Personal Financial Tip 5

Routine maintenance is something that needs to be performed on everything. We periodically change the oil in our cars, we have the car inspected annually, we have annual physical check-ups, etc. We do this in the hope of preventing problems and to discover minor problems before they become major ones.

One thing we tend to ignore is our credit report. They only time we think of our credit is when we are applying for a loan. If there are any problems with our credit profile, we can end up being declined for the loan or find ourselves paying more for credit than we should.

Today, more than ever, it is important that you do ongoing routine maintenance on your credit report. Lenders examine your credit profile when you are applying for credit, employers when you are applying for a job, landlords when you are looking to rent an apartment and insurance companies when you are looking for insurance. Errors on your credit report will negatively impact all these major decisions.

Mistakes are not common in credit profiles, but they do happen. Correcting mistakes takes time so it is in your best interests to discover a mistake before it can cause you any harm. I’m going to tell you what routine maintenance you need to do as well as the steps that you will need to take to address any problems that you may find.

Before we begin, you need to understand how the industry works. Think of the credit bureaus as nothing more than large filing cabinets. Every month each creditor you deal with sends an update to the bureaus. If you’ve borrowed more money, paid off a loan, made a timely payment or made a late payment, this data is added to your file. There are 3 major credit bureaus (Equifax, Experian and Trans Union) and most creditors report to all three. You will need to monitor all three bureaus for accuracy.

When an entity wants to see your credit profile, they need to first receive your permission and then an inquiry is submitted to the bureaus. The bureaus then assemble all the data that has been supplied to them by your creditors and searches public records for any judgments and bankruptcy filings. This data is combined to create your credit report and if requested, a credit score is calculated. The score is a computer analysis of your report that yields a short cut to your creditworthiness.

For a more detailed analysis of credit scoring please visit http://www.shelter-rock.com/Credit%20Reports.htm.

You are entitled to get a free credit report once a year from each of the bureaus. What you want to do is to request a report from each bureau once a year, spread out throughout the year. This way you get to see a report three times a year without any cost. Visit www.annualcreditreport.com to access your report.

In reviewing your report you’re looking for any derogatory data, judgments, collection accounts, charge-offs, late payments, etc. If you find any incorrect information you will then need to work on getting the item(s) corrected. This will be a time consuming process and you will need to document every step.

Contacting the credit bureau with a consumer complaint is not going to guarantee the correction will be made. When you file a dispute with a credit bureau, the bureau is responsible to forward your complaint to the creditor in question. The creditor has 30 days to respond. If the creditor doesn’t respond, then the bureau must remove the item in question.

If the item is removed because the creditor corrected the error, you’re fine. If it is removed simply becaues the creditor did not address the dispute within the 30 days, you have not solved the problem and that same error will re-appear on your report. Remember, each creditor reports to the bureaus every 30 days. If their records haven’t been corrected, then the item in dispute will be re-entered into your credit profile in the next cycle. There is no way for you to know what initiated the removal of the disputed item unless you are fortunate enough to get a written acknowledgement from the creditor.

The only way to assure that the error is permanently corrected is to contact the creditor and/or collection agency directly. Before making contact, assemble any documentation you have available to support your claim that there is a reporting error. Send any written correspondence by certified mail/return receipt requested and keep a telephone log of any conversations with the creditor. Through your persistant contact with the creditor you will eventually get the problem resolved.

It will appear that the creditor is just being difficult and doesn’t want to cooperate in correcting their mistake. In some cases this is true, but in most cases you are dealing with a creditor that is being overwhelmed with invalid disputes. Until your valid claim is separated from the overwhelming number of invalid complaints it cannot get the attention it deserves.

The bureaus and creditors receive a combination of legitimate, valid disputes as well as disputes where the consumer is wrong and the data is correct; and then there are the disputes filed by "credit repair" companies. These are companies that promote themselves as professionals in removing derogatory items from credit reports. Their business model is to overload the system with disputes. Every time a dispute is proven to be invalid, they simply resubmit the dispute complaint. In every batch of disputes sent to the bureaus and creditors, a few get randomly removed. Their goal is to create enough confusion at each of the agencies, that errors begin to happen. In this case however, the error is removing a valid derogatory item from a report.

You need to do everything possible to separate your valid dispute from the hundred of thousands of invalid ones. That is the only way to you can be sure the mistake is removed, permanently.

Mistakes in your credit file don’t happen often. Minor mistakes such as an occasional late payment will have no material impact on your creditworthiness. If you do however discover an error, just be prepared for a long and frustrating task. As frustrating as it is, it’s definitely worth the effort.