Do You Need Credit Score Help?

The most underappreciated number in our daily lives may be our credit score. Credit reports and credit scores were once the exclusive concern of bankers but are now used by businesses for a wide variety of purposes. So how can your credit score help or hurt you?

• Employment: As part of pre-employment or advancement screening, businesses, with your written permission, may look at your credit report as as part of their assessment.
• Insurance: Auto, homeowners, and other types of liability insurance are more frequently asking to check your credit before determining your premium rate.
• Utilities: Cellphone companies in particular require credit checks before they make rate offers. Other utilities are also beginning to follow a similar process.

All told, the cost of even a marginally deflated credit score can amount to thousands of dollars per year in additional expenses and lost income. While a perfect credit score of 850 is rarely achieved, scores from 760 to 850 will earn you the best possible interest rates for a 30-year fixed-rate mortgage, and each decrease of 50 points can cause up to a 0.25% increase in rates.

Interest rates on shorter-term loans such as car loans are affected more dramatically by smaller changes in credit scores. For example an individual with a credit score of 720 or above can expect to get the best rate available, and incremental drops of 29 points raise that rate dramatically, according to FICO.

The chart below is based on the average 60-month new-car loan of $27,000 and interest rates provided by MyFico as of July 8, 2014.

Those who need credit score help often turn to subscription-based credit-monitoring services, which have become popular, as you can tell by the number of expensive ads on the Internet, on TV, and elsewhere. The cost of these professional services ranges from $14.99 to $29.99 per month, which amounts to $180-$360 per year.

Do-it-yourself credit-monitoring, on the other hand, is neither complicated nor expensive -- in fact, the only cost is a little of your time. The process is simple, and it starts with knowing the state of your credit. This requires looking at your credit reports.

Credit reports
Federal law requires that the three major credit-reporting companies -- Equifax, TransUnion, and Experian -- each provide you with a free copy of your credit report annually, upon your request. AnnualCreditReport.com is the only official site where you can order all three reports for free. Each credit report includes your current credit score as reported by that company.

Reviewing your credit reports is not complicated and does not require a degree in finance or accounting. Make sure the report only references you and addresses where you have actually lived. Ensure that all credit cards, loans, mortgages, and debts that are listed belong to you. Ask that any erroneously reported late payments be corrected.

The FTC provides a sample dispute letter that you can use, along with copies (never originals) of documents that back up your claim. Send the letter and documentation to the credit reporting agency via certified mail, return receipt requested. Credit bureaus must investigate your claim within 30 days.

Most importantly, make sure all requests for copies of your report were authorized by you. Quick tip: Rather than ordering all three reports at the same time, order a different one every four months so that you can close the window on identifying fraudulent activity.

Also make it a habit to open and review your bank and credit statements at least once a month to check for unfamiliar transactions. Better yet, a quick weekly or daily review can be done online in a couple of minutes. Notify your bank or credit provider immediately of any suspicious activity and ask that they investigate.

Lastly, ask your credit card issuers what sort of free fraud protection they offer, such as text and email alerts. These alerts include things like unusually large purchases, transactions outside of your geographic region, and others that are contrary to your normal patterns. Other forms of protection may include requiring authorized-user verification to complete a purchase and limiting transactions to use of the physical card (no online or phone purchases). These services are usually free and can provide a lot of peace of mind.

A little goes a long way
They say an ounce of prevention is worth a pound of cure, and when it comes to credit monitoring, this couldn't be truer. It is far less costly to catch and fix problems early than to wait for the flood gates to swing open. The money saved in interest costs by monitoring your credit and keeping it free of errors and fraud coupled with the savings of doing it yourself can amount to a serious investment in you.