Credit monitoring

by Admin
Updated: July 18, 2018

The importance of credit monitoring to develop your credit history and improve your credit score

Having a long & unblemished credit history plus a high credit score will make your life easier in many ways. Apart from the obvious of be able to get new credit without difficulty, it is used to indicate that you are a responsible and therefore low-risk person. The credit you get will be less expensive (lower interest rates) and your insurance rates can be lower.

It’s important to point out that this article applies to credit in the USA. Other jurisdictions have different rules. For example, in the UK, high credit availability counts against your score instead of for it, presumably on the basis that you have the potential to suddenly become irresponsible and run up a lot of debt quickly.

Free credit reports

Once per year, you are entitled to get a copy of your credit report direct from each of the three major bureaus - Equifax, Experian and Transunion - for free. It’s a good idea to obtain these even if you are using a monitoring service. Put it in your calendar.

Free credit monitoring services

Some accounts, such as credit cards, offer some degree of free credit monitoring. There are also independent services that can be useful. All the free services suffer from various disadvantages such as not providing complete credit report or not monitoring all three of the major bureaus.

Paid credit monitoring service

All paid services should offer a complete set of benefits. Of course, some are better than others. The one you choose should provide alerts and your complete credit report from each of the three major bureaus updated monthly as well as credit scores calculated in a consistent way.

Note that it is difficult, if not impossible, to obtain the specific score/report used to make a financial decision about you.

Lock your credit file

Unless you are actively applying for credit, it’s a good idea to keep your file locked. When your file is locked, new credit applications will be denied. This makes it more difficult for someone to use your identity to get credit in your name. You need to do this with each of the bureaus separately and it can incur a fee depending on which state you live in.

Note that you can unlock your file temporarily when you want to apply for credit.

Nurture your track record

Your overall track record has more importance than any individual factor in determining whether or not your application will be accepted and this should improve over time. Here are the main individual factors:

  • Derogatory remarks: Make sure you don’t have any derogatory remarks. If you see some, disputing them might remove them or reduce their effect on your credit status. Otherwise, it’s a question of time. Don’t add new ones!
  • Payment history: Maintain a perfect payment history. If you dispute a payment, it may still be better to make that payment while you continue with the dispute than allow a late payment notice to ruin your credit history.
  • Age of credit history: Your credit history needs to be as long as possible so don’t close any accounts. Keep all your accounts open and in good standing. Note that some accounts such as credit cards typically need to be used at least once every 12 months to avoid being automatically closed.
  • Account types: Certain types of account, such as personal loans and flexible spending cards can count against you.
  • Total accounts: Something like 20-25 is a good number, supposedly indicative of creditworthiness.
  • Hard inquiries: As few as possible. Don’t give permission for a hard credit check unless it’s for something you are definitely going for.
  • Credit limits: As high as possible, as an indication of creditworthiness. You can periodically request a credit line increase based on having a good history and sufficiently high declared income. Ideally run your usage close to your current limit when you make the request. Income should be something like 3× the requested limit.
  • Total credit usage: Low but not zero. You need to be constantly demonstrating that you use your credit responsibly. Zero usage will work against you.

Checklist

  • Always open your mail immediately.
  • Try to avoid receiving financial documents in the mail - get as much done online and electronically as you can.
  • For financial communications, use one or more e-mail addresses that you don’t use for any other purpose.
  • Use encryption.
  • Setup alerts on your credit accounts and credit monitoring accounts.
  • Develop a habit of checking your credit activity frequently (daily/weekly) and your full reports monthly.
  • Check your credit report for errors. Note that some credit reports provided by third parties can show errors that don’t really exist so always double-check with the main credit bureau before taking action.
  • From time to time, search the Internet for your name, phone number and e-mail addresses.
  • Always pay your bills promptly. Unless you’re earning interest on the money by holding onto it, “promptly” usually means immediately.
  • Use rewards credit cards whenever possible.
  • Keep a separate note of the details you need to cancel a card in case you lose it.
  • Try to put all regular payments on a credit card you leave at home to minimize the chances of losing it.
  • Note that because your usage is reported when your statement is generated, your credit report can show sustained high usage even though you might be paying your balance in full each time. You can overcome this by paying the balance a couple of days before your billing period closes.
  • Balance transfer offers can sometimes be highly beneficial.

More info

Equifax Experian Transunion

Internal links

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