There are a lot of things we do regularly; change the oil in our vehicles; go to the dentist; get a haircut. But, when was the last time you checked your credit score?
Most people check their credit score when they are applying for lending such as a mortgage or credit card. But, you’re not often getting this type of lending, so that means, most people aren’t checking their score for years at a time. I’ve even met some people that have never checked their credit!
But, checking your credit is such an important habit to get into. There could be errors, forgotten balances, and even fraud that’s damaging your credit.
Small Balance, Big Headache
A few years ago, I purchased a new computer. While I had the money to buy it outright, I decided to use the store’s 0% financing through CitiFinancial, and no payments for three months.
I paid the full balance on the last day of the three months and received a stamped confirmation of payment.
However, two months later, I receive a call from CitiFinancial that I owed $106 in late interest.
I corrected Citifinancial that I had paid on time, citing the stamped confirmation. I was not paying any late interest for their processing error! Luckily, we were able to get this cleared up and the charge removed.
Now, usually, I would have checked my credit score after I closed the loan, but due to my own life, I forgot (we are still all human!)
The general rule I like to follow is that you should be checking your credit every six months and when you close a loan or credit card.
Regularly doing this check can identify these types of errors and prevent any future damage to your credit.
And yes, that small error of $106 had the potential to decrease my credit score, and if left unchecked, potentially my potential to get future lending.
Credit Score Examples
Below are two examples of credit score problems I’ve come across as a mortgage broker.
The New Credit Card
A client received a new credit card in the mail. With some credit cards, an annual fee is applied before you start using them. In this instance, the fee had been applied already and the client did not want the credit product anymore.
The client phoned the customer service representative stating they did not want the card anymore and the representative assured them the fee would be taken care of and the card cancelled.
The clients receive their next statement with no issues and continue about their lives.
A few months later, they pull their credit bureau (score). They see that the credit card was reporting the annual fee as late for nine months. And that the credit card was written off by a credit grantor.
And while we were able to get it sorted eventually, it still negatively impacted their score and credit history.
Defaulted Loan
A client had a loan for three years with regular monthly payments.
The last payment was taken from their bank account and they thought their loan was paid off.
A year later, the client applies for a mortgage and this loan is showing in default of $25 and written off by a credit grantor.
The bank made an error on the payment and didn’t notify the client of the remaining balance. The bank wrote off the loan for $25 and this prevented us temporarily from getting the mortgage while we sorted this situation out.
Credit Errors Tell A Different Story
When you’re applying for lending, your credit score is a measure of how well you pay back your loans. The higher the score, the better you are at paying back and managing your credit.
In both of these scenarios, the clients both did the right thing. They paid off or removed their credit products, followed up with representatives, etc.
But, a lender checking your credit doesn’t know those stories. They only see balances outstanding and two write-offs, indicating that the clients were not managing their credit well.
Maybe clients are shocked that an instance like one of the above can prevent them from getting a mortgage.
Credit rating errors happen.
The best way to avoid these errors is to be diligent and check your own credit score regularly. If you notice an error, contact the bank or institution that is reporting this and notify Equifax or TransUnion of the error.
A benefit of working with me on your mortgage is that I can often tell lenders the story of your credit beyond the numbers.
I want to get you in the best position possible to get your mortgage, and that often means cleaning up your credit. If we can get some of these errors removed from your credit, then we’re not only helping you get a mortgage now but improving your credit for years to come.
If you want to learn more about checking your credit score or learning how to report errors, give me a shout! As we head into the holiday season, it’s a good idea to check your score now and after the new year to make sure you’re heading into 2023 with a good score.