Your Credit Report
Why It's Important to Know What's On It and How to Fix Errors
Did you know that your purchasing and payment habits are tracked by your bank, credit card companies, department stores, and other creditors and reported to credit bureaus so potential lenders can decide whether they want to take the risk of lending you money or issuing you credit? These bureaus also collect such information as your job history and whether you own your home.
Why is it important to know what's on your credit report? For one thing, if you're thinking about buying a house or applying for credit for any other big purchase, you'll need a clean credit report, and it's always best to know what's on it before your lender does. This will give you an opportunity to clean up any discrepancies or errors, which are fairly common, and which can throw a monkey wrench in the works if not resolved.
Ideally, you should check your credit report with each of the three credit bureaus, Equifax, Trans Union, and Experian, once a year or so.
You're entitled by law to one free copy of your credit report from each of these three credit bureaus once a year. You can get all three at once or spread them out over the year. If you order copies more frequently than that, each report will cost no more than around $10 and in some states considerably less.
If you've been turned down for credit in the last 60 days because of something a lender saw on your credit report, you can obtain a copy of your report free of charge. Lenders are required by law to notify you of this right if they deny you credit.
When you get your credit reports, review them carefully to make sure all the loans and credit accounts listed really belong to you, and that all the accounts listed as open are actually current loans or balances. If a loan you've paid off or a credit card that was cancelled is still listed as open, contact the credit bureau and ask for your report to be corrected.
Usually the credit report you obtain from the credit bureau will include a form for reporting any inaccuracies. Give as much detail as possible, and if you have documents that back up your claim, provide copies. By law, the credit bureau must investigate your claim, but even if they decide your report is accurate as it stands, you should continue to try to correct the report by writing a letter explaining your side of the story (not to exceed 100 words), which the bureau is required to provide to anyone requesting your credit report.
When deciding whether to approve credit, lenders take the following into consideration:
- Your payment history--do you pay bills on time?
- Have you had a bill referred to a collection agency?
- Have you ever declared bankruptcy?
- How much debt do you have outstanding compared to your credit limits? The closer your debt is to your credit limit, the less favorable.
- How long is your credit history? If you haven't had much of a credit history yet, prompt payments are even more important.
- Have you applied for more credit lately? Too many applications for credit has a negative impact on your chances for approval.
- How many credit accounts do you have? Too many is considered a negative.
Information is retained in your credit report for up to seven to ten years. If you have negative items in your history, you can gradually repair your credit by consistently paying your bills on time from now on, paying down your balances, and not taking on any new debt. Lenders will take your improved record into consideration when deciding whether to approve credit, especially if you've been paying on time for at least a year.
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The Urge to Splurge
Do You Indulge in Impulse Spending or Over Spending?
Does your spouse complain that you're spending too much money? When your credit card bill arrives, are you surprised to find that you charged more during the month than you thought? Does your closet contain lots of shoes or clothes that you almost never wear? Do you own every gadget known to man? Do you come home from the mall with items you had no intention of buying? Do you spend money on things that you didn't realize you needed until you saw them on display in the store?
If you answered yes to one or more of these questions, you probably suffer from impulse spending. When people are unable to save money for the things that are really important to them, like a house, a new car, a vacation, or retirement, impulse spending is often the culprit.
If you don't have specific financial goals, it's more difficult to resist spending money on items that don't really have any meaning to you.
Once you're already saving regularly towards your most important financial goals, you may want to have a fund to use specifically for occasionally spending money on unplanned items. Then you can indulge in occasional impulse spending without jeopardizing your financial future.
Impulse spending, or recreational shopping, can put a strain on both your finances and your relationships. To overcome the urge to spend money, learn to recognize your needs from your wants. We're constantly bombarded with messages from advertisers who appeal to our psychological needs to tempt us into spending money on things we want but may not need. Allow a cooling-off period before spending money on anything you haven't planned for in advance.
One method of controlling your spending that works well is to carry an index card in your wallet. When you see something you want to buy, write it on the card. Force yourself to wait two weeks (or any other period of time you set for yourself, but at least a week) before spending the money on this item. During this cooling off period, if you see something else you want, add it to the card. However, you can never have more than three items on the card at any one time, so to add a fourth item, you have to remove one of the other items from the list. If you're an impulse spender, you'll find that you're frequently crossing items off to make room for the newest "must have" thing.
Another good rule to adopt is to pay cash whenever possible. When you go shopping, leave your credit cards at home. Most impulse spenders use credit cards more often than not. When you use credit cards, the reality of the amount of money you're spending and how you're going to come up with that money, is suppressed. When you pay with cash, it feels like you're spending "real" money.
Learn to recognize wants from needs, and practice controlling your impulses to spend your money on things you don't really need, and you'll be able to change your spending habits and end up far ahead financially.
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The Psychology of Spending Money - The Real Culprit Behind Your Urge to Splurge
In a perfect world, we would all avoid too much credit card debt and would never have to deal with the desperation of being unable to meet our credit card payment obligations.
We'd never have creditors hounding us for payment.
We'd never know the frustration of not being able to afford what we really want because every extra cent has to go towards keeping up with the minimum payments on our credit cards.
But this isn't a perfect world, and unfortunately these distressing situations are the norm for many people.
If you find yourself in this position, or headed there, take control of your spending now. Don't wait until your situation is so dire that you have few options available to you.
An important aspect of debt that is not always addressed is why you got too deeply into debt in the first place.
Why did you keep charging items you couldn't afford? Why did you feel the urge to use those little plastic cards for things that weren't necessary, even when you began to struggle to make the payments? What causes your compulsive shopping?
Facing the factors that give you the urge to splurge can be uncomfortable, but if you don't face them, you may never get control of your spending and your debt. If you're always trying to pay off yesterday's purchases, many of which have long since worn out or been forgotten, how will you acquire the things you truly want for tomorrow?
One negative aspect of using credit cards instead of cash is that you don't feel like you're spending real money. The pleasant feelings you experience when you purchase the item are disconnected from the unpleasant or painful feelings of making the payment when you get the credit card statement.
Studies show that most people are much less likely to buy, or less willing to spend as much, when paying with cash as opposed to credit cards. Try leaving your credit cards at home. Pay with cash, check, or a debit card.
To really get control of your spending and your credit card debt, you need to examine what money means to you. Make an effort to notice how you interact with money and what beliefs and attitudes you have about money. Studies also show that people with low self-esteem engage in more impulse spending and buying things they don't need.
Remind yourself daily that money or a lack of it doesn't determine who you are. Your worth as a person has nothing to do with how much money you have. Once you truly believe this, and money is no longer connected to your sense of self-worth, you open up the psychological barriers that were keeping you from wisely handling the money you do have and limiting your ability to make more.
Right now, your unconscious limiting beliefs may be keeping you from being financially successful, but as you begin to build up your feelings of self-worth and develop a positive attitude about yourself and about money, you'll attract positive things into your life. As you do so, you'll feel less of a need to generate positive feelings by purchasing things, and you'll find it easier to stop buying items you don't really need.
There are hundreds of books, magazine articles, and Internet web sites about getting rid of credit card debt. Some of them offer sound advice about the psychological aspects of money and spending that you'd do well to consider.
If psychological factors influence your spending, credit reduction programs are like using perfume to cover body odor: they will treat only the symptoms, not the root cause. Working on the psychological aspects while taking steps to reduce debt will greatly increase your chances of long-term success.
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