Whether you're applying for a loan, a mortgage, or a credit card, your credit history will play a major role in your success. But you don't have to cross your fingers and hope for the best. Instead, get a copy of your credit history. If you're pained by what you see, you can either challenge the report or try to offset it.
The big three credit–reporting agencies are Equifax, Experian, and TransUnion. You can contact any one of them to have your credit report mailed to you; but to ensure that each report is accurate, the National Foundation for Credit Counseling suggests getting a copy from all three.
|Equifax||P.O. Box 105873
Atlanta, GA 30348
|Experian||P.O. Box 9595
Allen, TX 75013
|TransUnion||P.O. Box 390
Springfield, PA 19064–0390
As of this writing, Equifax is the only credit–reporting agency that permits you to view your credit history on its Web site (for an additional $9 service charge).
If you live in Colorado, Massachusetts, Maryland, New Jersey, or Vermont, each of the above agencies must furnish you (upon your request) with one free credit report each year. Georgia residents are entitled to two free copies each year. Residents of every other state will have to pay for a copy of their credit report — usually between $3 and $9.20, according to Equifax.
Even if you don't live in one of the aforementioned states, there are other ways to qualify for a free report — if you're on welfare, if your report is inaccurate due to fraud, or if you're unemployed and looking for a job. You're also guaranteed one free report if you've been denied credit, unemployment, or insurance in the past 60 days.
According to Dagen McDowell of TheStreet.com, your credit report "will list all credit cards, home–equity loans, mortgages, and other loans (including student loans) plus their status. This record [will] also include the name of your creditor, any balance, any amount that's past due and your history of paying your bills."1 You should also find closed credit card accounts, records of companies that have asked for your credit history, and all delinquencies, bankruptcies and liens.
This is when you should spring into action. Review everything that appears in your report carefully. Is there a phantom credit card or loan? Is there a blemish that doesn't belong there? If so, you should call the reporting agency (and, if relevant, the creditor) and immediately follow up with a one–page–or–less letter that calmly presents your concerns.
The Fair Credit Reporting Act of 19972 stipulates that credit agencies must correct inaccurate information that appears in your report. After you contact them, the reporting agency is required to investigate the contested data and to share their findings with your creditors. If you discover that you're the victim of credit fraud (someone is applying for credit cards in your name, for instance), call the credit reporting agency and ask to speak to their fraud division.
It's not always a question of false reporting. You might simply find something in your credit history with which you don't agree. For instance, Steve Milner, of the CPA firm Squar Milner in Newport Beach, California, remembers a case of someone who had an IRS lien against their property. Though the lien was proven to have been mistakenly applied, and was subsequently removed, the credit report showed a lien being applied, then removed. While this was technically true, it also didn't reflect the fact that the lien should never have been applied in the first place.
If you do challenge your credit report, be prepared for a long haul. As Dagen McDowell points out, you might have to work at it for several months. You'll also have to be vigilant; even after being removed, mistakes can reappear. For this reason, McDowell asserts that "you should be aggressive from the start."3
The best correctives to a checkered credit history are to pay bills on time and not overdraw accounts. If you plan to press on for a loan or mortgage in spite of your credit history, you don't necessarily have to despair. And you definitely shouldn't dissemble.
"You don't win anything by lack of disclosure," says Steve Milner. "You're much better off bringing up problems in your credit history and trying to explain them in your own way." At least you'll have a chance of success. Otherwise, Milner says, "you'll be waiting for the loan to be denied and then trying to explain it."
Loren Herbst, a recently retired banker and SCORE counselor with 35 years of experience in commercial lending to small and mid–sized businesses, agrees — especially if you're on the road to full credit–report recovery. "Explain what caused your history to be bad previously. Then explain why it's better now, and how you've taken steps to ensure that this will remain to be the case."