Most wealthy people probably don't go over their credit report very often. Maybe you never do. If so, you're not alone. Very few consumers read their credit reports, and I can understand why.
Many of us think the only people who need to be concerned about their credit history are those with credit problems or those who have become victims of identity theft. While these two groups do need to clean up their credit files, even wealthy people have a lot to gain by looking over their credit reports annually. Here are four reasons why:
1. Mistakes
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There are different opinions as to how many mistakes credit bureaus and vendors make on credit reports. According to the FTC's most recent report, one in five credit reports contain material errors. The industry reports a much lower incidence of mistakes.
(More: An identity thief breaks down the art of emptying your bank account)
Regardless, credit bureaus collect billions of data points from millions of vendors every year, and it's very possible that your credit report is flawed. That fact is beyond dispute. And if there are errors in your files, then you may be unfairly penalized even though you may be quite wealthy.
Keep in mind that just about every company reviews credit reports before deciding whether or not to do business with people. Potential employers, business partners and even insurance companies give your credit files the once-over before deciding to make an offer or do a deal.
Sometimes all it takes are a few negative items made in error to knock you out of the running. Keep in mind that most businesses rely on credit scores to decipher credit reports. They do this by setting up tranches. So if your report contains a few minor mistakes, that might subtract just enough points to drop them down a level. And that decrease could result in your paying higher prices for credit or life insurance - or not being offered a job or an opportunity to participate in a business venture.
Mistakes aren't the only path to artificially low credit scores. If you have too many inquiries or a maxed-out card or even a number of small loans that you could pay off, these all cost credit points. If you bring these items to your credit card company's attention, you may be able to see a significant rise in your credit score with very little effort.
2. Future Opportunities
Well-heeled consumers may have all the credit you need right now. But if your credit score is lower than it ought to be, you might end up paying for it in the future. Just when you want to refinance, buy more insurance, apply for a job or buy a business, you may discover that your credit has just enough false dings to make these things more difficult.
Of course if you discover this when you want to do the transaction, it may cause just enough of a delay to scuttle the deal entirely. It takes time to improve credit scores. Why not start now before there is an emergency?
3. Awareness
Reviewing credit scores is a great way to help you see the real impact that your spending has on your financial life. Many rich people don't have a spending problem — but some do. Going over your credit reports together with your spouse, if you are married, gives you another opportunity to get to the bottom of any irregularities.
4. Differentiator
Even if your credit reports are pristine, you gain additional insight by reviewing your information periodically. You should be diligent to ensure your complete financial well-being.
How to Get the Highest Possible Credit Score
If you want to really help yourself, then you first need to understand a little bit about how the credit industry works and of course how to read a credit report. Start off by going through your own report and making sure you understand what you are looking at.
If you uncover mistakes, it's not that difficult to repair the errors, and in most cases you can take care of it yourself. There are a few reputable firms that can be hired to take care of stickier items, but the industry is fraught with untrustworthy outfits so be careful about who you choose to work with.
Keep in mind that if you do spot negative items on a credit report, then they must be removed if they are either inaccurate, unverifiable or incomplete. That gives you a fairly big target to shoot for, and this makes it easier for people to remove derogatory items. At the same time, make sure you maximize your credit score by getting rid of small loans you no longer need, keeping your credit utilization moderate and paying your bills on time.
You deserve the highest credit ranking possible. Many times people don't achieve that status through no fault of their own or as a result of not paying attention. Fortunately, these problems are easy to remedy. By putting in a little time, you're in a great position to do just that.
Neal Frankle is a Certified Financial Planner in Los Angeles, and is the chief editor of WealthPilgrim.com, CreditPilgrim.com and MCMHA.org.
