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Spending Smart: Check Out Your Credit Reports

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By Gregory Karp

RISMEDIA, June 24, 2008-(MCT)-You’ve heard about the importance of maintaining good credit, but all the talk about credit reports and FICO scores might seem confusing, preventing you from doing anything. And maybe you heard about a recent court settlement with one of the credit bureaus that gives you some credit-access freebies. And you’ve no doubt heard about the credit crunch and how it’s more difficult to obtain loans nowadays.

Now is the perfect time to begin paying attention to your credit. It’s never been easier, and it’s never been more important. Unfortunately, consumers still don’t seem to know much about the topic, according to annual surveys by the Consumer Federation of America.

“People today have a better understanding that credit scores exist,” said Liz Pulliam Weston, author of “Your Credit Score.” “But there are still a lot of misconceptions about what they are.”

The significance of minding your credit breaks down into two broad categories of concern.

The first is your creditworthiness. The better credit risk you are — meaning lenders can trust you to pay back borrowed money — the more likely you’ll be able to obtain a loan and receive a favorable interest rate. Shaping up your three-digit credit scores could save you thousands of dollars.

Raising your credit scores from the low 600s to the high 600s could save more than $5,000 a year on a 30-year, $300,000 mortgage. Meanwhile, the same rise in scores on a three-year, $25,000 auto loan could save $700 a year, according to examples from the Consumer Federation of America.

Your credit scores might even help you obtain lower rates on home and auto insurance, or land you a job, an apartment or cell-phone contract. That’s because insurance companies, wireless carriers and even some employers and landlords use credit scores in their evaluations of you. So, even if you never borrow money, your creditworthiness is important.

“I think it’s very dangerous not to care about your credit scores,” Weston said.

The second reason for being diligent about your credit reports is discovering identity theft. You want to know early if a thief has stolen your identity and opened new credit accounts in your name. You might not lose a lot of money with identity theft, because you have some consumer safeguards. But cleaning up the mess with banks and other creditors can be a huge hassle.

Here’s how to start minding your credit. If it were a college course, it might be called Credit 101.

- Check credit reports. You can check your three credit reports for free, but generally not your credit scores. Reports are more important because they are what scores are based on. You can obtain a report once a year from each of the three main credit bureaus. The bureaus are Experian, Equifax and TransUnion.
- How to begin. Go to http://www.annualcreditreport.com , the only official site to obtain a free credit report. On that page, choose your state, and on the next page fill out the form. You’ll have to provide your Social Security number. If that makes you wary, that’s good. You should be guarded about giving it out. But in this case, it’s OK.
- Pick a report. Choose one of the three credit bureau companies to receive a report from. It doesn’t matter which one. If you have a particular reason to check your report, such as a security breach of your identity or plans to apply for a loan soon, obtain all three free reports at once. But if this is routine credit checking, access one report from a different credit bureau every four months. By staggering access to reports, you can check three times a year for free. Bureaus are likely to have slightly different credit information in their reports.
- As you continue on the website, you’ll encounter a security test — a short multiple-choice quiz involving your credit history. After that, skip advertisements for obtaining your credit score. View your report and print it. Or save the report to a file on your computer.
- Reading the report. The report might appear intimidating at first, but read your way through it. It might seem like an episode of the old TV series “This is Your Life,” a diary of where you’ve been financially. It will have long-ago addresses, loans for cars you no longer have, department store charge cards you barely remember and, perhaps, late payments from a rough patch you went through years ago.
- Look for errors. You’re likely to find mistakes, but pay attention to serious mistakes that will affect your credit. Follow the online instructions on how to dispute them. Look for credit accounts that aren’t yours, late payments and negative information more than seven years old, the longest most negatives besides bankruptcy can stay on a report.
- Other ways. Obtaining reports online is easiest. But you can do it by phone by calling 877-322-8228 or print an online form, fill it out and mail it to: Annual Credit Report Request Service, Box 105281, Atlanta, GA, 30348-5281.

Check at least one report this week, and you’ll receive a passing grade for Credit 101.

Gregory Karp is a personal finance writer for The Morning Call, and author of “Living Rich by Spending Smart.” E-mail him at yourmoney@tribune.com.

Copyright © 2008, The Morning Call, Allentown, Pa.
Distributed by McClatchy-Tribune Information Services.

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