One of the most important ways to avoid the pain and suffering of identity theft is to order a credit report each year (go to annualcreditreport.com or call 877-322-8228). A recent survey found that 79% of credit reports contain errors. If someone has stolen your identity, the first signs of fraud may show up on your credit report. In the event your report shows a clean history, the report may show you how to improve your creditworthiness.

One of the most important factors behind your credit score is your credit-utilization ratio, or the amount of credit you use. If you carry a balance on your credit cards, keep it to a third or less of each card’s limits.

Your credit limit is the maximum you can borrow or the original loan amount. If the credit limit is missing on a revolving account, your highest balance takes its place. That can damage your credit-utilization ratio. For example, if your high balance was $2,000.00 despite a $10,000.00 limit, and you regularly charge $2,000.00 a month, it looks like you max out your card.

Your credit report will indicate your history of accounts past due, including how often you have been 30, 60 or even 90 days late. It will also show judgments, collections, tax liens and bankruptcies. Your payment record affects 35% of your credit score, so it is important to dispute errors.

It is extremely important to watch out for unfamiliar accounts. Scan your report for overdue accounts that aren’t yours – evidence of potential fraud. Also watch out for credit applications that you don’t recognize as this could be the first sign of identity theft. Check with the creditor to make sure no erroneous accounts have been opened.

To dispute inaccuracies, contact the credit bureau. Create a paper trail, so write to the bureau by certified mail, return receipt requested. If you are worried about identity theft, you can place a 90 day fraud alert on your credit file. A call to one bureau triggers the alert at the other two, but check to make sure it’s there. The three major companies are: Equifax, Experian and TransUnion. If you lose your credit cards or social security card, be sure to alert the three credit companies immediately. The three major companies can be accessed on line at annualcreditreport.com and myfico.com.

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