Protecting your credit score
A poor credit score can not only affect the terms of financing you may receive, including interest rate, it can also prevent you from getting a loan or new line of credit altogether.
Sure, there are things you can do to protect and improve your credit score, but what about mistakes or fraudulent activity that may be negatively affecting your credit? A poor credit score can be a hard pill to swallow when you're responsible for the poor rating-but it's even more painful when the poor rating isn't even your fault.
Data breaches, identity theft and your credit score
Stolen information from such breaches can include Social Security and credit card numbers, bank account information, as well as medical records. And therein lies the importance of monitoring your credit score and credit history: the fact that even when you do everything you can to protect your rating and personal information, you do not have control over everyone else who has your personal data.
According to a report from the Identity Theft Resource Center and CyberScout, half of all data breaches come from the business sector, followed by health and medical records, data from education, the financial sector, and government and military breaches.
Simply put, there has never been a more important time in history to regularly monitor your credit reports to ensure there is no fraudulent activity that may be affecting your score.
Inaccuracies on your credit report
Another reason to regularly monitor your credit report is the number of errors and inaccuracies that may be affecting your credit score. As a matter of fact, the number one consumer complaint posted on the Consumer Financial Protection Bureau's (CFPB) website concerned errors found in credit reports.
Similarly, a study from the Federal Trade Commission (FTC) found that one in twenty consumers "had errors on one of their three major credit reports that could lead to them paying more for products such as auto loans and insurance." The problem is obvious-financial lenders will most likely respond to negative data, even if incorrect, by offering you higher rates, poorer terms, or by denying you credit altogether.
In a follow-up report, the FTC found that most consumers who reported errors on one of their three major credit bureau reports "believe that at least one piece of disputed information on their report is still inaccurate."
So, it's not only important to regularly check your credit reports from all three credit bureaus, it's equally important to be tenacious about following up and disputing any errors and inaccuracies that could negatively affect your chances of getting the most favorable loans, interest rates, and terms, based on your credit.
Improving your credit score
Though it's possible to correct errors in your credit report in 30 to 60 days, repairing a damaged credit report can take 12 to 18 months-meaning your score can be incorrect for just as long.
When it comes to your FICO® score, managing your credit responsibly also goes a long way:
Pay your bills on time
Late payments and accounts referred to collections agencies can have a major impact on your FICO score.
Keep balances low on credit cards relative to their credit limits
High outstanding debt can affect your credit score.
Pay off debt rather than moving it around
A reliable way to improve your credit score is by paying down your credit card debt.
Don't open new credit cards just to increase your available credit
This approach could backfire and actually lower your credit score.
Open new credit accounts only as needed
A cautious approach to taking on new credit will help you maintain a good score.
With regard to protecting and improving your credit score, an ounce of prevention is definitely worth a pound of cure.