I get a lot of puzzled looks when I start wishing people Happy New Year after Labor Day — 2016 is four months away, after all. While the Jewish New Year is in two weeks, I’m not talking about that, either. (But since I mentioned it: Happy New Year to you and yours!) I’m talking about the start of a new school year, which is a great time to make a new resolution to improve your credit.
There are plenty of reasons to get your credit into the best shape possible. New car models are hitting showrooms, real estate may become more expensive (many believe the Federal Reserve will raise the prime lending rate) and (like it or not) the holiday shopping season is almost upon us.
Before you go looking for that new automobile, dream house or additional credit card to cover the cost of holiday shopping, take a moment to find out if your credit report is a resume or a rap sheet.
When the car of your dreams (or the house or the gift) glimmers just beyond your financial grasp, you might just wish you spent some more time making sure you spent less money paying interest charges because your credit profile is less than stellar.
1. Get Your Free Credit Reports
You can see what’s happening with your credit by going to AnnualCreditReport.com and ordering a copy of your credit report for free from each of the major credit bureaus — Experian, Equifax and TransUnion.
Review each report to make sure that every account you see is yours and accurately reflects your available balances and payment history. As I explain in my forthcoming book, Swiped, this is an important first step in dealing with the scourge of identity theft, but knowing where you stand can help orient you when you’re working to build credit.
If you find errors, make sure to file a dispute with the particular bureau that issued the report and ask them to investigate and correct the misinformation. It could be a reporting error, a confirmation that you missed a payment, or an indication that you are a victim of identity theft. If you suspect that someone has stolen your identity, contact the fraud department of any bureau and ask for a fraud alert to be placed on your file. They will then electronically notify the other bureaus to do the same.
2. Understand Your Credit Scores
Your credit reports have a lot of information about you, but how can you tell whether your credit is good, bad or just so-so? You can now get your credit scores for free from a number of sources, including Credit.com. If your scores drop unexpectedly, it could be an indication that you missed a payment or are potentially a victim of identity theft.
3. Monitor Your Financial Accounts Regularly
Check your credit and bank accounts daily to make sure that every transaction you see is yours. Too many charges could eat up your available credit and cause your credit score to drop — and if those charges were made by an identity thief, all the more reason to pay attention so you can notify your bank. Because so many breaches in the past few years exposed bank and credit card information that has been sold on dark web card rooms by ZIP code, it is possible that the transaction screening programs of financial institutions don’t pick up “out of pattern” charges in your accounts when purchases are made near your home or at stores where you have a history of shopping. You are in the best position to know if something is amiss. If so, immediately notify your financial institution.
4. Use Free Tools
Take advantage of the free transactional monitoring programs offered by your bank, credit union or credit card company that notify you of any activity on your accounts. Trust me, it is better to run the risk of being annoyed each and every time you are notified that a charge or purchase has been made on one of your accounts than to have to deal with the hassle or potential economic dislocation that comes with being a victim of an account takeover.
5. Consider Credit Monitoring If You’re Worried About Identity Theft
Consider purchasing more sophisticated credit and identity monitoring products and services that not only notify you of problems with your credit, but also alert you to any changes of your personally identifying information.
6. Make a Game Plan to Improve Your Credit
When you review your reports, if you determine that some information in your credit history is correct but negative, you need to work as fast as you can to mitigate the damage.
- Pay your accounts on time. Your payment history accounts for about 35% of your credit score so you need to be timely. One way to ensure that you never miss a payment is to arrange for your account to be automatically debited on a date certain every month.
- Bring down your balances. If you are using too much of the credit that you have, then focus on paying more than minimum payments to whittle down your debt. About 30% of your credit score is based on the amount of debt you are carrying in relation to the amount of credit you have been granted by lenders. A good rule of thumb—10% or less is ideal.
- Apply for credit sparingly. While it is always important to find a great rate at terms that suit your needs, applying for credit dings your credit score and those dings can add up over time. (Note, however, that scoring models do not penalize consumers for rate-shopping within a short period of time for certain types of credit – like mortgages or auto loans.)
- Make a compelling case. Be prepared to explain to prospective lenders or employers what happened, how you have moved to correct the problem and why it won’t happen again.
Before you shop for anything where you intend to use credit this fall, make sure you know where you stand. If your credit is solid, then by all means go out there and do your part to boost the economy. But if you have any issues that could prevent you from getting the credit or deals you deserve, it’s best to know before you apply. There is no substitute for knowing what lenders will tell you—before they tell you.
The ultimate guardian of the consumer is the consumer, and no one has your back more than you do.