Monday, December 15, 2008

Your Black World: Setting The Record Straight On Credit Reports

MILLY’S MONEY

Somebody Lied to You: Let’s Set the Record Straight

By: Milagros DuBouchet

YourBlackWorld.com

Lie #1: Freecreditreport.com

Have you ever seen those charmingly annoying freecreditreport.com commercials? The commercials with the French guy who lip-synchs melodies in an attempt to capture your heart and most importantly, your credit card? You would think a site called freecreditreport.com would actually give you a credit report for free but sadly, that’s not the case. Next time you watch the commercial, listen closely to the “fine print” that’s narrated afterwards. To make a long story short, you‘ll get a free credit report if you sign up for “Triple Advantage”—a product you actually have to pay for. I hope this justifies your desire to throw your remote control at the TV screen every time these commercials are on.

The truth is, if you would like to obtain a copy of your credit report from each of the three major credit bureaus (TransUnion, Experian, and Equifax), make sure to visit annualcreditreport.com. We are all entitled to obtain a free copy of each report every 12 months. Keep in mind that you will not receive a credit score. Unfortunately, you do have to pay for that. I hope I set that record straight for good!

Lie #2: I’ve never had credit, so I don’t need to worry about checking my credit report.

One should check their credit report about 3 times a year—whether you have established credit or not. Since 8 out of 10 credit reports have mistakes on them, you always want to make sure your credit report houses accurate information. Aside from that, identity theft is a HUGE issue nowadays, and it always saddens me when one of my clients obtains their credit report for the first time, and to their surprise, they find numerous established (and typically delinquent) accounts on their report. The sooner you spot these things, the better. Trust me; you don’t want that to be you.

Lie #3: I use my credit card and never exceed my available limit, so my credit should be good.

The second most important factor to determining one’s credit score is the amount of debt you are utilizing. Lets keep it simple. You should never exceed 30% of your available limit. So, if I you have a credit card with a limit of $1.000, you should not utilize more than $300. If you do, then you’re immediately triggering an adverse effect on your credit score. Of course, no one tells you this when you apply for the card. FYI—the most important component to a good credit score is making your payments on time.

Lie #4: I made some late payments on my credit card and my interest rate was increased. As long as I don’t mess up with my other cards, then those interest rates should be fine.

The “Universal Default Clause” indicates that the interest rate on your credit card may be increased if you make late payments to other lenders, even if you pay your credit card bill on time. So, if you mess up with one lender, then all of your other cards can also be negatively affected. The law’s only requirement is that lenders disclose this in writing, so you know what that means. Read the fine print.

Lie #5: I always pay a little more than the minimum every month, so I’m using my credit wisely.

You know what credit card companies call people who pay off their entire monthly balance every month? “Deadbeats” –and no, I did not make that up! This is because they don’t get to make any money in interest from them, so naturally, that makes creditors unhappy. When you don’t pay off your monthly balance every month, you’re considered a “revolver”. Simple math says that if you charged $50 on your credit card this month, and your statement says your minimum payment due is $20, you should pay $50 before the month is over. Not $20, not $30, but $50! Credit card companies add interest to the difference that goes unpaid every month. Basically, anything you charge this month, you should pay off this month. Change your spending habits and use your credit wisely. You’ll notice the difference in your pockets!

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