Debt can be a useful tool.
A dangerous tool, but a useful one. Part of the danger is not appreciating the math behind it. The other part is not appreciating the bureaucracy behind it.
It’s dry stuff. Trust me.
But like the math, it turns out there are a small number of important things to know know. To use debt as a tool, there are two important pieces to pluck out of the bureaucracy: Credit Report and Credit Score (which we’ll cover this in the next article).
Why You Need To Read Your Credit Report
The Credit Report gathers the most important information about your financial history, and hands it to you in one package.
Outside of yourself, the people looking at this report are money loaning organizations, insurance companies and collection agencies. There are others that might ask you to give them permission to look: employers, rental companies, cell phone companies, utility companies, etc. You’re not obligated to give them permission.
There are three reasons to read it:
- Make sure your information is accurate. If what you see is wrong, money lenders see the same wrong information.
- Having shitty credit costs you more money. You’ll pay higher interest, and have to work harder to get a loan. You want to know this now, so you can fix your credit for when you need it.
- Identity Theft. The report is what lets you see if someone is taking you for a ride. This is where you can do something about it.
You can find both your credit report and credit score through the three big credit agencies: Equifax, Experian, and TransUnion. They have paid options, but for the free report, they all will direct you to https://www.annualcreditreport.com. This website is authorized by federal law to provide you with your one free report a year.
What you’re going to see
- Your basic identification information.
- A list of all your credit accounts.
- Who you’ve paid in the past, and how good you were at making the payments. It will also show if you’ve been arrested, sued, or filed for bankruptcy.
- Amounts of outstanding loans.
- A list of credit inquires: who’s been looking at your credit (mortgages, car financing, etc..).
It’s worth pointing out that the report will show both the good and bad of your credit history, but only as far back as seven years. In the world of credit, you can outgrow your bad choices.
Thieves are tricky.
Maybe somebody gets into your wallet and gets your info. Maybe hackers get the files from a department store, an ATM or a gas pump. Maybe you had a party at your house and some ‘friend-of-a-friend’ slipped into your bedroom and started opening unlocked drawers.
The credit report let you check up on your own digital history. It gives you a list of all accounts and debts attached to your name. If only for that reason you should check it once a year. With the right information, a slippery-operator can open up new credit cards and lines of credit you won’t even know about. They can bill phone or utility services to you. They can even poach your tax return.
If you see something that looks right, or if you think somebody took your info, call up any of the three credit agencies. They can freeze your account and throw on extra layers of security.
Don’t drag your ass on this one.
For most, checking the report once a year is all that is necessary. If your information is secure and your credit is good, you’re done for the year. If your credit needs some work, start working on improving it before you need it.
Working on improving your credit today saves you money tomorrow. It can get you better terms and lower interest rates. The bigger the loan (like a mortgage) the bigger the impact a small difference in interest makes.
Don’t waste money you don’t have to. Up next, we’ll talk about the Credit Score, and how to improve credit overall.