Your Credit Shadow —
Your credit report is the key to your financial history—and future.
by Linda Fjeld
"The reputation of a man is like his shadow; it sometimes follows and sometimes precedes him, sometimes longer and sometimes shorter than his natural size.”
Anyone who has been denied a job or insurance coverage, or stuck with an exorbitant interest rate on a loan
due to a poor financial reputation, has experienced the reality of this French proverb. Like your shadow, your
credit history is hard to shake—an eternal gatekeeper of your financial reputation. The stakes are enormous in
establishing and maintaining a favorable credit report.
What is a credit report? It’s a kind of “score” compiled by three major reporting agencies: Equifax, Experian
and TransUnion. The credit information these companies compile on you often spans decades and is made available
to potential creditors who inquire about your creditworthiness.
Keep Score
It’s not just paying your bills on time that puts you in good
standing credit-wise, according to John Viens, senior vice president and chief lending officer at Thrivent
Financial Bank. “Of course, prompt payment is a major determinant of your score,” he says. “But total
indebtedness and length of time that accounts have been opened are also key.”
While offers to transfer credit from one card to another for lower rates are enticing, Viens warns against
taking advantage of such offers too often. “Balance transfers create a frequency issue that may potentially
impact your score. Repeatedly refinancing debt rather than paying it off in full is a credit red flag,” says
Viens.
Also potentially damaging to your score is the number of open credit card accounts you have. Most people
believe a credit card account is closed as soon as they cut up the card and pay off the balance. “You actually
must send a letter to the company requesting that the account be closed,” Viens cautions. “Don’t just cut up
your cards.” Potential creditors count open accounts as credit that’s accessible to you—this may make you more
of a liability to creditors, potentially lowering your credit score.
Keep Track
A new law requires the three major credit bureaus [see sidebar] to give you a free credit report once a year
at your request. (You can get a report more frequently for a fee if you wish.)
“If you haven’t done so recently, request your reports and review them carefully,” advises Viens. You might
find anything from old accounts that should be closed to outright identity theft. “You need to know what’s in
your file and to fix any information that is incorrect. Think of it as a hedge against fraud,” Viens adds.
Keep Current
According to a 2004 U.S. Public Interest Group study, 79 percent
of credit reports contain mistakes of some kind. What’s more, one-fourth of all reports include errors serious
enough to result in credit denial. Even though it seems like an injustice, these mistakes are your responsibility
to fix.
To do so, complete the dispute form included with your credit report or write a letter to the bureau explaining
your dispute. “Sometimes creditors simply supply the wrong information,” says Viens. If you believe that’s
the case, send an appeal to the creditor asking them to write a letter clearing your name. If they don’t agree,
send each bureau an explanation of your dispute and ask that it be attached to your credit report. “That way,
each potential creditor will see the note,” says Viens.
Keep Clean
While annoying, credit-reporting errors are of less consequence than errors of your own financial
mismanagement. If you’ve had credit miscues in the past and are now paying the price, it can “take time and
patience to reestablish good credit,” says Zachary Larson, a Thrivent Financial consultant in Downers Grove,
Illinois. But it’s never too late to clean up your act.
Making a serious commitment to debt reduction is a good place to start. “At Thrivent Financial for Lutherans,
our goal is to counsel members in packaging their debt so they will ultimately be debt-free,” says Larson.
If becoming debt-free isn’t realistic short term, Larson recommends intelligently positioning debt. “Consolidating
high-rate cards and closing inactive accounts are important steps to take in getting your financial reputation back
on track,” he adds.
For better or worse, there’s no escaping the reality that your credit score drives nearly every aspect of your
financial life, from the background check done before you can land your dream job to the one done before you can
rent an apartment. That’s why Larson recommends taking a hard look at your debt situation to see if it’s keeping
you from reaching important goals, such as retirement or education planning. “If so,” Larson says, “perhaps it’s
time to bump credit and debt management up a notch on your list of financial priorities.”
Personal-finance writer Linda Fjeld is a regular contributor to Thrivent magazine.
5 Steps To Take Today
1. Order your free credit report—You can do this one of three ways: Call toll-free 877-322-8228; visit www.annualcreditreport.com; or send a written request to:
Annual Credit
Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
2. Avoid quick credit fixes—Be wary of companies that claim they can improve your credit report for a fee. These companies cannot do anything for you that you can’t do for yourself at little or no cost.
3. Limit the number of accounts you have open—Close unused credit card accounts in writing and shred pre-approved credit card offers.
4. Take a holistic approach to your finances—Meet with your Thrivent Financial representative to discuss how your credit and debt situation fits with your overall financial plan.
5. Correct any errors—If information in your credit report is inaccurate, report it in writing to the appropriate credit bureau (Equifax, www.equifax.com; Experian, www.experian.com; or TransUnion, www.transunion.com). Supply copies of any information that supports your claim. The credit bureau is required to investigate your claim and report back to you in a reasonable time frame (usually 30 days).
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