Protect Your Credit Rating

The first step in protecting your credit rating is understanding how creditors decide whether to lend you money or what interest rate to charge you.

The credit scoring system is based on your history of paying bills, the number and type of accounts you have, whether you’ve had late payments or collection actions taken against you and how much debt or potential debt you already have.

Credit reporting agencies (Equifax, Experian and TransUnion) assign a score to your credit standing, ranging from 300 to 850, which they can score differently. Creditors then use your score to determine how much credit they will give you and what interest rates you pay on the debt.

Under the Fair Credit Reporting Act (FCRA), you are entitled to a free copy of your credit report each year from each of the three reporting agencies, but you have to ask for them. You can get these reports instantaneously by going to the Annual Credit Report Web site and providing your Social Security number and other information.

It’s wise to order a report from one agency in January, another in June and the third later in the year. That will alert you to any problems before they become too severe. If you get the credit reports all at the same time, they are likely to be similar.

You also have the right to an additional report if a company has denied you credit, insurance or employment, if you are unemployed and looking for a job, if you are on welfare, or if you’ve suffered fraud.

Once you have the report, look for negative items and respond to errors. If you find something negative, you can dispute it by writing a letter to the credit reporting agency.

Most important, if you are struggling, do not ignore your debts. You are likely to obtain assistance if you contact your creditors to inform them of your problems.

Credit counselors can help, but exercise caution when choosing an agency. In some cases, fees may be so high that it takes much longer to get out of debt. If they use any high-pressure tactics, or if they do not want to let you review a written agreement prior to using their services, you should not use that agency.

If you have an unresolved credit dispute or if your debt is so overwhelming that you are considering bankruptcy, it’s best to consult an attorney.