There are signs that America’s credit crunch is easing. Auto sales have been growing for several months. Mortgage interest rates have been at rock bottom for so long that many homeowners with good credit have refinanced their mortgage loans more than once during the economic recovery.
If you need credit for a major purchase or to start a new business, now is a good time to borrow. But before you apply for that loan, make certain you will receive the best possible terms. And that means checking your credit report and doing everything possible to improve your credit score before approaching a lender.
A credit report is a scorecard of your financial life. It’s critical to your financial health because it’s available to any lender. When you apply for a loan, the lender checks your credit report to decide if you qualify and the interest rate they will offer. Your payment history, including any missed payments, is collected by three credit bureaus — Equifax, TransUnion and Experian. These companies also collect other information, such as bankruptcies, civil judgments, liens and debt owed to collection companies.
But before you apply for any loan, check your report. This will enable you to see everything a potential lender will see. You can get a free copy of your credit report at www.annualcreditreport.com. Federal law requires each of the three credit bureaus to provide anyone a free credit report once per year, which means that you can get three free credit reports annually.
Once you have your credit report, review it carefully and check for errors, because correcting errors may increase your credit score. Some of the typical errors on a credit report include incorrect personal information and accounts that are someone else’s. The latter error often occurs when a person has a common last name, such as Smith or Jones.
If your credit report has inaccurate information, contact one of the credit bureaus to dispute this information, as well as the organization that provided the information to the credit bureau.
Send a written statement, along with copies of documents that support your position. Ask the credit bureaus and the creditors to send a notice of correction to potential lenders. Once you have submitted your written statement, the credit bureau must investigate the items in question within 30 days. Once you have disputed any errors, address accurate information that is damaging to your financial health. There are long-term steps that will improve your credit profile, such as developing a debt reduction plan and stopping the use of credit cards.
But you must take these three steps immediately:
- Identify and deal with past due accounts. If you are behind on payments to any creditors, you must contact them and set up a payment plan.
- Address negative records. You can go to the credit bureaus’ website and add a 100-word statement to your credit report to explain the circumstances behind the negative information, such as a job loss or long term illness.
- Make timely payments and monitor your credit. One of the best ways to improve your credit profile is to always make your payments on time. If it all possible, make the minimum payment on each credit card by the time it is due.