Richmond Times-Dispatch Weekend

Keeping an Eye on Credit

- BY PETER G. MILLER Email your real estate questions for Mr. Miller to peter@ctwfeature­s.com.

Question: What’s the best way to improve a credit score? Not just pay on time, pay in full, and pay down balances, but something that can directly cause scores to rise? Answer: Credit is a major issue for virtually all adults. Good credit means high credit scores and low interest rates when borrowing. Bad credit means higher costs and potentiall­y declined loan applicatio­ns for such things as homes and cars.

What’s the secret to higher credit scores? It’s simply credit awareness, understand­ing that every bill and payment potentiall­y impacts your credit standing.

Let’s start with an extreme situation. Millions of people have no credit history and thus no credit score. “Nearly 50 million Americans lack enough of a credit history to obtain a traditiona­l credit score,” explained the Urban Institute in 2018. “Some 28 million consumers have files with insufficie­nt data, and more than 20 million have no credit bureau file at all, or are ‘credit invisible.’” Translatio­n: If you want cheaper financing, you need at least need a credit profile, one with the highest possible score.

There are several concrete steps that can help bulk up your credit situation. First, you need to establish a budget. Look at what you earn and track what you spend. Do this in writing, so you can see how your spending habits evolve over time.

Second, you need to have ready cash on hand for emergencie­s, otherwise you may wind up borrowing from payday and auto title lenders. It’s been estimated that the typical payday loan is about $400, so make that an initial goal. Put $10 a week into a savings account and watch your money grow. Third, you need to get into the system. If you are now credit invisible, start with a basic gasoline or store credit card.

Fourth, spend a little every month on the cards you obtain.

Fifth, the old standbys really work. Always pay a little early and in full, so your credit score can improve and you can avoid onerous late fees at the same time.

Sixth, you can track your credit standing at AnnualCred­itReport.com, the only site authorized by the federal government to provide free credit reports.

Under federal rules consumers can receive one free credit report every 12 months from each of the three leading credit reporting agencies (CRAs), Equifax, Experian, and TransUnion. However, last April, in the midst of the pandemic and with so many people losing jobs and receiving less income, the three CRAs made an unpreceden­ted offer. Consumers who go to AnnualCred­itReport.com can access their credit reports on a weekly basis without charge for one year.

Now, in 2021, the three credit reporting agencies have again stepped up. In March, they announced that free weekly credit reports will continue to be available through April 20, 2022.

The informatio­n contained in credit reports is the basis for credit scores. The higher your score the less it costs to borrow. It's important to review credit reports regularly to see if there are any factual errors, items that are out-of-date, or strange items that might suggest identity fraud.

Such things happen and when they do credit scores can be significan­tly reduced. A 2013 study from the federal government found that “one in five consumers had an error on at least one of their three credit reports.” Errors typically caused credit scores to fall by 25 points, but in some cases, scores were reduced by 100 points or more. The temporary credit access policy now in place is a great deal. It’s free and can help you get a better score. Use it while you can.

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