security freeze vary by state and circumstances. It is free for all New Jersey consumers to place a security freeze on their credit file. For Pennsylvania consumers, it is free if you are a victim of identity theft or are 65 years of age or older. For all other Pennsylvania consumers, the fee to place a security freeze is $10.00 per credit reporting agency. A list of fees by state is available on all three credit reporting agency websites.
It is important to note that there are still some entities that will be able to access your credit file, even with a security freeze in place. Existing creditors, or collection agencies working on behalf of existing creditors, will still have access to your file. Other creditors may also use your credit file to make pre-approved offers of credit (sometimes called pre-screened offers) unless you have opted-out of receiving such offers. In addition, government agencies may have access for purposes of collecting child support, taxes, or investigating fraud; or by court order, subpoena, or search warrant.
Once a security freeze is in place, a potential creditor attempting to access your file will receive a message that the file is frozen. The potential creditor will usually contact the consumer and ask them to lift the freeze. It is at this point that an identity thief will be stopped. Each credit reporting agency will provide you with a 10-digit personal identification number (PIN) that will be required to lift the security freeze. It is important to keep your PIN secure. An identity thief will be stopped in their tracks because they will not be able to lift the freeze.
You can temporarily lift a credit freeze in two ways. You can temporarily lift a credit freeze for a specified period of time or for a specified creditor. If you know that you will be shopping around for a new mortgage, you may want to lift the freeze for a specified period of time, such as six months. Conversely, if you are applying for a department store credit card, you may want to lift the freeze for that creditor only. You also have the option of removing a security freeze permanently. Please note that it may take up to three business days for a credit reporting agency to lift or remove a security freeze.
Fees for lifting or removing a security freeze vary by state and circumstances. In New Jersey, the fee for temporarily lifting or permanently removing a security freeze is $5. In Pennsylvania, the fee for temporarily lifting a security freeze is free if you are a victim of identity theft or $10.00 if you are not a victim of identity theft. The fee for permanently removing a security freeze is free in all circumstances in Pennsylvania. Again, a list of fees by state is available on all three credit reporting agency websites. The procedure for lifting or removing a security freeze varies by credit-reporting agency and is outlined on all three websites as well.
Another consumer tool that helps prevent identity theft is a fraud alert. There is a big difference between the two, so it is important not to confuse a security freeze with a fraud alert. A security freeze prevents your credit file from being shared with potential creditors, insurance companies, or employers doing background checks. A fraud alert adds a message to the file that there may be fraud involved, but it still allows potential creditors to view your credit file.
It is entirely up to you whether or not to place a security freeze on your credit report. One thing to consider is the increasing number of victims of identity theft every year. These days, it is a major concern for everyone and it is increasingly harder and harder to adequately protect oneself. Placing a security freeze on your credit report can help shield you from such fraudsters and thieves.
Contact information for the three credit reporting agencies is:
Tip of the Week
A high credit score comes naturally to those who build a sound financial foundation. Pay attention to the basics and the results will follow. The U.S. government has a website dedicated to teaching all Americans the fundamentals of financial education. Point your browser here.
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