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Clean up your credit

By Deb Trzcinski for LIFELines

One of the first things you notice upon entering the military is the eagerness of others to lend you money. Outside military bases worldwide, billboards line the streets: "E-1 AND UP — WE FINANCE!!!"

While credit is a good thing when used wisely, it turns ugly with abuse. Overextending yourself or neglecting payments leaves you with nothing more than a bad credit rating. This may be of no consequence to you now — but your future financial dreams are dependent on it. Understanding your credit rating can help secure your financial future.

Part 1: What's a Credit Rating?
Lending institutions use a credit rating to determine whether you're worthy of receiving more credit. You are rated based on your credit history, including how well you have paid your debts. Scores are recorded on credit reports that are maintained by three credit bureaus: Equifax, Experian, and Trans Union. When you apply for a loan, an institution will access this report before lending you money or offering you more credit.

Credit reports contain the following information:

  • Personal: name, all addresses, Social Security number, birthday, employers, marital status, and name of spouse
  • Account information: loans or credit from banks, retailers, credit card companies, or other lenders
  • Public records: liens, monetary judgements, and bankruptcies
  • Inquiries: requests by others for reports on you

Obtaining a copy
If you're considering the purchase of a home or vehicle, you should check your credit report. Your score can determine whether a lender will give you money and may affect what interest rate they'll charge.

Request a free copy of your report from the credit bureaus. is the official site to help consumers to obtain their free credit report.  In addition, other internet services offer special deals to access either your entire report or your score alone from one or all three bureaus if you have already recieved your free annual report. Additional free reports are included in some of these deals (but be sure to pay attention to the fine print).

What's the score?
When you receive your report, find the credit risk score. While lenders may consider other information, this score is often the determining factor in securing future loans. Scores range from 375 to 900 points. The importance of the score is based on the lending policies of a creditor. One company may be willing to lend you money with a score of 620 while another has a different standard. You are considered a good credit risk if you have a score of 650 or above.

Part 2: Poor Credit Ratings — Cause and Effect
Several things can affect your credit rating.

Late payments
Overextending yourself with credit almost always leads to a crippled score. In many cases, all it takes is a few payments that are 30 days late to cause irreparable damage.

Be sure to notify creditors of address changes when military orders take you to a new location. If you don't plan carefully before a move, bills may be sent to the wrong address, resulting in late payments that pile up.

Spouse's credit
If your spouse has a bad credit rating, so will you. Communication is key to knowing the status of a spouse's spending habits and/or ability to responsibly use credit. Be sure to plan ahead and talk over payment schedules, particularly before a move or deployment.

The hidden truth
Amazingly, your credit rating can be negatively affected without your knowledge. Inquiries of your credit report by prospective lenders could result in a disapproved loan. Multiple inquiries over a short period of time give the impression that you are applying for lots of credit, thereby overextending yourself. Limit these inquiries. Your own inquiries do not count against you.

Unused credit is a good thing … right? Wrong. Available credit means you have the capability to overextend yourself in the future. Consider closing unused credit accounts or having your limits lowered before applying for a large loan.

Mistakes on your report
Never underestimate the potential for errors on your credit report. Check carefully for misspelled words, incorrect numerals in your Social Security number, and inaccurate amounts due on existing accounts.

Occasionally, identity fraud comes into play. Fraud happens when someone else uses your name to open accounts.

Correcting mistakes
You have the right to dispute inaccuracies of any kind.  Write a letter to the reporting bureau and include the following information:

  • Full name
  • Complete mailing address
  • Date of birth
  • Social Security number
  • Name and account number of the item you are disputing
  • Reason for your disagreement
  • Signature

How long will it last
Negative information remains on your report for seven years. Inquiries stay for two years, while public record information is present between seven and 10 years.

Part 3: Rebuild a Good Credit Report — Break the Vicious Cycle
Besides other troubles created by bad credit decisions, excessive problems with indebtedness can hurt your military career, resulting in possible administrative and/or disciplinary actions. It's in your best interest to live within your means and maintain a good credit report.

However, there's hope for those in a credit crunch. It may or may not be possible to repair your credit rating once damage is done, but rebuilding a good report is always a feasible goal.

Options for fixing your credit
In "The Fix Your Credit Workbook," authors Todd Bierman and David Masten suggest that it's possible to amend negative reports through letter-writing campaigns or direct negotiations with creditors. The workbook encourages readers to "write letter after letter to the credit bureaus, asking them to remove the bad credit item" and that "credit bureau letters can be effective at repairing credit."

According to Bierman and Masten, direct negotiations are the preferred method of deliberation. This method involves such things as approaching the creditor with an offer to settle your debts (backed by a workable payment plan) in exchange for an unrated account. Unrated means it is neither good, nor bad.

Payment priorities
In the midst of rebuilding, prioritize current bill payments based on which creditor can cause you further damage. Although a late payment on a credit card is bad for your credit score, if you must choose between that and your mortgage, the mortgage takes priority. The following is a suggested list of creditors based on their debt importance.

1. mortgage
2. IRS
3. auto lenders
4. credit cards
5. store cards

Assistance is available
Use caution in approaching credit counseling agencies or clinics claiming to have the ability to "fix" your report. Some have been found to be fraudulent and often charge large sums of money to do things you can easily do yourself for free. Other credit organizations offer help, ranging from setting up a reasonable payment schedule to interceding on your behalf with creditors. For reliable instruction and counseling in responsible money management, contact your local Navy-Marine Corps Relief Society.

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