What Factors Influence My FICO Score?

The FICO score is the most widely used credit score by lenders to determine whether to issue you a loan. The algorithm developed by the Fair Isaac Corporation takes information in your credit report and converts it to a three digit number, between 300 and 850, with higher scores meaning lower risk. Your FICO score is based on five categories: your payment history, how much you owe, how long you've had credit, what credit you have applied for recently, and the types of credit you've used.

Payment History

How you have paid your bills accounts for 35 percent of your FICO score. This section of the score looks at whether you make your payments on time or whether you have made late payments, or payments that were less than the minimum required payment. Also examined are any delinquent accounts or accounts that you have defaulted on, including accounts discharged during a bankruptcy. The more recent the history, the more heavily weighted it is. For example, a late payment two months ago will hurt your score more than a late payment five years ago.

Balances Owed

The amount of money you owe on your trade lines accounts for 30 percent of your credit score. This section examines not only how much you owe, but the types of debt you owe. If you owe a significant amount on a mortgage, it will have a less detrimental effect on your score than having the same debt levels on credit cards. In addition, the score looks at how much of your available credit you are using. For example, if you have $2,000 in credit card debt, but a total credit limit of $10,000, you are only using 20 percent of your limit. However, if you had that same amount of debt but had a credit line of only $2,500, you would be using 80 percent of your credit limit, which has a more negative effect on your credit score.

Credit History Length

The length of your credit history accounts for 15 percent of your credit score. This section looks at the length of time you've been using credit and how long each of your current trade lines have been open. The longer you've had credit, the higher this part of your score will be.

New Credit Applications

Each time you apply for new credit, such as a new credit card or loan, an inquiry is noted on your credit report and remains for two years. These credit inquiries account for 10 percent of your credit score, and the fewer you have, the better for your score. Not every inquiry is counted equally. For example, the FICO scoring model expects you to shop around for car loans and mortgages, so as long as you apply for these loans within a short period of time, the scoring model will only count them as one, no matter how many you apply for.

Mix of Credit

The final 10 percent of your credit score is calculated by looking at the variety of credit that you have used. According to the FICO scoring algorithm, people who have experience with different types of credit are lower credit risks than people who have not used credit or may have used only one type of credit in the past. Having used multiple types, like a credit card, mortgage, and installment loans such as student loans, will result in a higher score.

Read More

How Do Credit Reports Work?

The information in your credit report can help you buy a house -- or it can prevent you from doing so. It can get your application for a credit card accepted or rejected. It can make a difference in getting the apartment you want, the car you want and the job you want. That's why it's so important to understand how credit reports work.

Credit Bureaus

In the United States, three major companies produce credit reports: Equifax, Experian and TransUnion. These companies, called credit bureaus, collect a range of information on tens of millions of people and assemble that information into reports, which they sell to lenders, employers and others. Federal law requires each bureau to provide you with a free copy of your credit report once a year, although you have to request it at a special website, AnnualCreditReport.com.

Information Collection

The bureaus collect four basic types of data. The first is identifying information: your name and birth date, your Social Security number, the addresses where you've lived, and possibly your current and past employers. The second category is credit information, which usually makes up the bulk of the report. It includes all credit accounts in your name, each of which is listed with the type of account (credit card, mortgage, student loan, and so on); when you opened it; the credit limit, if applicable; the balance; and your payment history. The third category, public record information, includes bankruptcies, foreclosures, tax liens and other legal proceedings. The final category is credit inquiries -- a list of everyone who has requested a copy of your credit report in the past two years.

Distributions

According to the Federal Reserve Bank of San Francisco's consumer information office, the bureaus can provide your credit report to companies with whom you have credit accounts, or that are considering offering you credit; employers or potential employers; insurance companies with which you are doing business; government agencies; and any other person or organization with a "legitimate business need" to see the report -- a landlord or business partner, for example. The bureaus will also supply reports in response to a court order, or to anyone whom you have given written authorization to see your report.

Scoring

Credit reports do not make any kind of a recommendation on whether a lender should extend you credit, an employer should hire you or a landlord should rent to you. The reports simply give them information that they can use to come to their own conclusion. However, the bureaus use the information in your report to compute a "credit score," which boils your credit history down to a number that, in the most commonly used system, ranges from 300 (horrible) to 850 (out-of-this-world good). Although credit bureaus must provide you with your report for free, you'll have to pay to see your score.

Other Details

All information stays on your report for seven years, although bankruptcy can remain on a report for up to 10 years. If you discover an error in your credit report, contact the particular bureau that prepared the report. The bureau will investigate, and if it agrees with you, it will correct the information and, at your request, send out corrected reports to people and businesses that have accessed your credit report. Even if the bureau decides that the information is correct, you have the right to put a short statement in your report disputing the information.

Read More

Tricks to Fix Your Credit

Bad credit haunts you when you try to get new accounts from banks and other lenders. The Federal Reserve Bank of San Francisco explains that your credit reports tell a detailed story of your financial dealings, including delinquent payments and excessive debts. You can use a few tricks to clean up those bad records and make yourself more attractive to creditors.

Dispute Negatives

Credit bureaus frequently make mistakes in their files, and the Divorcenet website advises that you can use this tendency to fix your credit. Every small error in spellings, dates and amounts gives you cause to dispute the entire item. Order free credit reports from annualcreditreport.com, which provides them yearly upon request. Dispute anything and everything that you find wrong. Experian, Equifax and TransUnion all let you file online complaints. The Federal Trade Commission advises that they have 30 days to verify their information as correct. Otherwise, the law requires them eliminate the disputed items from your files. Divorcenet explains that this trick is effective because companies often ignore verification attempts.

Boost Minimum Payments

You fix your credit in two separate ways by paying more than the minimum requirement on your credit cards every month. The MyFICO credit score website explains that two of the biggest factors in score calculation are timeliness of payments and amounts owed. Your score is helped every time you send a payment by the deadline, and adding extra money reduces your debt load significantly because much of the minimum payment goes toward the interest. The Motley Fool financial advice site recommends putting the extra money onto your card with the highest interest rate for the most impact.

Get Retail Credit Cards

Retail credit cards from places such as department stores, electronics sellers and gasoline companies give you a revolving credit line, just like name brand cards such as Visa and MasterCard. The catch is that you can only use them at the specified store or gas station chain. Retail cards are easier to get than general credit cards, according to MSN Money writer Liz Pulliam Weston, making them a good option for initial credit fixing. Use them regularly, pay on time and keep the balance low, and your credit score will rise.

Get Secured Credit Cards

Secured credit cards are an option if your credit is too bad to qualify you for traditional accounts, including retail cards. Secured accounts are given to anyone because you put up enough money to cover the credit line. Your deposit is as little as $300, and your credit limit is the same amount. The card issuer can take that money if you stop making payments. Secured card activity is reported to the credit bureaus, so you fix your credit over time if you make all your payments by the due dates.

Read More

Does a Credit Line Increase the Soft or Hard Inquiry?

You should ask your credit card company for a limit increase every so often, because the percent of your credit limit used, called credit utilization ratio, can impact your credit score. However, requesting a limit increase can put you over the edge when a lender determines whether or not you are an acceptable risk.

Identification

Some credit card companies increase the credit limit on an account at set intervals, such as every six months, while others perform a hard credit inquiry before granting a limit increase. If the company offers a limit increase, the inquiry is soft, so it does not affect your credit rating. If you ask the company for a limit increase and it requests consent to perform a credit check, the inquiry probably counts as a hard inquiry.

Effect of Inquiries

A soft inquiry only shows on a credit report when you run a check on yourself, so it does not affect your credit score and lenders cannot make informal judgments about a soft inquiry. A hard inquiry can take up to five points off your FICO score, but additional inquiries do exponential amounts of damage. Once you have six or more inquiries, you become a high-risk borrower to lenders because consumers with excessive inquiries tend to be hunting for credit in anticipation of financial ruin, according to the Fair Isaac Corporation.

Asking About Inquiries

Your lender probably will tell you whether it will perform a hard inquiry if you ask before it goes through the account review process. If the lender requires you to answer questions about how much credit you need, employment history, current income and debts, you can expect the company to perform a hard check. You may want to cease communication so the lender does not interpret the rest of the call as a consent to a hard credit check.

Tip

If you want to lower your credit utilization ratio and avoid a hard inquiry, find someone willing to let you co-sign on an existing account or become an authorized user. The benefit of this comes with a huge risk: You put your credit rating in the hands of another person. If the primary borrower defaults on the account, you credit rating drops too, and if you co-sign the account, you are legally liable for the debt.

Read More

What Does a Credit Bureau Do?

In the United States, there are three major credit bureaus, TransUnion, Equifax and Experian. Also called consumer credit reporting agencies, the three gather information on major credit use for every individual. Their role is essential in helping lenders make informed decisions about borrowers and helping borrowers get the credit they deserve.

Gather Credit Information

Lenders report information on each of their customers to credit bureaus. The information includes the name, Social Security number and address of the account holder, along with details about the account. This includes the type of account, its opening date and the amount the customer borrowed or is eligible to borrow. Lenders update these files regularly to report the amount currently owed and report late payments. The credit bureaus work with lenders to gather all of this information.

Store Credit Files

Every individual who has ever used credit in the United States, whether it is through a credit card, student loan, mortgage or auto loan, has a credit file. The credit bureaus have databases full of information on credit accounts and they use this information to generate a credit report for each individual. The report not only contains information on account history, but also public records and a list of companies that have recently obtained the person's credit report.

Provide Credit Scores

Credit bureaus earn money by providing credit reports and credit scores to lenders and individual consumers. When an individual applies for credit, the lender pays the credit bureau to obtain the person's credit report and credit score. Based on the credit report, the credit score estimates the risk of lending to the individual. People with high credit scores have managed debt well and are low risks. People with low credit scores have had problems with debt and present a high risk. Lenders use the credit report to determine whether to lend to the individual and what interest rate they should charge.

Investigate Disputes

If someone believes his credit report is inaccurate, he can file a dispute with the credit bureau that provided the report. The credit bureau must investigate the dispute and correct the credit report if it's wrong. For example, someone might notice that one of his credit card accounts does not appear on his credit report. This could be hurting his credit score because he has had a consistent history of on-time payments. If he files a dispute, the credit bureau has to contact the credit card company, obtain information on the missing account and add it to the individual's credit report.

Read More

How to Get Online Credit History

Your credit history affects your ability to secure housing, loans and auto insurance. A poor history may even affect your ability to secure a job. According to MSN Money, as many as 80 percent of credit reports have some type of error. Some of these errors, such as late payments or inaccurate accounts, will lower your credit score. Credit reports are available online, allowing you to review your credit history.

Instructions

1

Order a credit report. A free credit report is available through AnnualCreditReport.com (see Resources) once a year from each of the three major credit reporting bureaus--Equifax, Experian and TransUnion.

2

Answer personal questions to prove your identity. The website asks detailed questions before providing access to online credit reports. For example, you could be asked the exact amount of your mortgage payment. Keep financial files close in case you need to look something up.

3

Review the report. The credit report has several sections, including personal information, credit history, public records and an, inquiry section. Review the personal information, such as name and address for accuracy. Review the credit history section for unfamiliar accounts and late payments that aren't correct. Information in the public records section is never good, according to MSN Money. This is where bankruptcy and collection activity resides. The inquiry section will include creditors who have requested your credit history recently.

4

Dispute inaccuracies by filing a dispute form with the reporting bureau. Attach supporting information, such as account statements proving on-time payments, when sending the request. Credit bureaus typically respond to the request within 30 days. If approved, the inaccurate information will be removed from the credit file.

Read More

How to Get a Rapid Rescore Within 3 Days

A low credit score can prevent you from qualifying for a favorable interest rate on a loan, such as a home mortgage. In many cases, a rapid rescore can raise your credit score and lower the interest rate, making your home purchase more affordable. A rapid rescore is a reevaluation of your credit score after a major change has been made. Although a rapid rescore can be completed within three days, there is no guarantee it can be achieved that quickly. However, rescoring is often accomplished a few days after changes have been made that affect your credit rating.

Instructions

1

Obtain your credit score. You can purchase your score through the MyFico website or obtain it from your lender if you have already applied for a mortgage loan. According to the Real Estate website, you will be offered a significantly higher interest rate if your credit score is less than 680. Higher interest rates will cause your loan to cost more over time, and your monthly payments will be higher.

2

Evaluate your credit report. You can obtain a free copy of your credit report from each of the three credit reporting bureaus -- Experian, Equifax and TransUnion -- once a year through AnnualCreditReport.com. Check for any errors in your credit report, such as delinquent accounts that don't belong to you, paid accounts listed as unpaid, and incorrectly listed charge-offs, late payments and collections.

3

Dispute errors on your credit report. Write to each of the credit bureaus requesting resolution of the error. Provide any proof you have. The credit reporting agency has 30 days to investigate your claim, and it will correct any information found to be incorrect. You will receive a letter from the credit bureau informing you of its decision.

4

Pay off old debt. If you have legitimate charge-offs or collections on your credit report, pay them off. Some lenders require this step before granting the loan. Pay down the balances on your installment loans and credit cards. The Motley Fool recommends paying your credit card balances below 35 percent of the credit limit; however, the lower the credit utilization ratio, the more it will decrease your score.

5

Provide proof to the mortgage company that changes have been made that will significantly affect your credit score. You typically pay a fee of $25 to $50 to have the lender request a rapid rescore from a rescoring service. The rescoring service alerts the credit bureaus that changes have been made, and it requests that your credit score be calculated again quickly. Bankrate reports that a rescoring can be completed within 72 hours in some cases.

Read More

How to Terminate Your Car Lease

While leasing a car offers its advantages, you need to be clear about the terms and conditions of the lease agreement before signing it. Dealerships make it difficult for you to terminate a car lease early, so if you dont like the car or cant continue making the payments, you can't simply return the car and walk away. Returning a vehicle before the lease expires will have an effect on your credit.

Instructions

1

Find out what the car is worth. Check the Kelley Blue Book value, especially if youre thinking about buying the car outright when your lease ends. You can also get used car values from the National Automobile Dealers Association, known as NADA. If the payoff is less than the vehicles resale value, you can come out ahead by keeping the car. Otherwise, return the car to the dealership if the residual value is more than what the car is currently worth. The residual value is the car's estimated market value when the lease expires.

2

Wait to return the car to the dealer at the end of the lease. Even then, you may have to pay additional charges. The dealer can charge you more if he feels the cars condition is not as good as it should be. In addition, if youve exceeded the mileage cap, the dealer will charge you an amount per mile as spelled out in your lease contract.

3

Trade in your car lease. This is one option for terminating your current lease early. The dealer will pay the balance remaining on the lease and you get to drive off in a new car. However, Michael Kranitz, author of "Look Before You Lease: Secrets to Smart Vehicle Leasing," warns that the payments will be rolled over into the lease for your new car. Your new trade may come with a high monthly lease payment since you are also paying money you still owe on the old lease.

4

Turn over the car voluntarily before the lease is over. This isn't the best option, though, as defaulting on your car lease will damage your credit, making it tough to get new credit in the future. In fact, its going to appear on your credit report as a repossession. Depending on the terms of the lease contract you signed, you may still be responsible for making the remaining payments. The leasing company will also charge you an early termination fee, adding to the amount you already owe.

Read More

How Credit Repair Works

Disputes

You may be able repair your credit by removing negative items from your reports through filing disputes with the three major credit bureaus. The law says that every item on your credit reports must be accurate and verifiable. If you find negative items that you believe to be incorrect, you have grounds to challenge them. You can do this via an online form. The credit bureaus must investigate the item, and if the creditor cannot verify or it simply doesn't respond, it will be removed from your credit report.

Payments

Even if you have a negative payment history in the past, you can immediately begin repairing your credit by paying your bills promptly. Keep all of your accounts current so new lenders will be able to see that your financial condition has improved. Each on-time payment is another step toward repairing your credit rating.

Time

You will not be able to remove legitimate negative items from your credit report through disputes, but if you let enough time pass, your credit report will repair itself. Most negative items like late payments, charge-offs, judgments and even bankruptcies can only remain on your credit report for a certain number of years. Depending on your state of residence, they must be removed in seven to ten years. When they drop off after the appropriate time frame has passed, your credit score will get a big boost.

Read More

Does a Cosigner Need to Have Good Credit for an Apartment?

A landlord sometimes requires potential tenants to get a cosigner if they cannot qualify for a place on their own, but having a cosigner does not guarantee approval for anything. Thus, you should ask someone to cosign a loan if they have a history of responsible borrowing and repaying debt on time. You may even be able to avoid use of a cosigner altogether.

Identification

A cosigner should have good credit to help you qualify to rent an apartment. In general, a score of 620 is considered the cutoff for good credit for most creditors, according to Apartments.com. Some landlords might require a high credit score, especially for places in an expensive city, and the landlord might use the highest creditor when deciding between two equally qualified applicants.

Considerations

The landlord may not want you as a tenant even if you provide a cosigner with a good score, because creditors usually give the worst score the most weight in the approval process, according to Kimberly Lankford of "Kiplinger." In most states, a creditor must attempt to collect payment from the primary borrower first before pursuing the debt from a cosigner. Also, the landlord might not want to risk having to spend time tracking down a cosigner in case you cannot pay the bill.

Explaining Bad Credit

Ideally, you should clean up your credit history before apartment-hunting. Pull your report from Annual Credit Report and look for negative items, such as late payments and court judgments for an eviction, that might concert a landlord. Pay off as much of the debt in your history, especially credit card debt, and make minimum payments on time every month. You can also write a letter to the landlord explaining bad credit, such as if downsizing caused you to missed bills, but that you have corrected the issue.

Tip

Asking someone to cosign a loan is a huge liability for the him because he will have to pay your bill in case you can't. Instead, talk to the landlord about what you can offer to qualify for a place on your own. For instance, you can offer to prepay the entire lease upfront or several months in advance as a security deposit. You might need to downgrade to a cheaper place too.

Read More

FICO Classification

Every credit reporting agency has its own system of determining credit scores. The system known today as FICO comes from the name Fair, Isaac and Company. That's the company that developed the grading system to provide potential lenders with a way to evaluate the risk involved with a credit applicant. Other companies have largely copied the model.

Significance

The different models have created problems because each company also has different point values when offering a credit score to a potential lender. The good news is that the major three credit bureaus have worked with FICO and have come up with a new classification system called VantageScore.

One easy way to understand the scoring system, the Experian website says, is that the new system is based roughly on the academic grading system. The VantageScore credit ranking system uses the following classifications: 901-990 equals A; 801-900 equals B; 701-800 equals C; 601-700 equals D; and 501-600 (high risk) equals F.

Function

This system of classification is now used by all three of the credit bureaus, and offers a more uniform understanding of how they rank people. FICO credit scores are available through Equifax and TransUnion, but Experian does not make them available anymore. The traditional FICO score ranges from 500 to 850, and divides up the classifications in the following way: 720-850, excellent; 700-719, very good; 675-699, good; 620-674, fair; 560-619, poor; and 500-619, very poor.

Function

FICO scores and the AdvantageScore change constantly. It changes with the changing levels of credit or debt in most people's ordinary financial dealings. Anytime new credit is extended, or even applied for, there is a change. Being late on a bill, or on several bills, over a short period also affects the score.

Effects

As an individual continues to conduct business, get new credit or pay off bills, the credit score continues to change. Financial transactions are required for the numbers to be changed at all. Factors that affect the FICO numbers on a regular basis are your payment history (35 percent); the length of your credit history (15 percent); the amounts still owed (30 percent); the different types of credit uses (credit cards, loans, mortgage, 10 percent); and any new credit (10 percent). Notice that payment history is the No. 1 factor, which means that making payments on time may help improve a credit score quickly.

Misconceptions

Several items are not reported that people mistakenly think may be on a credit report. While things like your address, and phone number are on the report, other things are not, such as a criminal record, race, religion, lifestyle preferences, or a medical history. Your spouse's credit history will not be on there, either.

Warning

If there is a sudden problem when you attempt to get new credit, you may have a problem with identity theft. If someone is using your identity, or one of your credit cards, it could affect your FICO credit score.

Read More

Bankruptcy and Foreclosure on a Credit Report

Bankruptcy and foreclosure can be two of the most disastrous financial events a person can face. In a foreclosure, a bank takes possession of an individual's home due t the homeowner failing to pay his mortgage. In a bankruptcy case, a person declares himself unable to repay his debts and either develops a three- or five-year repayment plan or receives a debt discharge from a bankruptcy court. Both of these events have major impact on a person's credit report.

FICO Score Impact

FICO scores are numbers that rate an individual's creditworthiness. These numbers, which derive from the information on a person's credit report, range from 300 to 850, with higher scores representing good credit. Bankruptcy and foreclosure both drastically lower credit scores. A foreclosure can drop a person's FICO score by 250 to 280 points, while bankruptcy subtracts 160 to 220 points from a person's credit score. These point drops are significant enough to drive almost anyone's credit into the "bad," or below 620, category.

Time Frame

In addition to the large numerical impact of bankruptcy and foreclosure on credit scores, these occurrences remain on individuals' credit reports for long periods of time. Bankruptcy stays on a person's credit report for either seven or 10 years, depending on the type of bankruptcy the individual files. Foreclosure takes up space on a credit report for seven years. Fortunately, a person's credit will improve as more time elapses after foreclosure or bankruptcy.

Insurance Denials and Higher Rates

The effect of a bankruptcy or a foreclosure on a credit score could potentially harm someone's ability to obtain automotive insurance at reasonable rates. According to the Electronic Privacy Information Center, many car insurance companies believe those with black marks on their credit reports or low FICO scores are higher insurance risks and may raise their insurance rates or deny them coverage outright.

Career and Housing Impacts

Foreclosure and bankruptcy and/or the credit score damage they cause can prevent someone from renting an apartment or getting a job. This is because many landlords and employers believe that these occurrences stem from an individual's irresponsible financial and life practices, whether or not that is actually the case. According to MSN Money, a consumer finance website, recent bankruptcies may also disqualify individuals from certain types of federal or state government jobs that affect national security.

Read More

What Are the Effects of a Credit Bureau Judgment?

A judgment means that a creditor had to take you to court in order to get you to pay a past-due debt. If you have a credit bureau judgment it can affect you in a number of ways. The best thing to do is contact the creditor before the lawsuit and make arrangements for payments of the debt. It may be possible to negotiate some favorable terms with the creditor including paying less than the full balance. Once a creditor has received a court judgment, there are a number of actions he can take to pursue the balance.

Credit Score

A credit bureau judgment can lower your credit score substantially. It is impossible to determine the exact amount your score will be lowered, because each credit bureau has different standards. Judgments will do the most damage during the early years. When you allow time to pass while you continue to pay your other creditors on time, you will gradually see your credit score begin to improve.

Time Frame

A judgment will stay on your credit bureau report for seven years--starting from the date it was paid, not from the date of filing. Once a judgment is paid, it is a good idea to request a satisfaction or release of judgment, which needs to be filed with the county recorders office at the courthouse. This information needs to be updated on your credit report as well. It never helps your situation to have a judgment, but if you pay in full, creditors may view your situation in a more favorable light, especially if the judgment happened four or five years ago and your other credit is in good shape.

Approval/Interest Rate

A judgment can keep you from being approved for other credit products such as mortgages, automobile loans, credit cards or even overdraft protection. If you are approved for any of these products, you will receive a higher rate of interest, which will cost you more money over the life of the loan in terms of the finance charges you will be required to pay. Some lenders may even charge you different loan fees because you are considered to be a risk; this is how they offset the risk of doing business with you.

Monthly Mortgage Payment

A history of judgments can increase your monthly payment substantially. If you are applying for a mortgage loan, a substantial increase in the interest rate, which results in higher monthly payments, could prevent you from being able to afford the property. A credit score ranges from 300 to 850. If your credit score is in the upper tier of this range, you will likely receive a favorable rate for a mortgage. Lower scores can raise the interest rate by two or even three points.

Job Offers

Poor credit can stop you from getting a job offer. A potential employer may overlook accounts that have been paid 30 or 60 days past due, but when they see a judgment, they are less likely to be as forgiving when it comes to offering you a job. If you are disputing the item, there is a possibility that you may never get the chance to present your side of the story.

Read More

Programs for Rebuilding Your Credit

Bad credit is generally the result of having high amounts of debt, spending more than your credit limit and paying your bills late or not at all. Consequently, bad credit can make you miss out on receiving job offers, moving into a first-choice apartment or securing a large loan, like a mortgage. Programs that can help you improve your credit score can also help you eliminate debt and learn money-management skills.

Debt Consolidation Programs

Debt consolidation programs, also called credit card consolidation programs, can help rebuild your credit. Consolidation programs provide you with a large loan to pay off your debts. In return, you repay the consolidation program. By having the program pay off your creditors, you will only owe money to one lender, the debt consolidation program, which can look good on a credit report. Therefore, you can start rebuilding your credit by sticking to a budget and paying the debt consolidation program and your other bills on time. Debt consolidation programs are best for those who know how to manage money well, do not plan to accumulate credit card debt and have a plan to repay the consolidation program.

Credit Counseling Programs

If you are not sure how to effectively manage your money and pay your debts, you could benefit from a credit counseling program. These programs evaluate your spending habits and debt-to-income ratio and help you create a manageable budget. According to the Federal Trade Commission (FTC), the best credit counseling programs are those certified or licensed to offer you financial advice. When you learn how to use your money wisely and spend within your means, you will set up a system that helps you remember to pay your bills on time, eliminate your debts and begin saving for a goal, such as a vacation or down payment on a house. Lowering your debts and increasing your savings will yield a smaller debt-to-income ratio, which will help improve your credit rating.

Debt Settlement Programs

A debt settlement program is a good program to consider if you are experiencing a financial hardship and cannot pay the monthly minimum amount you owe to creditors. In this type of program, a representative will contact your creditors on your behalf to lower the interest rate you are charged or the total amount of debt you owe. There is a risk that debt settlement could hurt your credit rating if a creditor indicates on your records that you did not repay the full amount owed. Therefore, it is important that the representative assisting you makes sure this does not happen to you so you can eliminate your debts and rebuild your credit without any worries.

Creditor Assistance Programs

If you do not want to enroll in a consumer credit program, you can help yourself by contacting your creditors yourself, as many offer programs that help customers in need of assistance. Programs vary by creditor and the assistance available can come in the form of lowered interest rates, a reduction in monthly payments or a combination of the two. For large loans, such as a mortgage, a lender may lower your monthly payments or suspend your payments for up to six months. To access these types of programs, call the customer service department, explain your financial situation and need and request enrollment in one of their programs. Lower interest charges and monthly payment can make it easier to pay the amount owed so you can responsible pay your bills and begin to rebuild your credit.

Read More

Absolutely Free Credit Report Without Using a Credit Card

Here is some great news for people interested in their credit history: You do not have to pay to see it nor give your credit card number. However, you are probably just as interested in seeing your credit score, because lenders often make a deal over this number. Getting your credit score likely requires using a credit card, but not always.

Identification

Receiving a free annual credit report from one of the national credit bureaus does not require the use of a credit card, according to the Federal Trade Commission. You will have to provide identifying information, such as current address and Social Security number. Only requests through the Annual Credit Report website are free. Going through the individual agency websites or subsequent credit history requests cost money.

Warning

The Federal Trade Commission warns consumers to watch out for fake free annual credit report websites. A common tactic among "impostor" websites is to offer a free credit check but only if the customer agrees to try a product, which usually requires a credit card number to authorize a small charge to verify the account.

Credit Score

As of 2011, federal law does not require credit bureaus to let consumers see their FICO score calculation for free. This is the number lenders use when determining interest rates and approving loans. Even when the agencies offer free credit scores, they typically do so only when the customer agrees to try a service. Trial offers almost always require a credit card number, because the agencies hope you forget and let the charges run every month or like the service and keep paying for it.

Tip

You can receive additional free credit reports when somebody rejects an application for a job, loan or service because of something in your credit history. After 2011, some service providers will have to furnish your FICO score and a credit report. Any time you apply for something and the lender pulls your credit history, you can always ask to see the credit score and credit report on his computer, but the lender is not obliged to show you.

Read More

What Is Contained in a Credit Report?

A credit report is a record of identifying and bill-paying historical information. Most U.S. citizens, who are over the age of 18, have a credit report. When someone applies for a loan or a credit card, the lender will view of copy of that person's credit report to determine if he is a good candidate to borrow money. The credit bureaus in the United States are Equifax, Experian and TransUnion.

Personal Information

Each credit report contains a person's full name, date of birth, Social Security number, and current and past addresses.

Employment Data

Most credit reports also reflect the person's current and former employers and sometimes include a work telephone number.

Current Accounts

Each account a person currently has, such as a credit card or car loan, is listed on the credit report. If payments are made habitually late, such as 30 days or more, after the due date, this is noted.

Collections

If the person has unpaid parking tickets, library fines, medical bills or other financial obligations, these will be listed in the collections section of a credit report. Lenders consider this negative information.

Inquiries

Each time someone applies for credit, it is noted on the credit report. Having too many of these inquiries for new credit is considered negative by most lenders, as it could mean financial desperation.

Read More

How to Update a CreditKeeper Credit Report

CreditKeeper is a "comprehensive program that provides you with the tools to take control of your credit," according to its website. Users pay a monthly fee for the service to monitor their credit reports through the three major credit reporting agencies, be able to correct errors found on their reports, and learn ways to improve their credit rating overall. Some of the features subscribers can take advantage of include tracking their progress from month to month and immediate alerts should a transaction seem out of place.

Instructions

1

Access your CreditKeeper membership by visiting its website. Login using your username and password.

2

Verify that you are in your account by checking your personal information at the top of the page. Select the option to view your credit report. Download your credit report to your computer's hard drive. Open and review the file. You can verify the last time it was updated by looking for the last month reported under an account on your report. Many users on Internet forums have posted that it takes between one to three months for CreditKeeper to update a report. However, the CreditKeeper website's Frequently Asked Questions section states it updates your credit report every month.

3

Call CreditKeeper's customer service line at 877-276-3919 or e-mail service@mycreditkeeper.com if your credit report has not been updated recently. Ask the representative why your report isn't being updated. Request an update be made within 48 hours, and check your account again after that deadline has lapsed.

4

While in your account -- on the website -- if you spot errors that need to be fixed or updated on your credit report, select the option to correct your report. Use the pre-formatted letter to dispute errors with the credit reporting agencies, or contact one of CreditKeeper's experts by selecting the option. Submit your dispute or correction and wait for a reply. Most credit report disputes can take up to two months to be addressed.

Read More

How to Dispute on Equifax

Disputing an aspect of an Equifax credit report is as simple as filling out an online form on the company website, but doing so effectively requires documentation. The right to dispute a credit report is guaranteed by the Fair Credit Reporting Act (FCRA), although the cost of investigating a dispute is borne by Equifax itself.

Instructions

1

Gather documentation that supports your contention that some aspect of your credit report is inaccurate. Written proof of an agreement with a creditor is crucial to proving a dispute. An oral agreement with a creditor cannot be proven and is not admissible as evidence to Equifax.

2

Fill out the online form on the Equifax website disputing an aspect of the credit report. Provide as much information as possible regarding the dispute. If an entry purported to be fraudulent, Equifax will examine the data to determine what happened.

3

Contact the creditor responsible for the disputed entry or entries and discuss the issue with them. This can accelerate the dispute resolution. Any agreement or admission made with the creditor must be made in writing. Request a fax or letter outlining the agreement. Consider using the form letter contained in the Federal Trade Commission (FTC) guide to reporting credit report errors (See Resources).

4

Send the documentation supporting your dispute to Equifax when it's requested. Send copies of the documents and not the original ones. Keep everything related to the dispute in your personal files.

5

Wait at least 30 days for the dispute to be resolved. Equifax investigates disputes for at least that time to determine if it is frivolous or not. The more documentation that you can provide Equifax, the faster that it can be resolved.

6

Consider filing a complaint to the FTC if your dispute does not result in resolution and you have significant documentation that supports your contention.

7

Request credit reports to be sent out to relevant creditors or employers if the dispute turns in your favor. Equifax is obligated by law to provide free credit reports to a number of individuals and organizations if a dispute is successfully resolved. See Resources for further details.

Read More

Credit Checks With Instant Results

Consumers can see how a lender might view their creditworthiness almost instantly and for free at least once a year. As of 2011, the national credit bureaus only offer instant credit checks when the consumer requests a report online. The other options require the agencies to mail a report. Purchasing additionally services may be necessary if the consumer wants to know when their report changes immediately.

Identification

The only way customers can get their credit report instantly is after verifying their identity by providing their personal information at the Annual Credit Report website---which is the only website that offers truly free credit reports---or at the websites of the national credit bureaus. Third-party credit monitoring sites also often offer instant credit checks. The alternative to online checks is a mailed or phoned request. Both result in the bureaus mailing a copy of the report, which could take more than a week.

Benefits

Online instant credit checks offer better security than mailed reports, because a thief can steal the report from the mailbox and the national bureaus use encrypted transmission lines for their online requests. They are also best for customers who want to see their credit report immediately, such as when the consumer needs to prepare for a mortgage application and wants to clean up his credit history or check it for errors.

Considerations

The national bureaus have some lag time between when they update their databases and when they receive new information. Even with an online credit check, it may take several months before the bureaus change data. Rapid rescore companies offer a solution for updating credit report mistakes quickly. This type of company has a direct connection to the credit bureaus and can correct errors in a few days if the customer presents evidence of the mistake and the creditor of the account agrees with the claim. Rapid rescore companies have a few disadvantages: consumers must go through a lender, such as a bank or mortgage broker, to use this service and they only correct falsely reported negative data.

Tip

Instead of paying for a report every time a consumer wants to check his score, credit monitoring services send email alerts as soon as the customer's credit report changes. Also, credit monitoring services usually offer unlimited credit reports and scores from one or all three of the national credit bureaus, according to Lynnette Khalfani-Cox of Wallet Pop. Customers that want to check their report several times a week often benefit from using a credit monitoring services.

Read More

Who Can Report to a Credit Bureau Agency ?

A person's character, reputation, and lifestyle are often judged based on a credit report. Various corporations and entities report to credit bureau agencies and these reports can help or hurt an individual's credit. A person's credit report is used to analyze financial history and often determines past and present fiscal responsibility. There are three major prominent reporting agencies that constitute the credit bureau industry--Experian, TransUnion, and Equifax. These three agencies can help an entity determine if a person is credit worthy.

Rental Agencies

Apartment and rental agencies are one of the most common entities to report to credit bureaus. To protect themselves from potentially risky tenants, many states have a rental or apartment agency that reports tenants who have not fulfilled rental or lease obligations to the credit reporting bureau. Landlords often use a person's credit report to evaluate a rental application. To keep public records up-to-date, the court system furnishes an individual's past residences, legal name, birthdates, and other pertinent information to the credit reporting bureau as well.

Car Dealerships

Car dealerships also report to credit bureau agencies. These dealerships will report if a person is successfully making payments on a monthly basis or if repossession has occurred due to delinquent payments. Although employers may pull a person's credit report, they do not report to credit bureau agencies. These credit pulls will fall under a section of the credit report called "recent inquiries." Recent inquirers remain on a person's credit report for up to one year and rarely affect the credit score.

Banks

Banks are the most common entity to report to the credit bureau. Banks issue three main credit lines that are regulated and reported--mortgages, loans and credit cards. Delinquent, late payments, and foreclosures can cause irreparable damage to a person's credit score, however, a consistent payment history significantly helps a person build excellent credit history.

Government Debt

According to the Child Support Enforcement Agency, parents who are delinquent on child support payments are also reported to the credit bureau. Other unpaid debts to federal and government agencies are listed on credit reports as well. When an individual has a debt with a lender or rental agency for an extended amount of time, that debt is normally sold to a collection agency. The collection agency then reports to the credit bureau each month.

Inaccurate Credit Reports

Many people suffer from inaccurate information on their credit report which can cause both financial and emotional harm. Removing inaccuracies often requires a lot of energy, evaluation and time but can save an individual financial difficulties in the long term. Every individual is entitled to a free copy of her credit report every 12 months, and can use this free copy to check for inaccuracies.

Read More

What Raises a Credit Score

The main type of credit score that lenders use when evaluating an application for credit was developed by Fair Isaac Corporation and is generally abbreviated FICO. Individuals can raise their FICO credit scores by managing credit effectively across multiple areas that appear on the credit reports compiled by TransUnion, Equifax and Experian.

Consistent Payment History

Making payments on time and avoiding negative payment items, including collection accounts and bankruptcies, is the single most important way to raise a credit score. The formula used to calculate the credit score bases about 35 percent of the score on a person's payment history. Submit all payments by their due date and if a missed payment ever occurs, pay it as quickly as possible.

Low Outstanding Balances

Approximately 30 percent of an individual's credit score is based on the amount of money the individual owes, especially relative to the amount borrowed or the credit limit. People can pay down their credit card balances to raise this portion of the credit score. Liz Pulliam of MSN Money recommends never charging more than 30 percent of the credit limit, or for best results, keeping each balance under 10 percent of the card limit.

Long Credit History

Just by keeping accounts open and active, an individual can improve the 15 percent of the credit score that is based on the overall length of credit history. In addition to the overall length of credit history, the credit score also takes into account how long it has been since the account last posted any activity. Therefore, people who have old credit cards they rarely use should make a small purchase on the card every few months to keep the account active.

Little New Credit

About 10 percent of a score is based on new credit. People who refrain from applying for or opening new credit accounts for a time usually see their scores increase. This is because hard inquiries, which are when a creditor checks an applicant's credit report, lower the credit score. In addition, new accounts hurt the score as well. The negative effects of inquiries and new accounts decrease over time.

Many Types of Credit

About 10 percent of the credit score is based on types of credit, which include credit cards, retail store accounts, charge cards, student loans, auto loans and mortgages. Generally, a person should use at least one revolving account, such as a credit card, and at least one installment account, such as an auto loan.

Accurate Credit Report

If a person's credit report contains inaccurate negative information, it drags down the credit score. Consumers have a right to dispute information on their credit reports, which the credit bureaus then have to verify with the original source. The Federal Trade Commission website has an example of how to write a dispute letter.

Read More

10 Tips to Improve Your Credit Score

Credit history reports and credit scores are used by financial institutions, utilities, retail stores, landlords and others to determine the creditworthiness of individuals. Credit reports contain historical information on the types of credit used and the amounts owed. Credit scores rank individuals on their credit history. Individuals with bad credit histories can improve their credit scores through sacrifice and perseverance.

Verify the Credit Report

You are entitled to one free credit report per year from AnnualCreditReport.com, which is the online portal for the three national credit bureaus -- TransUnion, Equifax and Experian. Contact the credit bureau to report errors because they can negatively affect your credit score.

Understand the Credit Score

According to the U.S. Federal Reserve, credit scores are based on the following: timely bill payment history, outstanding debt balances, credit history length, new credit application frequency and types of credit accounts. Credit scoring models use statistical analysis to determine the creditworthiness of individuals.

Make Timely Payments

Paying the utility, water, rent, property tax and other bills on time improves your credit score. Set up automatic bill payments from your bank accounts. Synchronize the bill payments and automatic payroll deposits to avoid overdrawn balances in your accounts.

Manage Credit Card Balances

Pay down the credit card balances to zero to improve your credit score. As this might not be possible, spread out your purchases among several cards. In other words, do not max out one card while not using the others at all.

Stay Current

People are late on their bill payments for various reasons. Once the cash flow situation improves, however, settle the overdue accounts and stay current on your bills to improve your credit score.

Reduce Debt

High debt balances can negatively affect credit scores. Cut back on expenses, eliminate or reduce the use of credit cards and stick to a budget to gradually reduce the outstanding debt and improve your credit score.

Length of Credit History

The length of the credit history affects the credit score. Closing old accounts or opening new accounts might reduce the average account age, which can negatively affect your credit score. Keep the older accounts open, regardless of the interest rates.

Limit New Applications

Too many new credit applications over a short period of time can negatively affect credit scores. Apply for new accounts only as required, even if credit card companies and retail outlets are offering special interest rate promotions.

Debt Consolidation

You might be able to consolidate credit cards and other high-interest debt into a second mortgage on your home or a home equity line of credit. This might allow you to pay down your debt faster and improve your credit score.

Credit Counseling

Cash flow problems often make it difficult to make the minimum monthly payments. Registered credit counselors can help you restructure your debt and make manageable monthly payments to improve your credit score over time. The Federal Trade Commission advises people to watch out for scams and contact the local consumer protection agency before doing business with companies offering debt management services.

Read More

How to Check for Credit Fraud

Credit fraud is a form of identity theft in which someone steals your personal information to open an account in your name or use one or more of your credit cards without your knowledge. You can check for credit fraud by regularly reviewing your credit report for suspicious activity. Order your credit report from a credit monitoring company, such as Experian.

Instructions

1

After receiving your credit report, print it out. Credit monitoring companies like Experian will display your credit report on your computer screen. However, you may not be able to save the report.

2

View all of the open accounts and verify that they are valid. Accounts can include credit cards that are open or have been closed and any outstanding loans.

3

Review the "Requests viewed by others" section of the Experian credit report. Other credit reports may have an "Inquiries" section. This section displays all of the creditors that have looked at your credit report, such as when an application is being processed. If you do not recognize a creditor making an inquiry it may indicate fraudulent activity.

4

Verify that the addresses listed on the credit report for you are accurate. If you see an address you've never had, it may have been used on an application for credit.

5

Contact the creditor reporting the data on your credit report that you know is fraudulent. Identify yourself as a victim of fraud and ask to file a fraud claim.

Read More

How to Remove a Fraud Alert From a Credit Report

Fraud alerts are useful if you have been a victim of identity theft, or if you have reason to believe you may become one. There are two types of fraud alerts: a temporary alert and a permanent alert. The temporary alert lasts for 90 days, after which, it is automatically removed. The permanent alert is not truly permanent; it lasts seven years. If you wish to remove a fraud alert from your credit report, you must submit your request in writing; fraud alerts cannot be removed online or by phone.

Instructions

1

Gather the documents needed to prove your identity to the credit bureaus. You'll need two identifying documents, such as a driver's license or state ID, U.S. passport, military ID or utility bill, showing your name and address.

2

Make photocopies of the documents. You need three copies of each (one for every credit bureau). Make sure the copies are legible.

3

Write a letter addressed to the credit bureaus. You need three letters (one for each credit bureau). Make sure the letter includes your Social Security number, full name and date of birth. Specifically state that you want to remove the fraud alert on your credit report.

4

Mail the letters with the copies of identifying documents to each of the credit bureaus. You should receive a response within 2 weeks; if you don't, call the credit bureau's fraud division to check on the status. Mail the letters to:

Experian
PO Box 9532
Allen, TX 75013
1-888-397-3742

Equifax Consumer Fraud Division
PO Box 740256
Atlanta, GA 30374
1-800-525-6285

Transunion
PO Box 6790
Fullerton, CA 92834
1-800-680-7289

Read More

Can I Get a Car With a 500 Credit Score?

A credit score of 500 does not bode well for a car shopper. While it does not mean you cannot find an auto loan, it will be challenging. Ratings of 500 to 579 are considered "very poor" by the Fair Isaac Company, which developed the FICO system. With a score of 500 you will not find an auto loan with a low, or even moderate, interest rate, and it may take time and a special financing program to find a loan at all.

Identification

Though the FICO model has a floor of 300, just finding a willing lender when you have a score of 500 will be tough -- though 500 is 200 points off the bottom of the scale, scores at either end of the range are rare, with the average score being 687, according to financial guru Suze Orzman. Some auto dealers, however, specialize in bad credit auto loans. The annual percent yield on an auto loan for borrowers with bad credit can top 11 percent and might go over 20 percent, according to Cars Direct. A large down payment may be required as well.

Considerations

While ads for "bad credit" auto dealers are plentiful, investigate programs carefully to see if they will be willing to work with you. Some bad-credit auto dealers do not actually want a person with bad credit alone, but rather a person with bad credit who has assets he will use to collateralize the loan, whose credit is not as bad as he thinks, or who knows someone with good credit willing to cosign on the loan.

Tip

At such a low score you have plenty of room to improve, so you might want to boost your credit before searching for an auto loan. This should save you hundreds or thousands of dollars in finance charges and you may not need a large down payment or cosigner any more. A bad credit score has other effects on car ownership. The insurance company, for instance, probably sets your premium in part on your score.

Boosting Your Credit

Improve your credit history by enrolling in automated payment plans for your existing debts to avoid late payments -- payments late by even one day can affect your credit. Check your credit for errors, including wrong addresses. Moving from state to state and changing jobs frequently does not factor into your credit score, but lenders worry about someone who seems unstable. Avoid applying for other credit accounts before you attempt to get a car loan. Creditors checking your credit for this purpose will impact your credit, even if you are declined. Eliminating debt, may not be possible, but paying off anything you can gives a double boost to your creditworthiness. It raises your FICO score and lowers your debt-to-income ratio -- another factor that lenders weigh heavily in a credit decision.

Read More

How to Get My Credit Rating in British Columbia

Personal credit is measured in Canada using the North American Standard Account Ratings system, which assigns a number from 0 to 9, with lower numbers being more desirable. A rating of 1 means you always pay your bills on time, whereas a 9 indicates that you have outstanding debts and have not responded to collection requests. Credit ratings differ from the credit scores commonly used in the United States, which judge your financial health in three-digit numbers ranging from 300 to 900. British Columbia residents can get their credit ratings and other information either online or in the mail from the credit reporting agencies TransUnion Canada and Equifax Canada. If you have your information sent to you, you will receive your credit rating but not your credit score. You receive both the rating and the score online.

Instructions

Mail

1

Go to the TransUnion and Equifax websites and download a request form if you want to request your credit report by mail (see Resources).

2

Complete the form and send it in with copies of two pieces of personal identification, such as a driver's license and a credit card bill. Mail to:

TransUnion Consumer Relations Department
P.O. Box 338, LCD1
Hamilton, ON, L8L 7W2

Equifax
National Consumer Relations
P.O. Box 190, Station Jean-Talon, Montreal, Quebec H1S 2Z2

3

Wait up to 14 days for your credit report to arrive in the mail. You will receive a document specifically outlining your credit rating.

Online

4

Visit the TransUnion and Equifax websites and click the "Order Online" link (see Resources).

5

Enter your payment information and complete the order.

6

View your credit rating document online. You can also download the report as a PDF file.

Read More

What Caused My Credit Score to Drop?

Your credit score determines the interest rate you pay for loans and mortgages. It also influences the size of auto and home insurance premiums. Frequently, potential landlords and employers base their decisions on your Fair Isaac Corporation (FICO) score. It is important to check your credit history periodically and correct any circumstances that caused your credit score to drop.

Credit Card Fraud

Although you have some control over the other circumstances that drop your credit score, you must identify credit card fraud or identity theft quickly. The Federal Trade Commission advises that you verify your credit report at least once each year. Make sure that all accounts listed are truly your accounts. You must also check your monthly account statements. Be sure that all charges are correct. If you notice mistakes on either your credit report or a monthly statement, take steps to correct them immediately.

Late Payments

According to My Fico, your credit payment history determines 35 percent of your credit score. Retail accounts, credit card accounts, auto loans and mortgages all report your payments. Even one delinquent payment can drop your credit score. Several late payments or accounts in collection cause your credit score to drop severely.

Too Much Debt

Your percentage of available credit determines another 30 percent of your credit score. When checking your auto loans and mortgages, FICO notices the balance remaining against the original loan. Large credit card balances and maxed-out cards also drop your credit score. Maintaining credit card accounts with large sums available increases your score.

New Credit Accounts

When you open a new credit card account or borrow money for a mortgage or vehicle, FICO reevaluates your credit score. Recent credit inquiries also trigger its interest. New credit accounts for 10 percent of your score. Several newly opened credit accounts can cause your score to drop.

Credit History

The length of your credit history has a big impact on your credit score. A longstanding account with a history of on-time payments increases your score more than a recent account. If you close an older credit card account or pay off a car loan early, the record stays on your report for seven years. After that, it drops off your history. If an older closed account drops from your credit history, your credit score can drop.

Improve Your Score

You can take steps to improve your score if it drops. First, check your score and correct any errors. Consumer Reports recommends that your total monthly payments for nonmortgage debt be less than 20 percent of your income. If you pay down your balances, your score will improve. Make all future payments on time as agreed and keep your older accounts with good history open.

Read More

Why Did My Good Credit Card Reports Come Off My Credit Report?

You may have paid off several loans with a perfect payment history, but the credit bureaus usually eventually purge positive information some time after the account is closed. Theoretically, an active account in good standing can stay on your report the rest of your life, however.

Identification

Positive credit information usually stays on your account for 10 years after you close an account without a missed payment or any other negative activity, according to Equifax. If the account has any derogatory information on it, such as a charge-off, settlement or missed payment, the bureaus purge the history after seven years.

Keeping an Account Active

You do not have to carry a balance on an account to keep it active and improve your credit. You only need the lender to report activity. This may require periodically charging a small amount on the credit card and paying it off before it incurs finance charges. If you do not use a card for several months -- usually between four and six months -- the FICO scoring model considers the account dormant and does not include it in calculating your score.

Credit Reporting Error

A credit reporting mistake made by your creditor or the credit reporting bureau could cause an active, positive account to disappear. For example, if someone has the same name as you, the creditor or bureau may accidentally report an account on the other party's credit file. If this happens, you can either alert the creditor to this error or send the bureaus proof that you are the account holder, such as a statement from the creditor.

Tip

Lenders may close a credit card account if you do not use it, because it costs money to maintain records of the account and send you a new card periodically. An account closed by a lender does not immediately hurt your score, but it lowers your overall credit limit and raises the percentage of the available limit you use. This percentage is called credit utilization, and a high credit utilization percentage can damage your credit score. Several credit cards closed by a lender could draw concern from future lenders.

Read More

How Are FICO Scores Calculated?

Major Categories

About two thirds of the FICO score is based on just two categories. The first, payment history, accounts for 35 percent of an individual's credit score. Credit history refers to the extent which you make your credit payments on time. Delinquent payments lower a credit score significantly, as do adverse judgments such as liens or bankruptcy. Late payments are grouped into 30, 60 and 90+ day categories, with the overall score dropping as payments become more delinquent. The second major category, amount owed, considers the total amount of credit debt a person has compared to their income and total available credit. A borrower who has already taken out most of their available credit will have a lower score than one with relatively little debt.

Minor Categories

The remaining one third of your FICO score comes from a variety of minor categories, including types of credit, length of credit history and new credit. A mature borrower, one who has a long history that includes several types of debt, such as credit cards, a home mortgage and car loans, receives more favorable treatment because their risks are better understood than a younger borrower. New credit refers to the amount of recently acquired credit lines or credit inquiries. Because it's not clear how new credit lines will be used, and how they will ultimately affect the borrower's credit, they lower an individual's credit score. The effect is modest, however, compared to the major categories.

Algorithms

The raw data that constitutes the major and minor categories are computed into a credit score through the use of proprietary algorithms. The three major reporting agencies each use their own algorithm, so the results are slightly different. Equifax uses the BEACON score, Experian uses the Experian/Fair Isaac Risk Model and TransUnion computes the EMPIRICA score. All three are versions of the FICO score, which is a registered trademark of the Fair Isaac Corporation. The three major reporting agencies collaborated to create single scoring method, called the VantageScore, on a scale from 501 to 990, which is seeing increased popularity.

Read More

Where Do I Get Official Credit Reports?

The Federal Reserve Bank of San Francisco explains that credit bureaus compile reports on every person who uses credit credit cards, loans and other accounts. The bureaus make money selling this official information to lenders and other firms who make decisions on loans, insurance applications and employment. Federal law lets consumers see their own official credit reports, too.

Definition

A credit report is an official record of a consumer's financial activity, according to the Federal Reserve Bank of San Francisco. It contains demographic information and shows open and closed accounts dating back seven years, balances, available credit and payment history. Credit reports also show inquiries from lenders and certain legal actions foreclosures, liens, repossessions and bankruptcies. TransUnion, Equifax and Experian are the major credit bureaus, the Bankrate financial site explains. This trio compiles reports and provides them to lenders, employers, insurers, landlords and others who are allowed to review them.

Process

The Federal Trade Commission (FTC) explains that the Fair Credit Reporting Act (FCRA) provides free annual credit reports from all three bureaus annually to every consumer. They must be obtained through annualcreditreport.com, the official government-mandated website. The site allows online, postal and telephone orders, and it contains instructions for obtaining each type. A Social Security number and date of birth is required for the order, according to the FTC, and the credit bureaus may ask for additional identifying information to finalize the order.

Time Frame

The FCRA provides one free credit report from each of the three bureaus every 12 months, the FTC advises. Consumers can order them all at once or stagger them throughout the year. For example, those who want to monitor their credit regularly can order a report through annualcreditreport.com from a different bureau every four months.

Benefits

Regularly obtaining official credit reports through annualcreditreport.com has several benefits. Consumers see how lenders, employers and insurers see them based on their reports. The FTC explains that they might find negative errors, which they have a right to dispute and correct or remove. Some people may even discover signs of identity theft, like unrecognized accounts opened by fraudsters, the Privacy Rights Clearinghouse advises.

Warning

The FTC warns that commercial firms, and even the credit bureaus themselves, offer free credit reports that require some type of purchase or membership. For example, you might be required to purchase credit monitoring service to get the free reports or take a free trial membership that automatically imposes monthly charges if you do not cancel it. They are official reports, but they require a fee for something consumers can get for free through the FCRA-mandated site. Avoid paying by only ordering credit reports from annualcreditreport.com.

Read More

Does a Credit Card Limit Matter in a FICO Score?

Fair Isaac Company uses five factors to determine a credit score. While the actual credit limit on a line of credit is not a direct factor in a credit score, factors connected to the limit play a role.

Credit Card Limit

A credit card limit is the maximum amount that can be charged on a credit card in a specified period. The creditor sets the amount.

FICO Scores

FICO scores are determined through payment history, amount owed, length of credit and types of credit.

Amounts Owed

Thirty percent of a FICO score is determined by the amount owed to a creditor or a credit card. The amount owed relative to the limit is also a factor.

Impact

The closer a consumer is to meeting or exceeding his credit card limit, the more adverse the affect on his FICO score.

Explanation

Carrying a credit card balance that meets or exceeds the limit is seen as using the maximum amount of credit available. It also increases the consumer's debt ratio. These factors have a direct affect on a FICO score.

Read More

Financial Advice for the Unemployed

The thought of not having a job or steady source of income can create panic and fear. It can take months to find employment in a bad economy. If you don't generate income soon, you may be in jeopardy of losing your home and other personal possessions. Fortunately, there are ways to survive unemployment and keep your head above water.

Claim Unemployment Beneftis

Being fired or laid off from your job may make you eligible for unemployment compensation. Visit your local employment office to inquire about eligibility and submit a claim. Use money from unemployment compensation to pay your bills while you look for full-time employment.

Spend Money Wisely

Regardless of how much cash you have in your emergency fund or how much money your prior employer paid in severance, spending your money wisely is key to surviving unemployment. Trying to maintain your old lifestyle and buying unnecessary items can quickly deplete your funds. Be smart and cut back on spending and extras such as dining out and vacations until you've regained control of your finances.

Lower Your Mortgage Payment

Losing a job can trigger other problems, such as a decrease in your credit rating when you're unable to make payments. Talking with your creditors and lenders such as your home loan provider and explaining your current work situation may compel them to reduce your monthly payments or offer a hardship forbearance, which permits you to skip a few monthly payments without consequences. Although lenders approve a mortgage forbearance, they may report the forbearance to the credit bureaus, which can damage your credit history and lower your credit score.

Be Proactive

You can't make someone give you a job. Rather than sit around feeling sorry for yourself, do something to generate income for your household. Assess your skills and talents and brainstorm ways to turn your interest into a moneymaking business. A background in or enjoyment of landscaping can serve to your benefit if you wanted to start a lawn-care business, for example. You could also open an in-home day-care center, start selling items on eBay or begin a janitorial business, as other examples.

Retirement Accounts

People often panic after losing their jobs and are quick to withdraw money from retirement accounts. Dipping into your 401k or individual retirement account, or IRA, can have expensive fees and tax consequences. Consider taking money from these accounts as a last resort. Talk with an accountant or tax professional for information on penalties and tax liabilities on withdrawals.

Read More

The Uses for a Cross-Cut Shred

The cross-cut shred design cuts paper into confetti pieces. All information on the shredded paper is undecipherable. Any bank numbers, social security numbers, addresses and names turn into little pieces of paper. Not only does the cross-cut shred make confetti out of paper it chews up CDs and DVDs in some machines. Some brand name shredders have a powerful enough motor to pull a plastic CD or DVD through the cross-cut blades. These shredders can also cut up credit cards, debit cards and ID cards.

Scams

To prevent having your personal information get into the hands of a scam artist try shredding all your mail after opening. Money scams often come from people who retrieve your address through junk mail. Junk mail contains your address, phone number and name. This is all the information a scam artist needs to ask you for money, swindle you out of your savings or attach themselves to your credit history. Simply by having your name address and phone number, a scam artist can use the Internet to get your credit card information, your bank account information and, in some cases, wire money and make unauthorized purchases.

Stolen SSN

Every few years, the Social Security Administration sends out a projected summary of what your retirement benefits will be when you retire at certain ages. The letter contains your name, address and social security number. If the letter is not cross-cut shredded, your personal information becomes easily accessible to others picking through your trash. By shredding the letter once you read it, you can prevent your social security number from getting into the hands of a scam artist or from being used to steal your identity.

Identity Theft

Identity theft is a crippling experience that may never completely be resolved. Once someone steals your identity it can take years to notice and notifying all your financial institutions and catching the person can take even longer. Victims of identity theft left themselves exposed in some way to have their personal information stolen. The cross-cut shred helps you to protect your private information. When a person steals your identity, they often open up new bank accounts and apply for new credit cards. By shredding your documents after you read them your private information remains out of the hands of criminals.

Junk Mail

Shredding your junk mail keeps your interests private. Every day in the mail comes little pieces of paper that tell a person looking through your trash what your interests are. If you don't cross-cut shred this junk mail into confetti, people snooping in your trash can begin to assume your identity without you knowing it. Banks send junk mail all the time announcing new banking opportunities. Junk mail is an easy way for people to find out personal information you may not want to share.

Read More

Will a Settlement on a Credit Card Affect My Credit Rating?

Your credit rating is a mathematical formula that indicates your credit worthiness. Potential lenders, landlords and insurance companies use the number to determine loan eligibility, interest rates and premiums. The higher your credit rating, the less risk you represent. Negative items that affect your credit rating include delinquent payments, judgments and a settlement on a credit card.

Definition

Your credit rating is derived from information contained within your credit report. A credit card settlement is most often reported to the credit reporting agencies as settled for less than originally agreed, which will have a negative impact on your credit rating.

Alternatives

One alternative to a credit card settlement is missing payments, which are reported as delinquencies on your credit report. Delinquencies also negatively impact your credit score and may be turned into collection accounts and, potentially, judgments. Renegotiating a repayment plan with your credit card company is another alternative to credit card settlement. If the credit card company agrees and you continue to make on-time payments, your credit rating can be positively affected.

Longevity

Credit card settlements and delinquencies remain as part of your credit rating for seven years. Settlements are a way to resolve the debt whereas delinquencies leave the debt open and can lead to increased costs based on your credit card agreement. Delinquencies that lead to judgments can also affect your credit rating for seven years. Negative items on your credit report have less impact as time passes.

Implications

How you pay your bills accounts for 35 percent of your overall credit rating. A settled credit card account tells potential lenders that you paid less than what you owed, which is a negative strike against your credit score. How much you owe versus how much credit you have available accounts for 30 percent of your credit score. A settled credit card debt would not figure in this calculation, but a delinquency or renegotiated payment plan would be part of this calculation.

Conclusion

Credit card settlements will affect your credit rating, but a settlement is better than delinquencies, collection accounts and judgments. Even though all four negative items are part of your credit rating for seven years, a settlement has less impact in the overall calculation due to the fact that the debt is resolved and is no longer outstanding.

Read More

Can Someone Run My Credit Report Without My Knowledge?

Your credit report contains personal information regarding how you spend money and how you repay bills, and it is difficult for Americans to keep their credit history private. The federal government passed the Fair Credit Reporting Act (FCRA) in 1970 to address issues such as consumer privacy, but much of the language in the act leaves room for interpretation, often making it possible for someone to run your credit report without your knowledge.

Prescreening Access

Companies extending credit or insurance offers to consumers via the mail, phone solicitations or email technically cannot examine the individual credit reports of potential customers. However, they do not issue offers randomly either. According to the Federal Trade Commission, "prescreened offers --- sometimes called preapproved offers --- are based on information in your credit report that indicates you meet criteria set by the offerer." Companies pay credit reporting agencies for lists of consumers who meet their eligibility criteria. Credit reporting agencies (CRAs) do not check with you before selling your information to credit or insurance firms. You can be proactive by opting out of prescreening by informing the three major credit reporting agencies -- Experian, TransUnion and Equifax.

Law Enforcement Access

All federal, state and local law enforcement agencies can obtain information from your credit report such as your name, present and past addresses and place of employment without your knowledge. The FBI can access your entire credit report without your knowledge, provided it certifies that it has good reason, such as investigating terrorism or suspected espionage. As of the establishment of the federal Patriot Act on Oct. 26, 2001, any government agency that claims it is investigating terrorist activities can access Americans' credit reports without their knowledge.

Credit Header Access

As a result of a legal settlement between TRW (now called Experian) and the Federal Trade Commission, credit reporting agencies may sell your credit "header" information without informing you. This information includes your name, your mother's maiden name, your birth date, gender, phone number, current and past addresses and your Social Security number. CRAs often sell bundles of such consumer information to companies who wish to target specific groups of consumers for marketing purposes. Businesses can even purchase your sensitive personal information from CRAs online.

Additional Privacy Issues

In some cases, CRAs dig deeper into your private history when someone pays them to conduct an investigative consumer report (ICR). While the CRA is legally bound to inform the subject of an ICR within three days of the date someone requests the report, this invasive procedure can involve interviews with your neighbors, friends and co-workers, plus investigative research into your character, lifestyle and reputation. The FCRA does not require a CRA to reveal the sources of its information to the consumer, but you can order a copy of your dossier for a fee.

Read More

Section 605(c) of the Fair Credit Reporting Act

The Fair Credit Reporting Act provides consumers with the right to see their credit report and dispute any reports that are not correct. Written in 1970, the act was revised in 1996 to give consumers more rights to their information. In 2003, Congress revised the act to provide consumers one free report each year and guaranteed consumers a fair price on any extra reports.

Length of Time

Section 605(c)(1) states that negative information must be removed after seven years. The seven years commences when the account is given to collections, written off by the creditor or at the end of the 180-day delinquency period. This section is for all debts except those dismissed in bankruptcy proceedings and those where a judgment has been entered against you by a court. Bankruptcy can remain on your credit report for up to ten years. Judgments can remain for seven years after they are paid.

Effective Date of Regulation

Section 605(c)(2) states that section (1) of 605(c) only applies to information that is placed on your report 455 days after the regulation was placed in effect in 1996.

Violations

If you see negative information -- other than a bankruptcy -- on your credit report past its removal date, contact the credit bureau to open a dispute. Include copies of any bills or other documents which prove your dispute. Sent the request by certified mail and request a return receipt. The credit bureau has 30 days to investigate your claim and, if they agree with you, remove the information. If the credit bureau does not agree with your claim, you must contact the creditor and ask them to remove the information. If the creditor does not remove inaccurate information, you will have to sue the creditor to have the information removed.

Read More

Does Leaving Your Lease Affect Your Credit Score?

Leaving or walking away from a lease can affect your credit score in certain situations. A lease agreement is a contract. People who lease homes or apartments agree to pay rent for a certain number of months. If they break the lease by leaving early, the landlord can sue for the balance remaining on the agreement in most cases. The same is true for other types of leases, including automobile leases. A lawsuit could lead to a court judgment and garnishment of your wages or bank account or wages -- all bad for your credit score.

Considerations

Leaving a lease early without negotiating with the landlord or owner is usually not a good strategy. Falling behind on the rent and skipping out on the remaining months could prompt the landlord to sue for breach of contract. Proving such a case in small claims court is easy for the landlord and would lead to a judgment ordering you to pay for the remaining months on the agreement.

Credit Reports

Major credit reporting bureaus such as TransUnion, Equifax and Experian regularly monitor court decisions and will add a judgment to your credit report. Once added, the judgment will remain on your credit report for seven years. If you fail to pay the judgment the landlord can seek garnishment, which also would appear on your credit reports.

Credit Scores

Credit scores range from 350 to 850, with scores of 720 or higher representing outstanding credit. It's impossible to predict how a judgment or garnishment for leaving a lease would affect your score because all credit situations are different. Someone with an excellent credit score could theoretically lose more than 100 points after a judgment and garnishment, while someone whose credit is already bad might lose only a few points. Scores below 620 are poor.

Other Factors

Potential damage to credit scores is only one penalty for leaving a lease early. Someone sued for walking away from an apartment lease might find it difficult to gain credit approval for another rental property. Landlords checking the person's credit will see the court judgment if they conduct a credit check. The landlord may reject the application as a result or require a higher security deposit.

Solutions

People who must leave their leases early should work something out with the landlord or lessor. For example, an apartment complex may allow a renter to leave early with a nominal penalty if there is a waiting list for units. Or a landlord renting a house may agree to a settlement on the remaining months of the lease. Settlements often allow a person to pay less than the full amount due on a debt obligation.

Read More