4 Steps To A Clean Credit History

Maintaining a clean credit history is extremely important in today’s world of information. More and more, credit reports are used to determine significant life events and as a result, consumers need to be cautious with credit and make an effort to maintain their own positive credit report.

Credit History Uses

Credit history is used for all kinds of things in today’s world. With the expansion of available information, more and more organizations are using personal information as a decision-making tool for major life activities.

  • Financial – One area where credit history is used is with financial decisions. This is not limited to whether or not to grant credit to an applicant for a credit card, a home loan or a mortgage. A credit history can also determine the interest rate that is charged and even what credit limits are places on a borrower.
  • Insurance – It may be surprising to learn that insurance companies actually run credit reports on applicants. This is true for life insurance, auto insurance and even homeowners insurance. Part of the reason for this is that insurance companies are often part of financial institutions and want to determine whether or not an applicant is at high risk for defaulting on their car or home loan. However, they also may consider that individuals who are over-extended may be a higher risk for potential insurance fraud.
  • Employment – In today’s highly competitive employment market, more and more employers are frequently using credit reports as one more piece of information about potential employees. While in the past, this was only practiced in financial markets, how a person handled money was directly relevant to the position for which the person is applying. Today, employers want to gather every piece of information they can about a potential employee, including how they handle money and make financial decisions.

Creating a Clean Credit History

Since credit history is so important, it is important for consumers to take control of their credit reports and to correct any errors on their credit history report. A staggering 25 percent of credit reports have substantial errors and it is up to the individual to take steps to correct those errors.

Step 1

First order a copy of your credit report. According to federal law, individuals are entitled to one free credit report every year. Order copies of your report from each credit reporting agency – Experian, TransUnion and Equifax.

Step 2

Review the reports for errors and note what the error is on each report, if any.

Step 3

Send a letter to each credit reporting agency for each error, outlining the error. Include any supporting documentation – charge off statements, copies of checks, etc.  Credit reporting agencies are required by law to conduct an investigation and correct any errors within 30 days.

Step 4

If you do not receive a new credit report automatically showing corrections or changes to your credit report, send another letter stating that you are challenging the error for a second time and demanding a reinvestigation. You may need to perform this step several times, but be persistent.

Summary

In today’s world, credit history reports are used to make decisions that impact significant areas of our everyday life. In order to build a positive clean credit history, it is up to the consumer to take control of their credit report and challenge any erroneous information.



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