The United States’ credit standing was downgraded from AAA to AA+ by Fitch, one of the rating agencies. It was a very public slap in the face for the United States, but not the first time this has happened. In 2011, the S&P ratings agency also downgraded the country to AA+. Since then, America has grown and prospered. And the world has kept buying our trillions of dollars in additional debt financing, with Treasury bills, notes and bonds still viewed as the safest place in the world to invest.
But that’s not the case for your credit! If you borrow too much, and continue borrowing more each year, there is a steep price to be paid in the form of higher interest rates or credit denial.
Checking Your Credit Report
When was the last time you checked your credit report? If you haven’t done it this year, take a few minutes to do that now, securely and without cost.
You have access to your free credit report from each of the three bureaus (TransUnion, Experian, and Equifax) at www.AnnualCreditReport.com. You are allowed one free report from each of the bureaus every year, and you are not required to sign up for any protective services. You’ll be asked to verify your identity by answering questions that only you would answer correctly.
Read through your report for all accounts reported – making sure you recognize each one. You’ll see your on-time payment history. Remember that your credit history will stay on this report for at least 7 years before rolling off (and as long as 10 years if you have declared bankruptcy).
You’ll also see a list of recent credit inquiries about your credit. Some are purely promotional inquiries and don’t impact your credit. Others come from your existing credit grantors, checking up to see if you’re still able to pay off that balance! And if you’ve allowed a prospective credit grantor – a mortgage or insurance company, for example – to access your credit, it will show up on the list of inquiries.
If there’s a credit account listed that you don’t recognize, contact the bureau immediately through their website to dispute any errors. The contact information is available just below your listing of open accounts. And checking for anything missing. Perhaps your name isn’t really listed on your home mortgage, and that’s something you’ll want to fix
An important note in these days of rising medical bills: All three credit reporting companies—Experian, Equifax and TransUnion—hold reporting of any medical debt for one year, and will not report unpaid medical debt accounts under $500. Paid medical collection accounts will not appear on any of your credit reports.
Your Credit Score
Your credit report is simply a compilation of your payment information provided to the three bureaus by credit grantors. But your credit “score” is a numerical ranking derived from your credit report.
There are several different formulas for calculating that score. The most popular is the FICO score (created by the Fair Isaac Company). It ranges from a low of 300 to a perfect 850. Very few people get a perfect 850, but it has been documented! Anything over 700 is considered good, while a score over 800 is excellent. VantageScore is another popular scoring model, with a similar range.
You don’t have to pay to get your credit score. Most large banks and credit card issuers now provide it for free. Or you can sign up to receive updates at CreditKarma.com at no charge. They’ll also offer promotional ideas for lower-cost credit cards or mortgage refinancings.
Your score might change quickly, depending on when the snapshot was taken. If you haven’t yet paid off a credit card balance, your score might drop – or rebound after you pay it off. But longer-term trends, like the length of your credit history, total amount of debt, and percentage use of available credit also contribute to your score. You can learn more at www.myFICO.com.
Your credit report and credit score have an important impact on your financial life, so it’s worth paying attention. Yes, the U.S. government is getting away with running big deficits, but there’s an important difference: They can print the money to repay their debt. You have to earn it! And that’s The Savage Truth.