Laws on Credit Ratings

Whether or not you pay your bills on time determines your credit score; your credit rating helps lenders decide whether they will conduct business with you. Credit ratings are governed by the federal Fair Credit Reporting Act. The three major credit reporting agencies operating in the United States are Equifax, Experian and TransUnion.

On-Time Accounts

If you pay your bills on time and keep an account open, the resulting positive account information reports indefinitely under the Fair Credit Reporting Act. Once you close the account, the positive credit rating lasts for at least 10 years. But just paying your bills on time isn't enough to secure a great credit score, warns Experian. People with on-time payments but high credit card balances might experience difficulty getting new credit.

Credit Problems

Most types of credit problems like late credit card payments or Chapter 13 bankruptcies reflect negatively on credit ratings for seven years from the date of the missed payment or bankruptcy filing. The same rule applies to any account, like an unpaid utility or medical bill, that is turned over to a collection agency. Chapter 7 bankruptcies and tax liens can legally harm credit ratings for 10 years from the date of the incident.

Inquiries

Every time you apply for credit, an inquiry is noted on your credit report. Collection agencies seeking payment also can legally access your credit reports. Excessive inquiries can legally harm your credit rating. Some lenders consider excessive inquiries indicative of financial problems. Some types of multiple credit report inquiries, such as those associated with shopping for an auto loan or a home loan, count as one in the eyes of lending representatives. Under the Fair Credit Reporting Act, inquiries posted to a credit report remain for two years from the date of the original application.

Disputing Errors

The Fair Credit Reporting Act demands that all Americans have an accurate credit record. If you see errors or outdated accounts on your credit reports, you should contact the creditor as well as the involved credit bureaus in writing. Send the letter through a traceable delivery method such as certified mail. The involved businesses have 30 days to complete an investigation into your dispute. If you cannot get satisfaction within about 45 days of issuing your initial dispute, then contact the Federal Trade Commission, a local consumer rights attorney or file a lawsuit in small claims court.