Money Matters/ How to protect your credit rating
During unsettling economic times, you may find debt piling up faster than you think. Just a few late payments can significantly hurt your credit score. And, even if you're keeping up with your payments, you face another credit rating risk: increasing vulnerability to credit card fraud and identity theft simply by having your account numbers in circulation more.
The following tips may help you keep your credit score intact:
Knowing the score
Your credit score represents your creditworthiness and risk as determined by the credit bureaus. A poor score is typically anything under about 620; an excellent rating generally is a score of 720 or higher.
A poor score can result in creditors charging higher interest rates, imposing greater restrictions on loan amounts or even denying you the opportunity for loans altogether. When calculating a credit score, the bureaus typically review information pertaining to opening and closing of credit card and loan accounts, payment history, legal judgments, bankruptcy filings and tax liens.
Reporting for duty
Protecting your credit rating begins with requesting copies of your credit report annually. Make sure you get a report from all three major credit-reporting agencies: Equifax (http://www.equifax.com), Experian (http://www.experian.com) and TransUnion (http://www.transunion.com).
The Fair and Accurate Credit Transactions Act allows you to obtain one copy free of charge from each agency annually. You can order them online through the authorized central website: http://www.annualcreditreport.com. Consider spacing out report requests every four months (rather than requesting them all at once), so you're aware of any changes to your credit history throughout the year.
Note that your credit score won't be included in your free credit reports. Generally, you must pay the credit-reporting agencies a fee to obtain your score.
Catching any culprits
When you receive a credit report, review it carefully. Start by verifying your personal identification information. Creditors may make errors when entering your information for a credit or loan application.
Next, look for any inaccuracies or information that could drag down your credit score. To correct discrepancies, provide supporting documentation and a letter of explanation to all three credit-rating agencies.
Covering all the bases
Habitually reviewing your monthly credit card statements can help you catch errors and fraudulent activity, including identity theft, before it hurts your credit score. If you're billed for credit card charges you didn't make, dispute the charge within 60 days to limit the potential for it to adversely affect your credit rating.
If you believe your identity has been compromised, promptly call the credit card company to explain the situation, stop authorization of future charges on the account and request that they issue you a new account number and card.
Then submit required forms -- available through the Federal Trade Commission (ftc.gov) -- via certified mail to report the theft and close the unauthorized account. Request a return receipt and letter from the credit card company acknowledging the fraudulent claim and stating that the company has closed the account and relinquished you from the fraudulent debt. Keep the letter as proof of the creditor card company's action. (The preceding steps aren't legally required but are highly recommended by the FTC.) Also report the theft to local law enforcement and obtain a copy of the police report.
Last, contact one of the three major credit bureaus. Request that the agency put a fraud alert on your credit file to require creditors to contact you before opening any new accounts in your name or making changes to your existing accounts. The agency you contact will then notify the other two agencies to place fraud alerts on your credit file.
A bad credit rating, whether due to delinquent payments, credit card fraud or all-out identity theft, is a threat to everyone. Although you may eventually be able to improve your credit score and recover amounts lost to fraud, the immediate hit to your cash flow could create serious financial and lifestyle problems for you.
This has been a general discussion and is not intended as specific advice. If you have problems with your credit score or credit card fraud, contact the appropriate organizations immediately about your situation.
Norm Grill, CPA, (N.Grill@GRILL1.com) is managing partner of Grill & Partners, LLC (www.GRILL1.com), certified public accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Greenwich, 254-3880.