Step 2: Cracking Your Credit Report

Step 2 is still part of the initial step of understanding your finances.

The most critical piece of information when it comes to your credit history is your credit report. The credit report is like your financial report card. This (or the credit score, which is based off your credit report) is the first thing any company will look at when you apply for a loan, for a credit card, for any form of credit.

What's on a credit report?
The information on your credit report contains several key factors that businesses use when determining if you are trustworthy enough to be lent money. Some of these factors include:

Types of accounts
Do you have credit cards? Car loans? Mortgages? Student loans? They will all be on your credit report. Issuers of credit want to see that you've been responsible with similar types of credit in the past - hence, if you have a car loan in good standing on your credit report, you'll be more likely to get a good rate on a car loan in the future. 

Balances on accounts
Yes, your credit report actually shows how much credit you are using. Companies look at how much of your available credit you are currently using when making the decision to issue additional credit. If you are constantly close to your limit on every card, they will probably assume that you would do the same thing if they give you another card.

Payment history
Payment history is critical. If you have been paying your bills on time, with no late payments, for years and years, you are awesome. However, not everyone is in that situation. Most people slip up once in a while and pay a credit card bill a few days late, or the cable payment gets bounced back because of insufficient funds. All of those late payments show up on your credit report. All of those payments for the last SEVEN years. If you are consistently late on all your payments, it looks bad to the banks who might otherwise want you as a customer. They would consider you a risky bet, and might not issue you credit. If they do issue you credit, it may be at a high interest rate to cover their investment in case you forget to pay permanently.


Ok. Now that you know the basics of what is on your credit report, time to go get yours!! Go to AnnualCreditReport.com (not Freecreditreport.com, or any other version). You are allowed one free copy of your credit report from each of the three issuers per year. That means you don't have to pay if you want your credit report once per year. Remember - make sure it is annualcreditreport.com - that's the free one.

If you go to a website like freecreditreport.com, you will be automatically enrolled in their program, with a monthly fee, unless you call and opt-out within 30 days. Hey, they need some way to finance those addictive commercials!

So enter your information, get your three credit reports, print them out, and then LOOK CLOSELY at them. Compare the three. Are there any accounts missing? Are there any accounts on it that aren't yours? Double check them very very closely. This is your financial report card - you want the grade to be as high as possible, right?

Go back to the list you made for Day 1. Compare that list to your credit reports. Make sure you have everything on both lists. If you are missing something from your Day 1 list, add it. If you are missing something from the credit report, call them up and add it (unless you know you have a lot of late payments on that account, and then it would help you to just let the credit agencies figure it out on their own time).

If you have fraudulent activity on your credit report, FIX IT! Fix it as soon as possible. It may be a headache to have to call the credit agencies, or your credit card company, or whatever, but it is totally worth it in the long run. You don't want some criminal racking up charges for flat screen TVs and ruining your ability to purchase said TV in the future.

This is something you should do every year. Check your credit reports. Make sure they are accurate.

Step 1: Take a Step Back

So you want to get a handle on your personal finances. Great! It's never too late to start. Whether you are a recent graduate or have been out of school for 20 years, the fundamentals are the same.

Before you can make any changes, you need to understand where you stand.

First: Make a list.
Grab a pencil and paper (or your computer) and start writing. Write down the name of every single account that is linked to your name. Here is a list of common account types to get you started:

-bank accounts (savings/checking)
-credit cards
-student loans
-rental agreements/mortgages
-auto loans
-auto insurance
-investment accounts/retirement savings
-cell phone
-utilities (electric, water, gas, etc)
-connectivity (internet, cable, phone)
-any other financial contracts

Great! Now you have a list of all of your financial obligations and connections. Generally, these accounts will fall under two categories:

Assets - things of value that can readily converted into cash
Liabilities - an obligation to someone else in exchange for services or objects

Next: Label your accounts.
Next to each of your accounts that you listed in Step 1, mark an "L" or an "A". (Hint: Mortgages are Liabilities, not Assets - you owe someone money in exchange for an object) Chances are, you'll have a lot of L's to start with. Don't worry! With time, and careful planning, those L's will eventually disappear, and you'll create many more A's to add to your list.

The goal throughout all your financial planning is to decrease your liabilities (credit card debt, student loans, etc) and increase your assets (cash, investments, etc). This WILL NOT happen overnight. Improving your finances takes time and effort - which is why so many people don't like doing it. You can't stuff your bills under the mattress and hope they disappear. Trust me, they don't.

But this effort pays off! If you can improve your financial situation now, it will pay off in the long run. If you have a solid credit history, you can get better rates on loans and credit cards and save thousands of dollars in interest over the life of the loan. That's thousands of dollars extra in your pocket - if you have a good credit history.


I've spent the last year reading everything I can get my hands on about making the most of my money. Here's the difference between my list last year, and my list this year.

<-- last year's list

<--this year's list