By Ed Vargo
We all know having a good credit score is critically important. It enables you to borrow at favorable interest rates, thereby putting more money in your pocket to invest for retirement or college. It also provides access to opportunities – such as converting high-interest credit card debt to low-interest home equity debt – that would not be available otherwise.
And yet, despite the importance we place on our credit score, we are shockingly lax at protecting it. And it could not be easier to do so these days.
Step 1: Get your FICO scores
Even if you “know” you have good credit, it is smart to establish a baseline, and that means getting your official “FICO” score. FICO scores are issued by the Fair & Isaac Company (hence, F-I-C-O) and are used by 90 percent of lenders when determining your credit score. All three credit bureaus (TransUnion, Experian, Equifax) report data regularly to FICO, which generates three separate FICO scores. Yes, three separate credit scores. And you thought this credit score stuff was simple, didn’t you?
The good news is it is relatively simple to get all three FICO scores. Go to www.myfico.com and order the FICO Score 3b Report for about 60 bucks. This provides you your official score from all three credit bureaus. If you are thinking, “Why do I need all three reports, aren’t they all the same?” In a word: no. Each credit bureau has different reporting criteria thereby generating three different credit scores. It is not uncommon for there to be a significant difference in credit scores among the three reporting agencies.
Step 2: Get a copy of your credit report
Go to www.annualcreditreport.com and request a free credit report from each of the three credit bureaus. You may be surprised what you find. Accounts that were never in your name, accounts that were paid in full yet still show a balance, accounts for a family member (this is particularly common if they lived in the same house or have the same name), medical bills that were paid but reported as a collection item – these are just a few of the myriad ways your credit report could be incorrect.
If you find an incorrect item on your report, there is an easy way to dispute the item and have it removed. Well, the process for submitting the dispute is easy, actually getting them to remove it can be a bit more challenging. But you have no chance of resolving the issue if you do not report it in the first place.
Step 3: Protect your identity
One final recommendation — sign up for identity theft protection such as Lifelock. Identity theft is one of the leading causes for credit score/report issues. If someone steals your identity, it can wreak havoc on your financial life and credit score. This is a keystone issue for the IRS, and it should be a keystone issue for you, too. Don’t say I didn’t warn you!
(Sidebar: If you sign up for Lifelock, be sure to look at affiliate marketing programs, such as United’s Mileage Plus campaign, which is offering 7,000 frequent flier miles for signing up through them (as of this writing). Consider it a little bonus for making a smart financial decision.)
So, there you have it. Three simple steps to protecting your credit score. Personally, I get my official FICO score every January and request free copies of my credit report at the same time. Sure it costs a couple of bucks for the FICO scores and it takes a wee bit of time to request the credit reports, but that pales in comparison to the costs incurred if things go bump in the night.
Ed Vargo is the founder of Burning River Advisory Group (BRAG), where he helps clients develop values based financial plans for every stage of life. BRAG specializes in helping women successfully navigate the life transitions of divorce, widowhood, and retirement. He can be reached at firstname.lastname@example.org or (216) 404-2420.