Questions on Rebuilding Credit

Improve a poor credit rating so your next credit check is better.

1. What's the first step in rebuilding credit?

To avoid getting into financial problems in the future, you must understand your flow of income and expenses. Some people call this making a budget. Others find the term budget too restrictive and use the term spending plan. Whatever you call it, spend at least two months writing down every expenditure. (Don't forget about the I.R.S.; you can determine your tax bracket and total tax obligation on their web site.) At each month's end, compare your total expenses with your income. If you're overspending, you have to cut back or find more income. As best you can, plan how you'll spend your money each month.

If you have trouble putting together your own budget, consider getting help from a nonprofit group such as Consumer Credit Counseling Service (agencies affiliated with the National Foundation for Credit Counseling, at www.nfcc.org), or Myvesta.org, at www.myvesta.org, both of which provide budgeting help for free or at a nominal fee.

2. Where do credit reports come from?

Credit reports are compiled by credit bureaus— private, for-profit companies that gather information about your credit history and sell it to any number of businesses that are allowed to see your credit report: banks, mortgage lenders, credit unions, credit card companies, department stores, insurance companies, landlords, and employers.

Credit bureaus get most of their data from creditors. They also search court records for lawsuits, judgments, and bankruptcy filings. And they go through county records to find recorded liens (legal claims).

Credit reports include noncredit data such as names you previously went by, past and present addresses, Social Security number, employment history, and even marriages and divorces. Credit data includes the names of your creditors, type and number of each account, when each account was opened, your payment history, your credit limit or the original amount of a loan, and your current balance. The report will show if an account has been turned over to a collection agency or is in dispute.

3. How can I get a copy of my credit report?

The federal Fair Credit Reporting Act (FCRA), amended by the Fair and Accurate Credit Transaction Act (FACTA), allows consumers to get a free copy of their credit report each year from each of the three major credit reporting companies. Free annual credit reports are now available in every state.

To order your free report, go to www.annualcreditreport.com, and either order your report directly or download a form to mail in your request. You can also call 877-322-8228. Note that the World Privacy Forum recommends that consumers may be better served by ordering their credit reports by phone or mail rather than online (see www.worldprivacyforum.org/calldontclick.html for more details).

Also, you are entitled to one free copy of your credit report each year under the following circumstances:

• You've been denied credit because of information in your credit report and you request a copy within 60 days of being denied credit
• You're unemployed and looking for work
• You receive public assistance
• You believe your file contains errors due to fraud or you are (or you think you are) a victim of identity theft
• You've been denied employment (or another adverse employment decision has been made) based in whole or in part on information contained in the report
• Your report has been revised based upon an investigation you requested

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