How To Improve and Protect Your Credit

September 08, 2016

One common question I get on our financial helpline is how to increase your credit score. After all, your credit report can impact the interest rates you pay on loans (or whether you can even get a loan at all), your insurance premiums, and even your ability to get a new job. Whether you’re just starting to build a credit history or are rebuilding one, here are some things you can do:

Make sure there are no errors on your credit report. It’s been estimated that about 70% of credit reports have errors on them. It’s bad enough to be penalized for your mistakes. You certainly don’t want to be penalized for someone else’s.

You can get a free copy of each your three credit reports (Experian, Equifax, and Transunion) at AnnualCreditReport.com. (Don’t be fooled by copycat sites that require you to supply a credit card number for the “free” credit report.) Then report any errors you may find that may be hurting your score. Some people even report any negative information since it’ll be removed if the creditor doesn’t respond in time.

Reduce your debt balances. Try not to use more than 30% of the credit available to you on your credit cards. If you’re already above that, try to pay it down.

There is one exception though. If you have an old debt, you might not want to pay it off and just let it fall off your credit report after 7 years. However, just because it’s not on your credit report, doesn’t mean you don’t owe. Unless you’re also past your state’s statute of limitations, the creditor can sue. In addition, be aware that if you make any partial payments or even acknowledge the debt, it can restart that clock for your state.

After you’ve paid off debt, you may not want to close the credit cards since that will reduce your credit available and hence the percentage of your total credit you’re using if you have any balances (even if you pay them off each month). Instead, just shred the card if you’re afraid of using it and keep the account open. If you want to keep using it but don’t like the rewards, you can also convert it to another card with the same bank.

Build a positive credit history. This is the most important step but the one that takes the longest. The main thing is to have credit and make all your payments on time. If you can’t qualify for a regular credit card, see if your bank will let you open a secured credit card that’s backed by a bank deposit. For any credit you do have, set up automatic payments to make sure you don’t miss any payments.

Set up credit monitoring. No matter how many precautions you take, things happen. For example, I once missed a medical bill because they had my address down wrong in their system. Fortunately, my credit monitoring was able to catch it, and I was able to pay it before it hurt my credit. A lot of companies charge for this, but you can get free credit monitoring from sites like Credit Karma and Credit Sesame.

Consider a security freeze. A security freeze can prevent someone from opening credit in your name. Each state has different rules, but you generally just have to pay a one-time nominal fee for each credit bureau. Just know that you’ll need to un-freeze your credit if you want to apply for new credit and then pay to re-freeze it again.

Want more info on this or other financial topics? If you have a question you’d like answered on this blog, feel free to email me directly. You can also receive my future posts by following me on Twitter and/or subscribing to my posts on the blog home page.

You Don’t Need To Pay Lifelock To Protect Yourself From Identity Theft

May 03, 2012

If you’ve read Greg’s post on computer malware, you may we wondering about other ways to protect yourself from the growing problem of identity theft. No, you don’t need to sign up with a company like Lifelock or one of the many credit monitoring services. (In fact, given the news around Lifelock, you can even say that it’s a bit of a scam itself.) The fact is that for low or no cost, you can get essentially the same protections that these companies are charging monthly fees by following these tips.

Guard your information

The first step in stealing your identity is for the identity thief to get your name and sensitive financial information like your Social Security or credit card numbers in order to get loans in your name or make withdrawals from your bank account. Here are some ways to protect that information:

Shred any documents with sensitive information on it before throwing them out.

Be careful of using your credit or debit cards at locations like remote gas stations or ATMs since thieves can attach skimming machines to them that steal your card info.

Verify that emails are coming from your financial institution before entering financial information and account passwords.

Keep a record of your credit card information so that you can quickly cancel a card that is lost or stolen.

If you have cards with Radio Frequency Identification or RFID, consider protecting them from scanners with an RFID safe wallet or credit card shield.

Avoid using your debit or credit cards in places like restaurants when they’re taken out of your sight.

Take steps to protect your computer and smartphone from malware.

Protect your credit

Even the best precautions won’t always work to prevent a thief from accessing your information. The second line of defense is to prevent the thief from using that info to open a line of credit in your name.

You can do that by setting a credit security freeze with each of the three credit bureaus. Since it prevents new creditors from accessing your credit file unless you specifically grant them access, it’s stronger than a fraud alert. Each state has slightly different procedures and fees. Where I live in California, placing and lifting the freeze is free for identity theft victims, $5 for people over 65, and $10 for everyone else and it stays active until you remove it.

Monitor your credit

If all else fails, you’ll want to catch the consequences of identity theft as soon as possible so you can quickly get it fixed. At the very least, look at your bank and credit card statements regularly for any fraudulent charges. You can also get free credit monitoring through creditkarma, which alerts you if there are any changes in your credit file like a new loan opened in your name. After all, a new loan probably won’t show up on your current statements. If you do find yourself a victim, you can learn about the steps to take here.

Take action

When you consider the costs in time, money, and stress of dealing with identity theft, it’s definitely worth taking these precautions. The problem is that it’s too easy to get complacent about something that you think won’t happen to you. But I’m sure the 1 out 18 US households that become victims each year probably thought that things like this only happen to “other people” too.

So in addition to protection yourself and your family, feel free to share this post with your friends and followers on Facebook and Twitter. If just 18 of them read it, odds are that you’ll save one of them from becoming another victim.