Today’s interest rates are some of the lowest in living memory.
But many people can’t take advantage of these low rates because they don’t know how to maximize their credit score. Or even worse, they may have an error on their credit report that’s dragging their score down.
So here are some tips for transforming your credit and defending yourself from errors.
A common problem
It’s been reported that about 80 percent of people have an error on their credit report, and a recent study by the FTC found that even after disputing errors, almost 70 percent of consumers still find inaccuracies. As a result, some 25 percent of these people get denied a loan for which they would otherwise be approved.
That’s just not acceptable when an error—that you didn’t make—can be the difference between being approved or denied for a loan (or getting a high or low interest rate). A maximized credit score is the key to restructuring loans to free up cash flow, getting lower interest rates, paying less on insurance and more. So it’s crucial to find out your credit score and improve it as much as possible.
Not too long ago, if you had a pulse, you could get a loan—and a credit score of 680 qualified you for the best rates. Then they went to a higher standard of 720. But now, you’ll need a score of around 760 to 780 to ensure you get the lowest rates possible.
Once you hit 800, you have nothing to worry about, so that’s the goal.
The good news is there are concrete steps you can take to transform your credit score. In fact, once while interviewing a credit score expert on the radio, I texted my wife a few things to try to improve her credit score rating. And even though she had good credit, her score still jumped 79 points in 30 days, because she now understood some of the lesser-known rules of the game.
Getting your credit report and score
First, know that any business loans or lines of credit may not show up on your personal credit report. That’s because any credit reporting will be for your business, not for you the individual.
Next, people are often surprised to discover that their credit report and their credit score are not the same thing. (And your credit score is not always on your credit report.)
Plus, your credit report is actually three different reports compiled by three credit bureaus: Equifax, Experian and Transunion. The reports should be almost identical, but they may not be depending on what’s been reported to the bureaus.
These companies are required by law to give you a free look at your credit report once a year at annualcreditreport.com.
So what many people do is request one free report from one bureau every four months, that way they can regularly monitor their credit and check for errors for free.
That’s a good plan. But if you haven’t checked any of your credit reports in years, you might want to pay the extra money to check them all for errors now, and go the free route moving forward. Also, just as you have three credit reports, you have three credit scores, too—one for each credit report.
To get your credit scores, you can visit myFICO.com. This is a good choice for getting an accurate FICO score that creditors actually use.
There are other sites that will give you a Vantage credit score, but that’s not the same as FICO. Most lenders use FICO when considering you for a loan, and your Vantage credit score is typically much higher, which can cause confusion.
Check for errors
My wife once discovered that one credit bureau’s report gave her a score of 701, while the other two gave her a 762. Why the discrepancy? Because one of her credit reports had an error.
That’s why it’s important to look at all three credit reports and scores up front to see what’s really happening. Most people will find an error of some sort. Maybe it’s just a misspelled name or an incorrect address.
For example, lenders often want to know how long you’ve been at your current address, so you want to make sure that information is correct. More serious errors will hurt your credit score, and these are common as well.
Sometimes it’s because the same account is showing up twice, which is especially harmful if that account has missed payments or a bad utilization rate (i.e., your debt-to-limit ratio).
Other times, an account you closed may be shown as being open, or vice versa. If this is the case, you’ll want to contact the credit bureau directly at Experian.com, Equifax.com, or Transunion.com. They have directions on their websites for how to dispute errors.
Although, if the error is for an account more than two years old, and that account has any negative marks, it may be better just to leave it alone. Any changes made to an account with negative marks will make those negative marks seem more recent, and that will hurt your score. It’s best to let sleeping dogs lie in most such cases.
Another common error is when a credit card doesn’t report your credit limit, which is the same as reporting a limit of zero. To the credit bureaus, this looks like your card is maxed out without your having spent a dollar, and you’ll be flagged as being over your limit as soon as you use it.
If this is the case, you’ll want to call your credit card company and ask them to report the limit. If they won’t, then it’s time to contact the credit bureau. But don’t dispute more than three errors at a time with any single credit bureau, or they’re likely to mark the disputes as frivolous.
Instead, file three disputes and wait until you get a resolution. Then they have 30 days to investigate the dispute. Once these are resolved, you can dispute three more.
Most people don’t think about their credit score until they need a loan. But at that point, if their score is too low or there are errors, it’s too late. You’ll either be denied or pay more in interest than you should. It’s best to always be in the know when it comes to your credit—it can save you money and headaches in the long run.
Garrett B. Gunderson, a lifelong entrepreneur, engages in a vitalistic financial philosophy to assist DCs in creating sustainable wealth. His company, Wealth Factory, helps entrepreneurs navigate personal finances and investing. He wrote the New York Times best-selling book Killing Sacred Cows, and can be contacted through wealthfactory.com.