Credit Score - What's the Big Deal?

What is a credit score? A credit score is a three-digit code that is generated by the three credit bureaus: Experian, TransUnion and Equifax. Lots of companies use that score to make decisions about you. Many also take the information provided by the credit bureaus and use it to create a code with their unique criteria and weighting. Whether you’re buying auto insurance, renting an apartment or applying for a credit card, there’s a good chance that one or all of the bureaus will be contacted and asked to provide your credit score or credit history. That’s because businesses believe, rightly or wrongly, that people with good credit are more reliable. If your friend, Debbie, asked you to lend her $50, wouldn’t you want to know how likely she is to pay you back? You might ask Sarah, who lent Debbie $50 last month, whether or not she’d been paid back and how quickly. If you apply for a mortgage, the lender wants to know how likely it is that you’ll pay back the money. Past history can help calculate the odds.

What’s your credit score? If you’re telling me that you don’t know, I’m telling you that you need to find out. If you want to create wealth, you need to be intentional about your finances and that starts with a great credit score. So right now, go to annualcreditreport.com and request your report from each of the three credit bureaus. Look at every single item on the report. Make sure it’s really yours. If it’s yours, make sure it’s accurate. If it’s not yours or it’s yours but not accurate, contact the bureau and let them know. There is a button to dispute the item. Do that.

Now let’s look at the items that are yours and are accurate. Is everything current? If not, you must get them current. If necessary, contact the debtor and find out what you can do to negotiate some type of settlement or pay-off or a payment plan that you can maintain. No one new is going to want to loan you money if you can’t manage the debt that you have and lenders are not glass-half-full kinds of people. They really focus on the bad stuff.

Once everything is current, is there anything on your report that is showing as a negative? If possible, write a letter explaining why this happened. Send a copy of the letter to whichever bureaus are showing the item. The letter will be sent to anyone who requests your credit report. It’s not perfect but it does show that you’re on the right track and being intentional about improving.

Set a goal today to improve your credit score by 50 points in the next three months. That simple act will have a huge impact on your financial future.