Knowledge is power: Budget software can put you in control of your credit.
Credit reports follow you through your whole life. They change as your situation changes, but they never go away. The list of people and organizations who review your credit history is pretty large. Whenever you apply for a loan, credit card, apartment or house lease, and even a job, part of the approval or acceptance process often requires you to permit access to your credit report.
Credit decisions are practically always based on credit history, and employment decisions are trending in that direction for many companies. Some utility companies use your credit score as the basis for whether you have to place a deposit for service. With so much riding on what your current creditors have to say about you, it only makes good financial sense to keep track of it.
What's Really On Your Credit Report
The Federal Reserve Bank explains that your credit report reveals information such as your identity, existing credit (credit cards, mortgage, vehicle loans, personal loans, department store credit, gas station credit, etc.), public record, and credit inquiries made by third parties. Existing credit doesn't just cover accounts that are open now; it also includes past credit as far back as seven years. Public record shows bankruptcies within the past 10 years, judgments, and liens.
When you pay your bills each month, your creditors can, and usually do, send that data to each of the three reporting agencies - Trans Union, Experian, and Equifax. Creditors can provide information about the highest amount of credit on your accounts, current balances, the amount of your monthly payments, whether you pay late, and how late you have paid in the past.
If you pay your credit card bill on time, your report will reflect that. If you've ever paid 30, 60, or 90 days late or more, each report will reflect that, too. The same is true for every credit item on your report. A bankruptcy isn't a permanent scar, but it will remain for 10 years. Other public record items such as judgments and tax liens show up, too.
Inquiries are an interesting item. When you apply for credit, the creditor makes an inquiry to learn your credit score. Each inquiry shows up on your report. A few inquiries now and then are normal. A pattern of consistent inquiries, without new open lines of credit to accompany them, might be interpreted as being turned down for credit again and again.
When you stay on top of your finances, you'll know whether your credit report is accurate.
How a Budget Can Help Your Credit
A personal budget isn't just a good idea for managing your money; it can help build strong credit. Some creditors might not take into consideration the full scope of your finances, offering credit that you can't really afford. A budget can empower you with an understanding of how much is too much, and whether a new debt is feasible.
A budget can also reveal whether a new line of credit is a smart idea. You can't build credit without existing lines of credit. If you can afford it, monthly payments made on a new account add another layer of responsible behavior that creditors can see about you.
When you adhere to a budget, you're aware of which payments are due when. This helps avoid dreaded late payments, which stick around in black and white for seven years. With Mint.com's budget software, staying on top of monthly payments has never been easier. Set up simple alerts, and you'll know when each payment is coming due.
Nothing is perfect, and even credit reports can contain errors. If you spot an inaccuracy, your budget can help you challenge it. The Consumer Financial Protection Bureau explains that your report can also reveal damaging identity theft. If someone opens an account in your name, it will show up on your report.
Equifax, Experian, and Trans Union all provide forms that help you dispute inaccuracies. Your monthly budget can provide some of the details you need for a dispute, such as when a bill was paid or whether an account is even yours.
How to Get a Copy of Your Credit Report
Everyone is entitled to a free copy of all three credit reports every year. AnnualCreditReport.com is one of the most highly recommended sources. If a company charges a fee, it's smart to go elsewhere. You can request your credit report from Annualcreditreport.com online, but you can also call them direct at 877-322-8228 or make a request in writing:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
When requesting your copies in writing, you'll need to print and fill out the Credit Report Request Form.
Your budget and credit report can work together to improve credit health. If your scores are already great, a sound budget helps keep them that way. If there's a problem, knowledge is power - a budget can help you get and stay on the right path.
Mint.com comes recommended by The New York Times, The Wall Street Journal, and Money magazine as one of the best ways to manage money. Sign up for your free account today, and put yourself in a position of power over your finances.