Bad credit stops you from getting decent credit cards and loans. Poor credit can prevent you from getting a job if prospective employers see poor credit as a risk.
The savvy consumer – good or bad credit – knows it’s important to monitor credit reports and scores.
Why Do This?
Bad credit stands in your way. Good credit is more likely to be victimized. It is vital that you know where your credit stands and that records are accurate.
What Creditors Monitor
Credit reports are summaries of a consumer’s borrowing and payment history. They list unpaid bills, late payments, and new and closed accounts. Reports track auto loans, mortgages, credit cards and other financial instruments. They are used to establish your credit score, the greatest influence on your ability to borrow.
In order to monitor your creditworthiness, look at the following criteria lenders use.
Payment History. Whether you pay bills late or not at all, they are tracked on credit reports. Most lenders report you if you are 30 days late, regardless of how long you’ve paid on time. This can include utility bills. Getting payments in on time is important to good credit.
Years of Credit. The longer you have good credit, the easier it is for lenders to determine your ability to manage debt.
Amounts Owed. Lenders look at balances and how they match with credit limits. If you max out or use credit too frequently, it will hurt your credit standing.
New Credit. If you are constantly opening new accounts or have what a lender considers too many, this will have a negative impact. They view this as a lack of restraint with credit or see the possibility you’re desperate for cash.
Types of Credit and Debt. Auto loans, mortgages, credit cards, student loans and more are all things lenders look at.
Personal Information. Lenders review annual income, employment history and even arrest records. They can, in fact, use whatever criteria they choose to establish if you’re a trustworthy candidate.
Tips for Monitoring Your Credit
- By law, you have the right to see your credit report for free once a year. The three major agencies – Experian, Equifax, TransUnion – have to supply your credit report upon request. Even if you know your credit’s bad, you should still take advantage of this to know what your credit reputation looks like. It may even prompt you to get on the road to good credit.
- Higher scores mean lower interest rates. The lower your score, the greater chance of rejection – and every rejection hurts your score. The lower your score, the greater chance of paying exorbitant rates or having to deal with shady lenders.
- Pay bills on time. Never assume because your credit is already bad that’s not important. Lateness or delinquency only extends your rep as an untrustworthy consumer. Remember, every late payment gets reported, even the electric bill.
- Pay off debt as opposed to moving debt around. Using credit cards to pay bills does not help you as you end up paying more in the long run.
- Though it’s easier said than done, try to minimize outstanding debt and avoid overextending yourself.
- Refrain from applying for loans and credit needlessly. Applications appear as inquiries on your report and frequency gives the impression you’re irresponsibly looking for whatever cash or credit you can get your hands on.
Another sound reason to monitor your credit report is because of the threat of someone stealing your identity and using it to put you in debt. Many services monitor these situations on your behalf, sending alerts when suspicious activity occurs. But this isn’t something you can’t do yourself. You can pay one of the big three tracking agencies (Experian, TransUnion, Equifax) to give you regular access to your reports. You can find inaccuracies and dispute them. This is good if you’re looking for a mortgage. It lets you see what mortgagors are seeing as you walk through the mortgage process.
If you use a service, go with one that’s worth paying for. Use a service that investigates and debates with creditors. A service that will report credit fraud and identity theft, not one that leaves it in your hands.