Posted on: Thursday, June 30, 2005

AKAMAI MONEY
Your credit report is key if you plan on borrowing

By Dan Nakaso
Advertiser Staff Writer

Q. I'm considering applying for a mortgage loan in Hawai'i's very tough housing market and would like to know what I can do to improve my credit rating.

A. It's a good idea to first look at your credit report to see what it says and clear up any discrepancies.

A new law allows you to get your credit report for free once a year through the Federal Trade Commission at www.annualcreditreport.com.

Private Web sites with similar names offer the same service for a fee. Lehua Rosa Malott, a counselor at the nonprofit Hawai'i HomeOwnership Center, said, "If they ask you for a credit card number, you're in the wrong place."

The Federal Trade Commission's Web site does not provide your credit score. But after you fill out the information at www.annualcreditreport.com, you can link to your credit score — for a fee — through one of the three major credit information services. However, they use different lenders to measure your credit — or FICO scores, developed by the Fair Isaac Corp. — so it may be worth the extra cost to get all three reports.

It's important to look at your credit report because it could have incorrect information, which could hurt your chances for a loan.

"Especially in cases of divorce where names change, there could be debts that aren't your responsibility," she said. "Or you can be a junior, and senior's not paying his bills. It's all based on Social Security numbers, but real people input the information and real people make mistakes," Malott said.

After getting your credit report, the main thing is to make sure all of the accounts are yours and their status is correct.

For people who have filed for bankruptcy, make sure your debts were discharged in the bankruptcy. "Sometimes they're listed as a charge off," Malott said, "meaning you didn't pay your debt, and you just walked away."

If there are discrepancies, Malott recommends you contact the credit bureaus in writing. They have 30 days to investigate your complaint and respond.

You may also dispute claims directly with creditors or even add an explanation to your credit report. But Malott recommends against adding an explanation on your credit report, which all lenders can see. If you feel it's necessary to offer an explanation, she instead suggests tailoring a specific explanation for a specific loan.

The August issue of Consumer Reports also looks at credit scores in a cover story headlined, "What you don't know can really hurt you."

Consumer Reports recommends that consumers review FICO scores and credit reports once a year, or several months before applying for a loan, to check for errors, negative data or any suspicious activity that may signal identity theft.

Once any errors are cleared up, Consumer Reports suggests that you:

• Sign up for automatic bill payment. Being late on bills by 30 days or more can make credit scores drop by as much as 100 points.

• Watch the timing of your spending. For consumers who plan on applying for a loan, it's best to keep spending down and reduce debt. The lower the balance, the better the credit rating.

• Limit credit-card applications. Each lender inquiry can reduce your score.

• Think twice before canceling cards. Consumers gain points if they tap only a small percentage of the total credit available to them. Eliminating accounts can reduce the ratio.

Learn more: A free guide to deciphering credit reports is at www.ConsumerReports.org.