Get to know your credit score — and the reasons behind it

By DENNIS GRUBAUGH
    There was a time in our lives when my wife and I had little money, small children, lots of bills and a hard time seeing the light at the end of the tunnel.
    I am happy to report that times have gotten better. But even so, I was a little skittish about a project I took on this past month after being teased by a television commercial.
    It was for Credit Karma, and I’m sure most of you have seen it: two people sitting on a bench and talking nonchalantly about credit scores (like that happens). One says to the other, check out Credit Karma, it’s easy — and it’s free.
    Turns out, the claim is accurate. I tinkered with the website one day and within about 10 minutes had downloaded my credit scores courtesy of Experian and TransUnion, two of America’s three credit rating bureaus.
    And my scores were great. I suspected they would be, but you never know. Experts will tell you to check your credit reports at least once a year to make sure they are a reflection of the truth — and to make sure you haven’t become a victim of identity theft.
    Your credit report is a key part of many credit scoring systems, according to the Federal Trade Commission, which stresses the need to make sure your credit report is accurate. Federal law gives you the right to get a free copy of your credit reports from each of the three national credit reporting companies once every 12 months.
    Credit Karma was fine for me to get my scores in minutes, more of a lark on my part than anything, but you may have to put up with follow-up emails and unwanted advertisement for a while. That’s how the company pays for its business.
    You can achieve the same goal by using a myriad of sites on the Internet, including directly through the credit bureaus themselves. The important thing is you should understand your credit scores and the associated criteria on which they are based.
    Credit scores are all about your credit experiences, among them your bill-paying history, the number and type of accounts you have, collection actions, outstanding debt, and the age of your accounts. All that is  collected from your credit report.
    Depending on the site you use, the resultant scores may be different. But in all cases, the higher the score, the more creditworthy you are, and that’s significant if you ever go for a loan or get rated for insurance. The least little hiccup along the way can stick with you — and you may not know it. For instance, a missed payment resulting from an overlooked bill may turn up on a credit report when the lender checks you out.
    And more than 70 percent of those credit reports contain some sort of error, according to Jim Chilton, founder and chief executive officer of the non-profit Society for Financial Awareness.
    There are several ways you can improve your credit score.

• Avoid careless use of credit cards. The amount of debt you have relative to income is a telling sign.
• Dispute black marks; creditors have a burden to prove them and if they don’t do it in a set time, those entries may be dropped from your report.
• If you’re having problem with a debt, contact the creditor and make some arrangements. It shows good faith on your part. The worst thing you can do is ignore calls and letters demanding payments. Things done like that can stick with your credit report long into the future.

    I am not encouraging anyone to get on the web and dole out private information. That’s up to the individual.
    However, I do encourage you to do your own research. If a TV ad makes a claim, and you’re wanting to pursue its validity, do a little research.
    Check out the websites for annualcreditreport.com and the Federal Trade Commission for a wealth of information that could affect your wealth.
    Dennis Grubaugh is editor and partner of the Illinois Business Journal. He can be reached at dgrubaugh@ibjonline.com or (618) 977-6865.