Tuesday, April 10, 2018

How to find your credit history (and improve it)

Your credit history details all of your past credit transactions to give lenders a sense of how “safe” you are to lend to.

And a good credit history can mean the difference of THOUSANDS over the life of loans such as your mortgage.

FICO Score

APR

Monthly Payment

Total Interest Paid

760 – 850

4.103%

$967

$148,028

700 – 759

4.325%

$993

$157,365

680 – 699

4.502%

$1,014

$164,899

660 – 679

4.716%

$1,039

$174,112

640 – 659

5.146%

$1,092

$192,961

620 – 639

5.692%

$1,160

$217,523

Source: MyFico.com. Data calculated in April 2018.

If your credit history is bad though, don’t worry. I’m going to show you exactly how you can find it AND a system to improve your credit score.

What is your credit history?

Your credit history is a compilation of your credit transactions, often including things like how many credit cards you have open and whether or not you paid your debt on time. All of the information from your credit history is compiled in your credit report. 

I know. I know. Credit report, score, history … it’s all kind of confusing. Think of it like this: Credit history makes up your credit report, which makes up your credit score. Simple!

History ➡report ➡score.

Your credit report is a comprehensive record of your credit history and includes information like:

  • # of credit cards open
  • # of loans
  • Whether or not you paid bills on time
  • Outstanding credit balances

The purpose of your credit report is simple: To make sure you’re a reliable borrower. Different entities such as banks, home mortgage lenders, and even landlords use your credit report to see if you’re likely to pay back your debt.

And your report typically goes to three credit bureaus:

  1. Equifax
  2. Experian
  3. TransUnion

And all of the information these bureaus compile in your credit report is what impacts your credit score. This is a number typically between 300 and 850 that gives lenders an immediate sense of how risky you are to lend to. Think of it like the CliffsNotes to your credit report.

Let’s take a look at how you can attain your credit report and see what you can do about the information once you have it.

How to find your credit history

Every American is entitled to a free annual credit report from EACH of the major credit bureaus thanks to the Fair Credit Reporting Act. Simply head to AnnualCreditReport.com (a site recommended by the Federal Trade Commission) to get it.

If you’ve already used up your free credit report for the year, you’ll still be able to get it — you’ll just have to pay a fee through each specific credit bureau.

Sites like Credit Karma also allow you to view your TransUnion and Equifax credit report for free. However, in exchange, you’ll have to view advertisements for their credit offers.

To get your credit report, you’re going to have to fill out an online form with a few bits of basic information such as your name, address, DOB, and Social Security number to attain your report. Once that information is sent, you should receive your credit report straight to your computer within minutes.

For any hipsters out there who want to do things the old-fashioned way, you can have a physical copy of your credit report mailed to you. Simply pick up the rotary phone (I’m doubtless you have) and dial the toll-free number 1-877-322-8228 while twirling your handlebar mustache. You’ll be asked to provide the same information above.

After, you’ll receive a copy of your credit report “within 15 days of receipt,” according to the FTC.

How credit history impacts your credit score

So you have your credit report detailing your credit history … what does this mean for your credit score though?

The actual number for your credit score is broken down in a fairly straightforward way. Here’s the information your score will be based on and its weight in relation to your score:

  • 35% payment history. How reliable you are. Late payments hurt you.
  • 30% amounts owed. How much you owe and how much credit you have available, or your “credit utilization rate.”
  • 15% length of history. How long you’ve had credit. Older accounts are better because they show you’re reliable.
  • 10% how many types of credit. If you have more lines of credit open, the better your score will be.  
  • 10% account inquiries. How many times you have or a lender has checked your credit background.

What can we glean from this? Above all else, how much you owe and how good you are at paying back your debt is CRUCIAL to a good credit score.

Check out the credit score ranges below from Experian and see where you stand:

  • 850 – 800: This is a fantastic spot to be with your credit score. If you’re here, you’ll have no problem securing a loan or a good down payment percentage on your home.
  • 799 – 740: Though not the top spot, this is still a very good area to be. You’ll be offered great rates here.
  • 739 – 670: This is an okay credit score range — though not great. Focus on closing unused accounts and consolidating loans to move this number up.
  • 669 – 580: This is when you should start worrying. If your credit score is here, you’re considered a “subprime” borrower and won’t get very good rates. Reduce your debt load and work on your payment history in this band.
  • 579 – 300: Here you’re likely not to be considered for a loan at all and will run into numerous issues with things like getting approved for apartments. You should find a nonprofit credit counselor and ask for help.

If your credit score falls below 580, you’re going to want to do all you can to improve it ASAP. Below are my absolute best resources on getting out of debt and improving your credit score:

A good credit score can also save you thousands over the length of a mortgage.

Imagine two home buyers. One has a great credit score of 760 and the other has a bad credit score of 620. How much more do you think the one with a lower credit score is going to end up paying on a loan of $200,000? Take a look at the chart below.

FICO Score

APR

Monthly Payment

Total Interest Paid

760 – 850

4.103%

$967

$148,028

700 – 759

4.325%

$993

$157,365

680 – 699

4.502%

$1,014

$164,899

660 – 679

4.716%

$1,039

$174,112

640 – 659

5.146%

$1,092

$192,961

620 – 639

5.692%

$1,160

$217,523

Source: MyFico.com. Data calculated in April 2018.

The one with the bad credit score is going to end up paying over $69,000 more in interest than the one with fantastic credit. That’s why it’s so important you do all you can to get out of credit score hell.

Sometimes even after you’ve taken steps to improve your credit score, your credit report won’t reflect this. That’s when you bring out the big guns: Proven scripts.

How to improve your credit score (with scripts)

Errors can and will occur in your credit report. When they do, they negatively affect your credit score and don’t reflect reality. That’s why it’s so important to make sure your credit report is as accurate as possible so you can get the best deals from lenders.

To do this, you have to report any errors you see in your credit report.

Luckily the Consumer Financial Protection Bureau provides a list of the most common errors that occur:

  • Identity errors. These are any issues with erroneous identity. Example: The report got your name or address wrong, they mixed you up with a person with your name, or even cases of identity theft.
  • Incorrect reporting of account status. These are errors within your individual accounts. Example: When the report says you have an account closed/open when it isn’t, it says you were late on an account payment when you weren’t, or when they report the same debt multiple times.
  • Data management errors. This happens when you’ve disputed your credit report already and the same errors appear on your next report. Example: You’ve sent a credit report dispute letter about an account you’ve already closed but your next report still contains the error.  
  • Balance errors. It shows the wrong balance in your accounts. Example: It says you owe $500 when you really owe $300.  

Go through your credit report, line by line, and note any errors you find. There’s no one way to do this. Print out the credit report and mark it up with a pen and highlighter, or just go through it and make notes in a notebook or a Google Doc. Any method works as long as you find all of the errors.

Now it’s time to decide where you want to send your credit report dispute letter. You have three options:

  1. The credit bureau
  2. The data furnisher
  3. Both

Guess which one will increase your chances of having the dispute work?

giphy 8 1

If you want to send your credit report dispute letter to a specific credit bureau, here are the links to exactly where you can send your dispute.

For data furnishers, you’re going to have to hunt them down yourself since they’re specific to your financial situation.

When you’re ready, it’s time to send them an email script to dispute errors in your credit history.

Hello,

I want to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

  • X is wrong because Y. I have attached a receipt showing this.
  • A is wrong because B. On December 21st, I sent an email (“Correct my record”) requesting the change.
  • C is wrong because D.

I have also included my payment records. Please make sure that these errors are rectified soon.

-Ramit

A few notes:

  • Just get straight to the point. Just like when you’re writing a cover letter or your resume, each word needs to earn its spot on the page. Your credit report dispute letter should be the same. No messing around. Just get straight to the damn point!
  • Give them their exact errors with evidence. Note exactly what you are disputing and provide evidence to make your case. Be as comprehensive as you need to be and include specific dates, payment amounts, and account names.
  • Enclose your copy of the credit report. Include your own copy of the report wherein you’ve highlighted the errors. If you’ve already marked up your own copy of the report for step two, this is a perfect place to send in your handiwork.

Remember: Keep a copy of the credit report for your records. If there’s another data management error in the future, you’ll be able to use it to dispute the error.

Luckily, you don’t have to wait too long after you send in your dispute letter. The Consumer Financial Protection Bureau requires credit bureaus and data furnishers “investigate the dispute within 30 days of receiving it.” After completing the investigation, they have five days to send you the results.

Once the investigation period is up, though, congrats! You’ve successfully disputed with the credit bureaus using a great credit report dispute letter.

You’ll now receive a few things. First, you’re going to get a complete summary on what the credit bureau discovered and the actions they decided to take to rectify the errors. If they decided that what was in the previous credit report was correct, then they’ll tell you that as well.  

The credit bureau will also send you a brand new updated copy of your credit report (note: this is NOT your annual free credit report) and you can frame it and put it on your office wall so you can let everyone know how much of a weirdo you are. I like to put them on my mantle like hunting trophies.

BONUS: The first chapter of my NYT bestseller

Getting out of debt and improving your credit score is very important. I can’t stress that enough.

There’s a reason it’s on the second rung of my ladder of personal finance.

To help you even more, I’d like to offer you something: The first chapter of my New York Times best-seller “I Will Teach You to Be Rich.”

It’ll help you tap into even more perks, max out your rewards, and beat the credit card companies at their own game.

I want you to have the tools and word-for-word scripts to fight back against the huge credit card companies. To download it free now, enter your name and email below.

How to find your credit history (and improve it) is a post from: I Will Teach You To Be Rich.

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