Why Do You Have to Be Enrolled in a Credit Monitoring Service to Get a Credit Score?

You may see advertisements offering a free credit score on the Internet, yet when you click on one of these ads, you are taken to a website that offers the score only in conjunction with their credit monitoring services. If you are interested in getting just your credit score without the additional services, there are options available. Some are free and some cost a small amount, but all provide you with important information about your financial situation.

The Lure

Credit monitoring services entice you to sign up for their product by offering a "free" copy of your credit score. They can call this credit score free, because typically they offer a free month of service along with your enrollment. The catch is that you have to sign up using your credit card, and they will automatically bill you for the next month of service until you cancel your account. Some companies make it difficult for you to cancel your subscription. The lure of the free score is used to get you to sign up.

The Need for Credit Monitoring

You may appreciate the services offered by a credit monitoring company. Having someone keep an eye on your credit profile for a small fee may seem like a good idea. However, Consumer Reports warns that the services do not provide sufficient protection to justify the price. They cannot fully protect you against identity theft, because identity theft can occur without a change to your credit report. Also, you can monitor your credit history yourself by ordering a free copy of your credit report each year from each of the three credit bureaus through the AnnualCreditReport.com website. This service does not provide you with your credit score, but it gives you all the information used in calculating the score.

Alternatives for Free Scores

If you are interested in getting your credit score for free, you have some alternatives to signing up for credit monitoring services. Any time you apply for a loan, such as a mortgage, car loan or other personal loan, your lender will pull your credit score. Whether the loan is approved or not, you have the right to ask for this copy of your score. The lender cannot charge you for it, although you may pay a fee for the credit pull as part of the loan fees if you are approved.

Fee-Based Alternatives

If you are not planning to get a loan and do not wish to go through the hassle of signing up for and then canceling credit monitoring services, you can get a copy of your credit score by paying for it. Each of the three credit bureaus -- Experian, Equifax and TransUnion -- offers your score for a small fee. Each bureau has a slightly different credit score for you, so you may want to purchase a copy from each bureau to get an overall view of your credit rating.

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What Is Good on the Credit Score Scale?

Your credit score is your key to loans, leases and other life necessities. In most cases, you need a credit rating of "fair" or better to secure a loan. A "fair" FICO score is 650.

FICO Scoring

Your credit history determines your FICO score.

The Fair Isaac Corporation credit score is determined based on a person's history of defaulting on payments, her current debt-to-credit ratio, the type of debt (student loans versus credit card charges) and the length of her credit history.

History of "Good" FICO Scores

The number of a "good" credit score has gone up in the past few years. A 2010 real estate guide on BankRate.com now estimates that any FICO score below 740 may be subject to increased interest rates.

How to Improve Your FICO score

Check your credit reports carefully for errors.

There are many ways to bump your FICO score, including having a stable job (one where you've been employed for at least two years), good credit, and lowering your debt-to-income ratio and debt-to-credit ratio. You should also contact your credit agency and check your reports for inaccuracies, omissions, inconsistencies and other errors.

Breakdown of Your FICO score

Your age, marital status, religion, and other personal factors do not affect your FICO score.

FICO scores are broken into five parts: payment history (about 35 percent of your score), how much you owe (30 percent), length of credit history (15 percent), new credit (10 percent), and other minor factors (10 percent). Under the Equal Credit Opportunity Act, your credit score does NOT have anything to do with your race, age, nation of origin, religion, color, welfare status, sex or marital status.

Credit Reports and FICO Score

You can see your FICO score for free if you apply for a mortgage or home equity loan.

You can get a free credit report from each of the three credit reporting agencies (Equifax, Experian, and Transunion) every year, but the free report does not include your FICO score. You can pay to find out your FICO credit score by visiting myFICO.com. If you apply for a mortgage or home equity loan, you can access your credit score for free.

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Do-it-Yourself Elimination of Bad Credit Scores

Credit repair is one of the few projects that make sense to do on your own. Companies or credit repair clinics are an unnecessary expense. Also, by rebuilding a credit history on your own, you gain more experience managing credit, which can lead to a higher score in the future. Rebuilding a credit score is possible; there are no secret tips, just the need to act like a responsible borrower.

Check Your Credit Report

Pull your report to find out the cause of your poor score. Your report lists all negatives. If you have missed payments, consider automatic bill pay. You cannot eliminate the history of delinquent accounts, but you can build good history by becoming current on them.

Fix Any Credit Report Errors

Your credit report probably has at least one error it. Most errors are fairly inconsequential, such as an incorrect mailing address, but one in four reports contains a serious error that drags down your score, such as a charge-off that belongs to someone else. If you see anything wrong, dispute it immediately. Even a small error could cost you a loan when it paints you in a negative light, such as a report that does not contain a current employer.

Use Credit Responsibly

Do not stop using credit; this would probably lower your score. The FICO formula likes to see borrowers who use several accounts at once, not those who cancel all but one account. Consider a new credit card account to build good history without tacking on more debt. Retail accounts usually have the lowest credit requirement, but secured cards are even easier to obtain, because you place collateral on the limit.

Follow a Budget

People with bad credit scores tend to carry a lot of debt. Go over your budget and trim as much frivolous spending as possible, such as eating at restaurants, enjoying nights out or any other nonessential. Create a budget that pays down your debt as fast as possible.

Tip

Make sure all current and future lenders report to the three major credit bureaus. If a current lender does not report to all three, there is nothing you can do except move your account to a creditor who will report your good payment history.

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Credit Check Help

Credit checks are usually necessary when borrowing money. Some risky, high-interest loans such as payday loans and car title loans do not require credit checks. However, standard loans from banks, credit unions and other traditional lenders virtually always require a credit check. The lender will review information on the credit report and the credit score.

Credit Scores

Credit scores are three-digit numbers ranging from 350 to 850. Scores of 720 or higher are outstanding and usually lead to quick approval if the borrower meets other standards for income and employment. Scores in the 700s or higher are preferred by lenders, but credit is available at almost any credit score, depending on the lender's guidelines. However, the lower the score, the higher the interest rate, typically. Home mortgages are widely available for credit scores of 620 or higher, and the Federal Housing Administration has loan programs for people with even lower scores.

Credit Reports

Credit reports provide detailed information about a borrower's credit history, including the number of accounts and the type of accounts, such as credit cards, installment loans, mortgages, signature loans and automobile loans. The payment history for each loan is presented along with balances, credit limits and the number of times the loan was paid late. Special notations are also included, such as accounts that were closed because of nonpayment and listed as charged-off and placed with debt collection agencies. Court information such as bankruptcies and monetary judgments are also listed.

Free Reports

People can check their credit reports for free by viewing and printing copies from Annual Credit Report. The website is authorized by the Federal Trade Commission to offer free credit reports under the terms of the Fair Credit Reporting Act -- a federal law. Three free credit reports are available each year, including one from each of the major credit reporting bureaus -- TransUnion, Equifax and Experian. Credit scores are available separately, for a fee, by following information listed on the credit reports.

Regular Reviews

Creditors checking a borrower's credit for the first time must obtain permission from the borrower. However, once an account is open, the creditor can regularly review the borrower's credit to make decisions about increasing or reducing credit lines on unsecured accounts such as credit cards. The creditor can also use the reviews to consider the borrower for other credit offers.

Employment

Credit checks can also factor into the hiring process for jobs. Some employers, including insurance companies, financial services firms and banks check credit as a condition of employment. Employers checking for credit may search only for serious credit problems such as bankruptcies or judgments. People applying for credit or a job should first check their credit reports for errors. The Fair Credit Reporting Act forces credit bureaus to correct mistakes after being notified by the consumer.

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How Much Does Car Repossession Hurt a Credit Rating?

An individual's credit score, which is intended to rate the likelihood that he will pay off a loan, is calculated using a number of different factors related to the person's credit history. These include the amount of credit he has taken out and his record in paying back these loans on time and in full. A car repossession badly damages this score.

Features

According to Bankrate.com, when a car is repossessed, a record of the reposition stays on a person's credit report for 7 years, from the date you missed the first car payment that sent you into permanent delinquency. For example, if you missed a car payment in September, restored the balance in October, and then missed another payment in November, never to return from delinquency, the record would date from November.

Effects

Since a person's credit score is composed using a number of variables, the amount of points that a repossession will cause a person's credit score to drop will vary depending on the rest of the person's record. The amount a person's score drops will also depend on the specifics of the repossession, such as the price of the car and by how much the note was delinquent

Considerations

According to the financial reference website AutoLoansDaily.com, a car repossession will not just lower an individual's credit score, but will lower their "auto loan specific" credit score, meaning the score that companies use when determining the terms at which to offer an individual a car loan. This may prevent an individual with a repossession on their record from receiving a car loan at reasonable interest rates for up to seven years.

Expert Insight

According to John Ulzheimer -- a former employee of Equifax Credit Information Services, a leading credit scorer, and the Fair Isaac Corporation, the inventors of the modern credit score -- a person who is having trouble meeting payments on a car would be wise to find an alternative to letting the car be repossessed. Not only will your credit rating be harmed, but it may be expensive, as the lender will likely force the borrower to pay the balance on the car's price after it is resold, any costs incurred reselling it and any costs of repossessing the car itself.

Solution

The only means of repairing a repossession's damage to a credit score is time. However, although the repossession's harm will only fully cease after 7 years, the harm can be moderated if the borrower pays the rest of his loans on time and in full, thereby bolstering the rest of his record.

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How to Make Your Credit Rating Higher

If you forget to make a payment to your credit card company or a defaulted debt you owe ends up with a collection agency, that negative information will subsequently appear on your credit report. Your credit report follows you wherever you go in the U.S., and potential lenders and creditors will all want to review your credit report before conducting business with you. Fortunately, even if you have made considerable financial mistakes in the past, you can improve your credit rating and stop fearing requests to pull a copy of your credit report.

Instructions

1

Pull a copy of your credit report from Equifax, Experian and TransUnion. You can pull one copy of each report for free every 12 months at AnnualCreditReport.com -- the only website with formal approval from the Federal Trade Commission to provide consumers with their free annual credit reports.

2

Review your credit report for mistakes. Missed payment notations when you made payments on time or collection accounts that do not belong to you can drag down your credit score. In addition, misspellings of your name or an error in your Social Security number could result in someone else's debts appearing within your credit history.

3

Dispute any errors you discover with the credit reporting agency maintaining the errors. You can dispute credit reporting errors over the phone, by mail or online.

4

Offer to pay off old collection accounts in exchange for the company deleting its negative report from your credit history. Collection accounts over $100 cause considerable harm to your credit rating.

5

Send a "goodwill letter" to any current creditors who are reporting late payments to the reporting agencies. A goodwill letter is merely a formal request that the company withdraw its negative reports due to your status as a longstanding customer or the fact that you almost always make timely payments.

6

Pay down your credit card debt or request a higher spending limit from the credit card company. The credit scoring formula compares the amount you owe to your credit limit. If the resulting ratio is above 30 percent, your credit score will suffer as a result. Paying down the debt or requesting a higher credit limit helps keep this ratio low.

7

Set up automatic bank drafts for accounts you pay each month. This reduces the chance that you will forget to make a payment and incur a missed payment notation on your credit report. Regular on-time payments build your credit rating over time.

8

Ask that a loved one with a positive credit rating add you to his credit card account as an authorized user. Once this occurs, the credit card company will report his credit card history on your credit report -- boosting your credit rating.

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What Are Negative Things on Your Credit Report That Will Get You Disqualified?

Your credit reports detail your credit-related activity and the manner in which you handle certain financial obligations, such as credit cards, vehicle loans, personal loans and mortgages. The TransUnion, Equifax and Experian credit bureaus include some demographic information in their records, such as how long you have lived at your current address and how long you have worked for your current employer. Lenders like to see residence and job stability, but they pay the most attention to credit use and account repayment.

Payment Dates

Fair Isaac Corporation (FICO), which produces the credit score most often used by lenders, considers timely debt payment the most important element in calculating your score. Thirty-five percent of your credit score is based on your payment history, according to FICO's consumer information website, and your score goes down every time your payment is late. Lenders who see too many delinquencies on your credit reports may disqualify you from new credit accounts, because it suggests a high probability that you cannot handle another account.

Inquiries

Inquiries are a normal part of your credit records, because lenders review your reports when you apply for new accounts. Too many applications -- and too many resulting inquiries -- within a short time are negative items, because you appear to be desperate to obtain credit, and, statistically, it makes you a higher risk for bankruptcy. The MyFICO website warns that six applications within a few months means a consumer is eight times more likely to file bankruptcy. If you are shopping for the best rates for such things as student loans, mortgages or car loans, submit all your applications within 30 days. The scoring formula recognizes that you are shopping around for one loan and considers all those applications one inquiry for credit score calculation.

Defaults

Lenders often disqualify you from obtaining new accounts if they see defaults on your credit reports. Creditors write off bills if you do not pay for at least 180 days, according to MSN Money columnist Liz Pulliam Weston. Charge-offs show that you ignored your financial responsibilities, which makes other banks and finance companies reluctant to do business with you.

Repossessions

Car loan contracts give finance companies the right to reclaim vehicles from non-paying borrowers, according to the Federal Trade Commission (FTC). A repossession goes on your credit reports, along with the late loan payments that led to seizure of your car. The creditor may also sue you for the difference between your loan balance and the amount of money recouped from selling the vehicle. All those activities are reported to TransUnion, Equifax and Experian and hurt your credit score and your ability to obtain credit.

Legal Actions

Various court actions may disqualify you from getting credit, including judgments for unpaid bills, court orders for wage garnishment, house foreclosures and bankruptcy. Most court actions only stay on your credit reports for seven years, the FTC advises, but bankruptcies stay for an additional three years. Your ability to open accounts is affected most severely during the initial years after judgments, foreclosures and bankruptcy. Lenders may be willing to take a chance on you if you rebuild credit for a year or two with secured credit cards or other accounts available to high-risk borrowers.

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