Understanding Credit Reports

Your credit score is critical when considering life's big and small purchases, affecting everything from your ability to get a new credit card to your suitability for home ownership. Given that your credit history is so influential, it's important that you request your own credit reports and understand what they mean. Keeping tabs on your credit score annually lets you know where you stand financially and can help you protect yourself against fraud.

Know What Affects Your Score

According to the college financial planning website, Adventures in Education, your credit report reflects your bill-paying practices -- that is whether you pay on time -- what kind of accounts you have, how many accounts you have and your debt levels. Credit reports also show public record information, such as if you've ever filed for bankruptcy, been criminally charged or had bills go past due. In general, people with, high debt levels, many creditors and poor payment histories have lower credit scores. Those who pay on time, carry little debt and have long-standing bank accounts have shinier credit ratings.

Check With All Three Agencies

There are three credit reporting agencies in the United States: Experian, TransUnion and Equifax. You can get a free report from each of the three agencies once every year, according to the Federal Trade Commission. Make sure that you review all three reports. On Bankrate.com, Howard Dvorkin, president of Consolidated Credit Counseling Services, says that looking at just one of these three reports is useless. Since the three agencies could receive different information about you, you should look at the report provided by each. Adventures in Education reiterates this advice, noting that your cell phone company, your credit card provider and your bank could all report to a different credit bureau.

Credit Report Basics

Your report should contain your name, social security number, date of birth, addresses and the name of your current employer. You should also see public record information, a report of the different accounts you have, including opening and closing dates, balances and limits. Your report also includes a record of who's looked at your credit history, as well as consumer statements. Consumer statements explain why certain entries appear in your credit history. For example, perhaps you refused to pay for a product that wasn't what you ordered. Even if this shows up as a negative entry on your credit report, a consumer statement offers a way to explain what happened to people accessing your history. To add a consumer statement, or to correct information on your credit reports, contact each of the issuing agencies.

Understanding Your Number

According to financial institution Sallie Mae, credit scores fall anywhere from 300 to 850, and a high score is what you want to see on your reports. Your credit rating is also called your FICO score, in reference to the Fair Isaac Corporation that invented the system. Sallie Mae reports that 35 percent of your score is determined by your payment history. Your total balances and available credit dictate 30 percent of your score. If you're using almost all of the credit available to you, lenders see you as higher risk. The length of your credit history controls 15 percent of your score. Sallie Mae says, an account must be open for nine to 12 months to prove sound borrowing and payment behavior. The number and type of accounts you have make up 10 percent of your score. Having too many sources of credit marks you as high risk, but having a variety of different account types proves that you understand responsible credit use. Finally, 10 percent of your score is determined by new credit applications. Many applications in a one-year period sets off alarm bells for lenders, especially if a history of late payments makes it look like you're using credit to steer clear of bankruptcy.

Hard and Soft Inquiries

Inquiries into your credit history are labeled "hard" and "soft," according to Sallie Mae. Hard inquires are made by prospective lenders when you apply for credit -- remember that too many hard inquiries, that is, loan applications, within a short time frame can hurt your credit score. Soft inquiries are ones that you make when checking your credit score, or when credit card companies briefly review your information to send you pre-approved card applications. The number of soft inquiries doesn't affect your credit, since soft checks aren't associated with you making new applications for more credit.

Read More

What Is the Point of Removing Negative Debt From a Credit Report?

Even if you never use credit or plan to, negative items can tarnish your image in front of other parties that you might care about --- maybe even an employer. You could come to a point in your life where you want to build credit or obtain a loan for an emergency, but find that a single negative credit item stands in your way. Disputing such an item probably won't take more than a few hours, and you can do it online for free.

More Than Just for Loans

Anybody with a pertinent interest in your financial background can pull your credit report and potentially use it against you or as a reason to view you in a better light. Employers, for example, may use a credit report to help make a hiring decision. If you have a bankruptcy erroneously reported on your file, the employer could see this as a major character flaw, especially if the job requires handling money.

Will You Want Credit in the Future?

Negative items can stay on your credit report for seven years, or 10 in the case of a Chapter 7 bankruptcy. An unpaid tax lien, meanwhile, will never go away. You might not care about getting a loan now, but you could want one --- such as a mortgage or car loan --- in the future. Most homeowners purchase a home with a mortgage, because stocks and other investments tend to offer a better return than the cost of a mortgage. You might also want a credit card for emergencies.

Effort

Common errors, such as a collection account that clearly does not belong to you, take about four hours to correct, according to Bankrate.com. A few hours of your time can drastically improve your credit score enough to bump you into a higher credit score tier and lower an interest rate, potentially saving thousands on a loan. You can also avoid the hassle of a credit report dispute entirely by hiring a credit repair company or lawyer to handle the paperwork.

Tips

You should start on any credit dispute immediately, but only dispute items you believe are legitimate errors, otherwise the credit bureaus may ignore your claim as frivolous. Between the time it takes the credit bureaus to investigate a case and potential lags in updates to a credit score, it might take 90 days more to remove a negative item. You could use a rapid rescoring company to remove a legitimate negative item in a few days, but only a lender has access to this service. Also, a rapid rescoring service probably won't investigate a claim, so you would still need the original creditor to admit to a mistake.

Read More

When Do Creditors Report to Credit Bureaus?

Creditors normally report information to the major credit bureaus at least once every month. Your credit score can change on the basis of new information received by the credit reporting agencies. When you pay your bills on time, your credit score increases, but if you use all of your available credit, make late payments or become delinquent on loans, then your score decreases.

Credit Reporting

To file credit reports, your creditors must have established credit reporting accounts with Equifax, Experian and TransUnion. Most major lenders make monthly reports to all three agencies, but some creditors only establish a reporting relationship with one agency. Some lenders, particularly lenders that write loans for people with very poor credit, do not report to credit agencies at all. If you take out a loan to build or re-establish your credit, make sure that your lender actually reports your payment activity, otherwise you do not gain from establishing the loan.

Payments

When you take out an installment loan, a credit card or a revolving line of credit, you are billed on a monthly basis. Your payment history accounts for about 35 percent of your overall credit score, so when you fail to make your monthly payments on time it can damage your score. However, credit bureaus only penalize you for payments that are more than 30 days past due. If you miss your due date by less than 30 days, your lender can assess a penalty fee but it does not impact your credit score.

Credit Events

In addition to reporting monthly payment activity, lenders also notify the credit bureaus of other credit events such as short sales, foreclosures and charged-off debts. These events remain on your credit file for up to seven years and negatively impact your score. Additionally, if you fall behind on a monthly payment, after reporting your payment as 30 days past due your lender updates the credit bureaus if you have failed to make the payment after 60, 90 and 120 days.

Other Considerations

When you open a new credit card or take out a new loan, it may not appear on your credit report for a few months because the lender typically does not report it until up to 30 days after your first payment. Therefore, if you are applying for a mortgage or car loan you must tell your lender about any new credit accounts you recently opened, because these accounts may not show up on your credit report but your lender needs to know about all of your existing debt in order to determine how much you can borrow with a mortgage or car loan.

Read More

How to Resolve Credit Rating Issues

Credit rating issues can prevent you from acquiring an affordable mortgage, credit card, personal loan, rental apartment, a good job, a cell phone plan and many other things. Luckily, a poor credit rating does not have to be a boulder that you drag around behind you for the rest of your life. There are several steps you can take to resolve many common credit rating issues and build up your credit score again.

Instructions

1

Order your credit reports from the three major credit reporting bureaus (TransUnion, Equifax and Experian). Information can be different across all three reports. You can get a free credit report once a year through the resource link below. Print out a copy of each credit report for your records.

2

Examine your credit reports for any errors. Common errors include accounts that don't belong to you, mistaken dates for payments, an incorrect birth date, incorrect late payment reports and more. File a dispute to each credit reporting bureau that you have detected an error with. They are required by the Fair Credit Reporting Act to respond to any disputes within 30 days. Be prepared to send copies of documentation supporting your dispute when requested.

3

Attempt to have any late payment reports deleted from your credit report. This has a higher chance of success the sooner that you contact your creditor about it. Contact the creditor that filed a late payment report about your account and request a "pay for delete." If this is your first late payment, they will be more willing to grant you leniency. Request that they send any agreement to you regarding your credit report in writing.

4

Attempt to settle any delinquent accounts that may have been sold to collection that appear on your credit report. Document any collection attempts as thoroughly as you can. If the collection agency violates the Fair Debt Collection Practices Act, you may be entitled to sue them for the debt to be discharged along with damages for each recorded violation of the law. Start by requesting a "pay for delete" for the account for 10% of the total debt. You may also request a "pay for settlement" or "paid in full" entry on your report, even if you only pay a fraction of the amount owed. Ensure that you get an agreement from the agency in writing before you provide any payment. A deletion from your credit report is the best possible result for your credit score.

5

Defend yourself against any lawsuits that may be filed against you to collect delinquent debts. Appear at any court dates that you may be requested to. Provide documentation of any violations of the FDCPA to bolster your defense. Request that the creditor submit proof that you owe the debt in court. A debt lawyer may be able to assist you, but is not necessary. Many creditors decline to pursue judgments against defendants who show up to their court dates, because it is otherwise so simple to get default judgments against debtors that fail to make an appearance. Attempt to reach a settlement using a similar strategy to the one outlined in Step 4 with the creditor's representative in court, also requesting that any agreement be in writing.

Read More

Main Credit Reporting Companies

Federal law mandates that the three nationwide consumer reporting agencies provide citizens with a free copy of their credit report every year. The Fair Credit Reporting Act (FCRA) sets the standards for information included in a report, such as where you live, if you have been sued or arrested, bankruptcy filings and how you pay bills. The FCRA is enforced by the Federal Trade Commission.

Equifax

Equifax is the oldest credit reporting agency in the United States. Founded in 1899, the Atlanta-based global company of approximately 7,000 employees provides a wide range of credit and financial services to consumers and businesses. It is a publicly traded company on the New York Stock Exchange under the ticker symbol EFX. Equifax, like all three credit reporting companies, sells consumer credit information to banks, employers, creditors and other business that use the information to evaluate job, credit, rental, insurance and other types of applications. Equifax's practices of collecting personal information not related to finances led to the congressional hearings and the passage of the FCRA in 1970 and subsequent amendments to the legislation. Consumers can dispute information on Equifax reports on the company's online dispute website.

Experian

Experian is a multinational credit services and marketing company based in Dublin, Ireland, with over 15,000 employees worldwide. Experian North America is based in Costa Mesa, California, and manages the credit reporting services for American consumers and businesses. However, the company's National Consumer Assistance Center in Allen, Texas, handles credit report disputes. Customers can file disputes about information on Experian reports on the company's website. Experian also owns FreeCreditReport.com, a for-profit credit reporting service marketed to consumers. Criticism of the company from the media and consumers focuses on the fact that it sells credit reports that can be obtained for free by law under the FCRA. Experian is a publicly trade company on the London Stock Exchange under the symbol EXPN.

TransUnion

Chicago-based TransUnion LLC is the smallest credit reporting agency. Ownership in the global firm is nearly evenly split between the private-equity firm Madison Dearborn Partners LLC and the members of the Pritzker family. The private equity firm has controlling interest in the company with a 51 percent stake. Over 4,000 people work for TransUnion. The company provides credit reporting services to consumers similar to other leading credit reporting agencies. TransUnion Direct provides resident screening services for rental properties, including credit history reports and criminal background checks. Consumers can dispute erroneous information in TransUnion reports online.

Read More

The Meaning of FICO

FICO, short for Fair Isaac Corp., is usually placed in front of the term "credit score." Fair Isaac created a scoring model based on credit information and it is used by all the major credit bureaus. This score affects most financial areas of your life.

FICO Score

The FICO score is a numerical representation of what type of credit user you have been in the past. Credit bureaus look at your credit report and use the information in it to create a FICO score. Once this score is calculated, it can be used by creditors to make quick decisions about whether they should extend credit to you. The credit scoring system ranges from 300 to 850 points. The higher a score is the better.

How it is Used

Your FICO score is used in several ways, and they can all affect you financially. For example, when you apply for a loan such as a mortgage or auto loan, the lender uses the credit score to determine if you should be approved. Beyond that, the score also helps determine how much you pay in interest on the loan once you receive the money. Your credit score is even used by your insurance provider when calculating your insurance premiums.

What's in FICO Score?

Your FICO score is comprised of several parts in relation to your financial life. The biggest portion of your FICO score is your payment history. This means that if you always make your payments on time, this factor helps you get a higher score. Another portion of your score is based on the amount of debt that you have in relation to available credit. The length of your credit history and the types of credit you have also play a role in calculating your credit score.

Considerations

Although every credit bureau uses the same basic FICO formula to calculate your score, each credit bureau can have a different score for you. This is because not every creditor reports all the same information to each credit bureau. You could have different credit scores from each of the three major bureaus. Your score can change as you improve the way you use credit in the future as well. To find out your credit score, you can buy a copy of your credit report from the major credit bureaus.

Read More

How to Remove a Tax Lien From Your Credit

If you do not pay your federal or state taxes, the government may place a lien against any property that you own. While state tax liens and what they encumber vary depending on your state of residence, a federal tax lien attaches to all property you own -- in addition to appearing on your credit report. Tax liens that appear on your credit report will damage your credit score. You can appeal to the credit bureaus to remove some old tax liens.

Instructions

1

Locate your formal Certificate of Lien Release. Unpaid tax liens can remain on your credit report indefinitely. The Fair Credit Reporting Act, however, restricts the credit bureaus to reporting paid tax liens for no longer than seven years.

2

Pull your credit reports and check the date on the tax lien. Compare the date to the date on your Certificate of Lien Release. If the date on the Certificate of Lien Release precedes the current date by seven years or more, you can dispute the tax lien on your credit report as obsolete.

3

Make a copy of your Certificate of Lien Release.

4

Write a letter to the credit bureaus whose credit reports still contain evidence of the tax lien. Notify them of the date you originally paid off the tax lien and note that you have included a copy of your Certificate of Lien Release as proof that the credit report entry in question is obsolete and must be removed.

5

Send the copy of your Certificate of Lien Release and your dispute letter to the credit bureaus via registered mail. This ensures that the credit bureaus receive your dispute for immediate processing.

Read More