Live debt-free: Your Credit Standing

In my previous post, Peeling the Onion, I introduced the idea of ‘building blocks’. These building blocks form the foundation to breaking the shackles of debt and are completed by following a series of steps. Credit Standing is another building block.

This building block is very important; resist the temptation of skipping it. This may require some perseverance when dealing with credit agency bureaucracy. Focus on the benefits, such as getting an overall picture of your finances. Focus on the end result: it is a first tangible step to taking control of your financial destiny while you work on clearing up your debt(s).

Step 1

Write or call your local Credit Bureau requesting your free yearly credit report. The credit reporting agencies are:

  • Canada: Equifax, TransUnion Canada
  • U.S.A.: Equifax, Experian, FICO, TransUnion, Innovis, and PRBC
  • U.K.: Equifax, Experian, Callcredit

Contact all agencies within your region for each has a record of your financial history. When you receive your report in the mail, or online check it for errors. If you downloaded your report, make sure to print it.

It’s not unusual to find errors in your address(es), the spelling of your name, payment discrepancies, etc. The credit reporting agencies do make mistakes and the onus is on you to catch these errors and report them to these agencies.

You’ll notice that the report contains all the details on your financial habits. All on time payments (of bill /debt payments to credit grantors (such as retail stores, banks, finance companies) are rated “1”; if you made a late payment, it’ll appear as a “2”. If you have a poor repayment history on either your credit cards or loans, you’ll get rated “5” to “7”, and if you declared a bankruptcy, the rating will be “9”. Any negative rating will remain on your credit reports for 5- 7 years, and up to 10 years for bankruptcy. Any information that has remained beyond the 7 or 10-year time frame must be removed. If it hasn’t been removed you must request the credit reporting agency do so. (It is a “must” because you need to insist that any inaccuracies be corrected.)

Any defaulting on, or late payments to credit grantors (such as a mortgage payment) will appear on your credit report. Cancelled credit cards will also appear and indicate whether you requested the cancellation or whether the financial institution did because of default on payments.

You can see from the above that these agencies collect detailed information and why it’s imperative that you ensure errors recorded in your financial history are swiftly rectified and passed on to the financial institution(s).

Step 2

Write the credit agencies in question and request they make the corrections per your direction. Ask them to contact your financial institution(s) with the corrected data, and that your credit rating be adjusted accordingly. In some cases, the credit agencies may require you to contact the financial institution to request the corrections. In that scenario, the financial institution will, in turn, notify the credit agencies in question and request they adjust your credit rating.

One reason to regularly review one’s credit standing is, as I discovered that in one past situation one of my cards had been used fraudulently. Since I didn’t use that card (it was a backup card) I was unaware that my card had been charged and consequently had an outstanding balance that was nearly a year old. I promptly notified the bank, which then investigated the charge and found the culprit. They cancelled the amount owing and restored my credit rating. My credit report now correctly indicates that this outstanding balance was the result of fraudulent use by a 3rd party. I cannot stress enough that getting yearly credit reports are a must. You’ll have a very clear picture of your financial health and where you stand with respect to your credit history.

You are in control on how you tackle this. If your credit report is good (a credit score of 1 or 2) then keep up your excellent credit rating. If you rated mediocre (a credit score of 3 or 4), you will have a bit of work ahead of you. It is still in your power to change your credit rating but it will take time. The sooner you become proactive and start making on-time payments, and honour your obligations all of the time, the negative ratings will slowly disappear. They may not all disappear at the same time since the years of negative ratings that are on your report, depend on the date that each event was entered. If your credit score is 5 to 7 or higher, take control and start reversing poor payment habits, and commit to cleaning up your credit. It’s a win win situation.

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