Credit Report Tips

 Tip #1: Do a "search and find" for inaccuracies

Understanding how credit reports work and what to look for is the first step in helping you come up with a better score for when it comes time to apply for that all-important mortgage or auto loan.

Be sure to leave yourself plenty of time to study your credit report before applying for your loan or credit card. Experts recommend allowing 2-3 months for a thorough analysis.

When checking your report for inaccuracies, remember the following hints.

   Look at all the accounts listed. Do the accounts look familiar? Are they yours? Credit fraud can happen. Make sure no one is using your credit to commit fraud.

   If you suspect that an account is not yours, even if it has a zero balance, ask your credit-reporting agency to investigate. Don't hesitate!

   Do you have a common name? If you have a common name like Bob Smith, you are more likely to have your account mixed up with another consumer.

   Have you co-signed for a loan? If you've co-signed for a loan, it becomes part of your credit history. You're responsible for that debt. If the person you cosigned with is late on payments that will show up negatively on your credit report too.

   A divorce decree does not release you from your responsibility to any joint accounts. You must go back to the creditor and separate the accounts.

 Tip #2: Stay clear of too many inquiries

Too many inquiries can hurt you when it comes time for you to apply for a loan. There are two types of inquiries that show up on your credit report, and only one type counts against you.

First, there are inquiries you initiate when you apply for a loan or a credit card. These are called "hard" inquiries, and they're the ones you want to keep to a minimum. They typically stay on your report for two years.

Lenders see those hard inquiries when you ask to borrow money. They particularly look at the newer inquiries, because if you did get credit, those accounts might not have shown up on your report yet.

Ways to avoid hard inquiries:

   Avoid six or more hard inquiries per any six-month period.

   Don't authorize anyone to run your credit unless you plan to rent or buy from that individual.

   Don't sign up for any credit that you don't need.

Aside from hard inquiries, there is another type of inquiry that does not count against you. This type of inquiry is made by financial institutions deciding whether or not to solicit your business.

For example, a "soft" inquiry would be if a financial institution wants to send you a "pre-approved" credit offer. You do not need to worry about these types of inquiries. They do not count against you because they are beyond your control.

 Tip #3: Build a trustworthy credit history 

If you are just starting out on your own, perhaps after a divorce or recently out of college, you'll want to begin establishing a positive credit history as soon as possible.

This will play an important role in determining your future creditworthiness and in ensuring that you have a good credit score when it comes to evaluating your file for a mortgage or other type of loan.

If you have little or no prior credit history, consider these tips:

   Limit the number of accounts you have. Resist the temptation to sign up for every credit card you can.

   When choosing a credit card, find a revolving credit card that has a reasonable credit limit ($300 maximum) and stay within your budget.

   Pay your bills on time. Every month, your creditors release information to the credit bureaus. Make sure your creditors are reporting only positive information about your bill-paying history.

   Ask a family member to help you get credit. If you have little or no credit history, you may need the assistance of someone with an established and positive credit record to co-sign a loan for you. However, if you do this, be sure you are responsible in making all your loan payments on time.

Remember, your credit history influences your ability to rent or buy a house, get a job, buy insurance and purchase items with a credit card. Many lenders and creditors consider it a direct reflection of your character.

Start now to ensure that you have - and maintain - a good credit history.

  Tip #4: Design a budget that fits you

A monthly budget is essential. In fact, it is the only practical way to get a handle on your spending and ensure that your money is used the way you intend. Creating a budget may seem like the most tedious of tasks, but with these six steps, you'll be able to easily create a budget that you can stick with.

   Define your goals: If you don't know where you want to go, you won't know how to get there, right? Spend some time developing your short-term and long-term financial goals. They'll serve as your guide when mapping out your monthly budget.

   Track your current spending habits: Create a monthly transaction record sheet. For every purchase you make, write down the date, the amount, a description, and the payment method (cash, check, credit card). Do this for three months. You may be surprised how your money is spent.

Quick Tip:  Consider using a financial software package to track your spending. There are various personal finance programs on the market today, and their built-in budget-making tools can greatly simplify the budgeting process.

   Compile monthly cash flow statements: After you've recorded three months of spending history, compile the information into a cash flow statement. This will show you where your money is coming from (cash inflow) and where it's going (cash outflow).

   Set specific objectives that will allow you to meet your goals: Now that you know where your money is going, pinpoint areas in which you will be able to cut back. Remember that nothing is set in stone. For example, if you decide to cut spending on dining out, and then you find that you really miss it. Don't do it! Cut back your spending in another area instead. Play around with your budget until you find what works for you.

   Use an annual net worth statement to monitor your goals: Annual net worth statements are a great way to monitor your financial progress. Your net worth is your total assets less your total liabilities. When calculating your net worth, use the current fair market value of your assets and the current outstanding balance of your liabilities.

   Design a reward system: You must reward yourself for your hard work. For example, after reaching your annual goal, why not take the family out for a nice dinner?

   Don't Go Overboard: If you're over zealous with your penny pinching, you might be setting yourself up for disappointment. In order to really stick to a budget, focus on your main areas of spending and don't get caught up in the details.

   Live below your means: Don't spend more than you bring in. It's easier said than done…especially with the wide availability of credit. But you must adhere to this rule, even if it means making some serious spending cuts.

   Where can a consumer receive credit advice?

Consumer Credit Counseling Service is a national, non-profit organization that offers consumers assistance with financial concerns. They offer financial counseling and debt management planning for little or no cost. Counselors analyze a consumer's current income, debt and spending habits and work with creditors to develop a debt repayment plan and establish a budget for the future. For the nearest office contact:

National Foundation for Consumer Credit, Inc.
8611 Second Avenue
Suite 100
Silver Spring, MD 20910
Phone number: 1-800-388-2227

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