Clean Up Your Credit

Spring is a good time to check your credit report and clean up any problems. But don’t sweep any dirt under the rug. That’s what Katherine learned the hard way.

Katherine is an ambitious, intelligent business woman who had never missed a payment in her life. But when she reviewed her free credit report, available at www.annualcreditreport.com, she was shocked. Her FICO score, available for an extra few dollars, showed her score was 360. That put her in the lowest one-third of consumers—most would say she is a horrible credit risk.

How could this responsible woman who has never missed a payment on her mortgage and carries no credit card debt be considered a bad credit risk?  Well, it turned out that when Katherine refinanced her expensive home a few years ago, she was encouraged by the mortgage broker to open a home equity line, just in case she had future cash needs.  The annual fee of $75 was waived for the first year, and since she never used the credit line, when the annual $75 fee came due the next year, she simply ignored the bill, assuming that the mortgage company would just close the account. But she was wrong.

Because she never contacted the mortgage company to cancel, that $75 showed up as a past due loan. As the months passed, her credit got worse and worse. And when the loan company put a lien on her house, her credit score plummeted further. This $75 fee could have cost her thousands of dollars in higher interest had she needed to finance anything in the future, and it could have even prevented her getting a loan at all.

Katherine spent at least 15 hours to clean up her credit, and re-establishing her good name and credit —and she says she learned a very valuable lesson.  While it is vital to manage the big things in life, don’t ignore the little things.  The little bit of dust under the rug can trip you up.

Review your credit report carefully. If you see that something isn’t correct, contact the credit-reporting bureau directly. They have about a month to verify the information, and if they can’t, they must remove it from your credit report.

Some errors might seem small, but are really red flags. An address your ex-spouse lived at after the divorce could mean that his credit is intermingled with yours. A post office address listed as a former address could mean that someone else is using your credit to their advantage. A quick review now could save you hours working to clean up your credit later.

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