2024 Guide To Monitoring and Repairing Your Credit

Monitoring and Repairing Your Credit

Your credit report is used to evaluate applications for credit, insurance, home rental, even employment. Our age of technology makes it easier for someone to tamper with your credit history or steal your identity, making credit monitoring and repair all the more critical. Let’s dive in and learn about credit scores and how to improve them.

How Are Credit Scores Determined?

Fair Isaac Corporation, commonly referred to as FICO®, is the independent standard measure of consumer credit risk used by the majority of lenders. Although new models being introduced later this year will treat late payments and debt more severely, currently the top five factors that influence your credit score are:

• Payment History – 35%
  Even one late payment can have a negative impact and can stay on your report for up to seven years
• Credit Utilization – 30%
  Using more than 30% of your available credit is frowned upon
• Credit History Length – 15%
  Encourage students to responsibly use credit while still in school (secured credit cards are a good start)
• Credit Mix – 10%
  A diverse portfolio of credit accounts demonstrates control (utilities are generally not reported unless they have gone to a collection agency)
• New Credit – 10%
  Hard credit inquiries will stay on your credit report for two years (more on this later)

VantageScore is a consumer credit score that is a competitor to FICO. Instead of using percentages, VantageScore prefers to use the terms “extremely influential” down to “less influential.” In order of importance, the factors they consider are: payment history, depth of credit, utilization, balances, recent credit applications, and available credit. Their range is also 300 to 850. While VantageScore weighs late mortgages more heavily than other late payments, it also makes allowances for consumers affected by natural disasters. VantageScore partners with several free score providers.

Your credit score is a number that summarizes information from your credit reports. It predicts the likelihood a consumer will or won’t make a payment as agreed on any type of account in the future. A good credit score can give you the edge you need to be selected to rent a sought-after apartment. It can impact your insurance premiums. It can afford you more financial opportunities. It can save you thousands of dollars on the life of a loan. It can even qualify you for better terms when you sign up for cable, Internet, or cell phone services. A good credit score is crucial.

Credit ranges vary slightly within organizations, but generally are categorized as follows:

• 300 – 579        Poor
• 580 – 669        Fair
• 670 – 739        Good
• 740 – 799        Excellent
• 800 – 850        Exceptional

Those whose scores fall from 300 to the low 600s may not even qualify for a secured credit card. Low 600s to mid-700s means you are more likely to get approved and may have more options. Above the mid-700s will yield you the best interest rates and options. With an exceptional credit score you may still be denied for debt-to-income ratio, but not for your credit score.

Why Monitor Your Credit?

It’s important to know what’s on your credit report so that you aren’t surprised when applying for a loan. If there are mistakes on your credit report, the time it takes to correct them could mean missed opportunities.

Federal law entitles you to get a free consumer credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once every 12 months. These three companies have set up one website, toll-free number, and mailing address through which you can order your free report. You can order all at the same time, but if you space it out you could get one from a different agency each four months. Although they won’t all have the exact same information, much of it will be similar and it will give you a good picture of what your credit looks like. To order, visit annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Request form and mail to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

When you check your own credit, it is considered a soft inquiry and will not appear on your report. When a company pre-qualifies you for a loan, it is also a soft inquiry. If you grant someone permission to check your credit for any type of application, however, that is a hard inquiry and will stay on your report for two years.

Are Credit Monitoring Companies Worth It?

There are many reasons you may choose to use an outside company to monitor your credit for you. You may not feel comfortable doing it yourself. You may have had a negative experience with identity theft. You may just not have the time and would rather not worry about it. Whatever your motive, there are many different agencies offering a range of services.

Credit Karma is a free monitoring service, but it only provides information from TransUnion and Equifax. You would either need to use another service for Experian or check that one yourself. With Credit Karma you can receive alerts when unusual activity is suspected on TransUnion or Equifax. It is updated weekly.

Experian offers their own services, which probably explains why their reports aren’t available through Credit Karma. Experian’s IdentityWorks monitors all three of your credit reports for $9.99 per month. In addition to monitoring credit, IdentityWorks will notify you when a sex offender moves into your neighborhood, when crimes are booked in your name, or accounts are opened using your social security number.

PrivacyGuard monitors all three credit reports for $9.99 to $24.99 per month. Plans range from monitoring for signs of identity theft to providing up to $1 million in identity theft insurance.

Identity Force monitors identity and credit for $19.95 per month with their UltraSecure+Credit Plan. As with PrivacyGuard, they offer alerts and identity theft insurance.

Another option is myFICO Ultimate 3B Credit Monitoring. For $29.95 per month, you’ll have access to your three-bureau credit reports and 28 versions of your credit report that are used in mortgage, auto, and credit card lending. You’ll get alerts for changes to your credit information, including newly opened accounts, new inquiries, new public records, newly listed collections, and changes to your account balances.

How Do I Improve or Repair My Credit?

The Federal Trade Commission (FTC) cautions strongly against credit repair scams. No one can legally remove accurate and timely negative information from your credit report. The only way to improve your credit is through time and engaging in a personal debt repayment plan. Remember that a credit reporting company can list most accurate negative information for up to seven years and a bankruptcy for 10 years.

Pay attention to the factors that affect your credit score and do your best to stay within the suggested parameters. The FTC offers a helpful guide to disputing and correcting inaccurate information listed on your credit report. Here they provide a sample letter that you can customize and submit to the credit reporting company. Include copies of all relevant documentation. You can also go directly to the creditor and request that they correct inaccurate, incomplete, or misleading details.

If you decide to use a credit repair company to clear up any disputes on your credit report, be sure to check them out first. You can find out if they have complaints filed against them by reviewing the Consumer Financial Protection Bureau complaint database. They shouldn’t ask for payment upfront; the Credit Repair Organizations Act (CROA) actually prohibits it. If they ask you to make misleading statements about information on your credit report or suggest you create a parallel identity, you could find yourself in serious legal trouble. Be aware that credit repair companies cannot remove legitimate information and cannot do it overnight—the review process can take up to 90 days.

Lexington Law is one of the largest credit repair services. They do a high volume of business and charge $89.95 per month. Your membership can be canceled at any time.

Sky Blue Credit repair has a flat-rate payment structure, usually around $79 to get started. You can cancel or pause your membership at any time.

Ovation Credit Services by LendingTree has, by far, the highest Better Business Bureau rating at A+. They offer a complimentary review of your financial background and credit reports. A professional credit analyst will then provide you with details on their customized plans and pricing, starting at $69 per month.

Another avenue to consider is using a credit counseling organization. They can help you create a budget, work out a repayment plan with your creditors, and offer advice on solving your financial problems. Many of these agencies are nonprofit, but don’t let that designation fool you. “Nonprofit” status doesn’t mean free, affordable, or even legitimate. You’ll need to verify their track record just as you would a credit repair company. Make sure they are accredited by the National Foundation for Credit Counseling and in good standing with the Better Business Bureau.

The Bottom Line

Your credit report is critical to your ability to do business. It plays a significant role in securing optimal loan rates, acquiring insurance, and gaining employment. It is important to understand your credit score and to keep tabs on your report. It doesn’t cost you anything (except time) to monitor your own credit and dispute inaccuracies. If you find a mistake, don’t delay in addressing it. It can take up to 90 days to correct information and if you’re planning a new mortgage, refinance, or automobile loan a mistake on your credit report can adversely impact your options.