by ProsperityME staff
“Why is my employer or landlord running a credit check?” you may ask yourself. “What is it, and why is that important?”
Because many life necessities are expensive and would require years of saving to acquire by paying cash, many Americans pay for home appliances, cars, education, and other higher cost needs via credit. Credit is a system in which consumers are able to borrow money from banks, credit unions, and other lenders at the time of a purchase. Lenders want to be repaid, so they lend to people who can show that they have been reliable in repaying previous loans and lines of credit.
But how do they determine who is reliable? Lenders all over the country report consumer repayments to at least three major credit reporting agencies. These agencies generate “credit reports” that include detailed information on your financial history. Each report summarizes the findings in a “credit score” – a number that is meant to reflect the financial reliability of the consumer. Lenders use these numbers to help them decide to approve a loan application or grant a line of credit.
Borrowers with the highest credit scores are more likely to be approved for new lines of credit and usually are offered the lowest and best interest rates. (Interest is the amount you pay to be able to borrow money or obtain goods over time, so it’s best to get the lowest rate possible!)
Credit scores range from 300 to 850. Low scores are “bad” and high scores are “good.”
Your score goes up when your:
• Bills are paid on time – including all utilities, rent, loans, and credit card payments
• Overall credit usage is kept under 30% of the available funds
• Lines of open credit are in good standing with a lender for 5-10 years or more
Your credit score goes down when you:
• Don’t pay your bills on time
• Have “derogatory remarks” on your credit report
• Use all your available credit and “max out” credit cards
• Open too many new lines of credit at once
• Close an account or line of credit
Your credit score can impact more than your ability to purchase goods. Landlords may use a credit score to see if an applicant is capable of paying rent on time. Employers may want to know if you are responsible and may consider a credit score a useful metric of reliability. Not knowing your credit score, having a low credit score, or having no credit at all can cost you opportunities.
So how do you find out what your credit score is, or if you even have one?
You are legally entitled to view your credit report – a document of all the personal financial information used to calculate a credit score – at no cost, once every year. There are many services that will consolidate this information for you but we recommend using http://www.annualcreditreport.com/ to request each credit score, as it is the only federally recognized, free, credit reporting service.
The three credit reporting agencies are:
• Transunion • Equifax • Experian
You will need to request each report separately. It will take a few minutes but is worth the effort. When you have your reports, save and print them. You will want to check carefully for errors. Mistakes happen! Make sure that:
• All the listed accounts are yours
• The payment history is accurate
• There are no “derogatory remarks” or open collections accounts
Remember that credit scores are for individuals, not families, and even married couples will have individual credit scores! It is important that each spouse has and maintains a good credit score, if you are applying for credit together.
If the listed information is inaccurate, you have the right to file a dispute with the credit reporting agency. There will be a dispute form enclosed with each credit report. Fill it out and return it to the bureau. They are required to respond within 45 days. If you suspect larger fraud, such as someone using your name to open lines of credit, credit reporting agencies have a toll-free number you can call. You also may need to file a police report.
During the COVID-19 pandemic, each credit reporting agency is offering FREE monthly credit monitoring through www.annualcreditreport.com until April of 2021. There has never been a better time to get solid in your finances and start building good credit.
If you want to learn more about building and maintaining good credit, ProsperityME can help! Join us in our next session of Basic Money Management. The course includes a two-hour session covering credit and credit reports. We’ll also teach you how to set and reach money savings goals to build long-term financial security for you and your family. To register for class, visit our website at www.prosperityme.org, or call us at 207-797-7890.
Have you obtained your credit report and have questions about it? We also provide one-on-one financial counseling to community members. Call us to set up an appointment with one of our financial counselors.
All our services are no cost to members of the immigrant community. Your financial and economic success is important to us. We hope to hear from you soon!