Do Credit Bureaus Track What I Buy?

Savvy borrowers know that the three major agencies track their financial history, such as whether they pay their credit cards on time every month. You may think that the credit bureaus can also see what purchases you make and whether you buy "frivolous" things, but the credit bureaus do not care what you buy. In some cases, however, they do know your purchase history.

Identification

The major bureaus -- Equifax, Experian and TransUnion -- do not itemize your purchases on a credit report. Credit reporting agencies are more concerned with whether you repay your debts. The difference between defaulting on a mortgage and cell phone is immaterial to the credit scoring formulas employed by a credit bureau.

Considerations

The FICO formula used by the major credit bureaus breaks down loans into their sector, such as retail card, student loan and mortgage. Thus, the credit bureaus can track where some of your purchases go to, but not necessarily specifics. A credit report, for example, will not dissect how much you pay in tuition and other expenses after taking out a student loan.

Alternative Credit Bureaus

Alternative credit bureaus may go more in depth into your spending habits, but only if you choose this option. When consumers cannot obtain a traditional, they sometimes go to an alternative agency, which requires consumers to self-report debt and then the agency verifies the payment. In this situation, the agency will know about any creditable accounts, such as cell phones and personal loans.

Tip

Tracking spending habits can improve your credit score by eliminating unnecessary debts, because the major bureaus factor in your debt load and percent of credit available. Modern phones with an operating system may have an application available that allows you to enter in your purchases and break your budget down by category. If you have a credit card with a major issuer, it probably tracks your purchases by category, such as groceries and entertainment.

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How to Obtain a Credit Score By Phone

Credit scores are important for buying a house, buying a car, obtaining credit cards, renting an apartment or even getting a job. A low credit score gives the impression of poor financial decisions while a high credit score gives the impression of good financial decision-making skills and abilities. Credit scores can be obtained at any time. Common ways of obtaining credit scores are over the Internet at credit report websites, through the bank or over the phone.

Instructions

1

Find out which company credit score is necessary. There are three credit scoring companies: Equifax, Experian and TransUnion. Depending on the reason for the credit score, the company might change. For example, a bank looking at a credit score for a home loan might look at the Experian score while a car financing loan might look at Equifax instead.

2

Call the company phone number. Equifax is 1-800-685-1111. Experian is 1-866-200-6020. TransUnion is 1-800-888-4213.

3

Speak to a representative and request a credit score. The representative will need a full name for identification and a Social Security number. She might ask for other identification information as well to verify an identity. She should give the score over the phone when requested.

4

Pay the fees. The price for a credit score and report can range from $14.95 to $34.95 depending on the company.

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How Short Sales Affect Your Credit for a Couple of Years

When your mortgage debt exceeds the value of your property, your lender may allow you to sell the house for less than you owe. Lenders refer to these transactions as short sales. Although your lender approves the transaction, you essentially failed to honor your original loan agreement and therefore a short sale can have a damaging impact on your credit score for a number of years.

Closed Accounts

When you take out your mortgage, your lender informs the credit bureaus about the size of the loan and the monthly payments you are required to make. When you enter into a short sale transaction, your lender reports the closing transaction to the credit bureaus. The credit bureaus take note of the difference between the balance owed and the final payment on the debt. Details of the short sale remain on your credit report for seven years, and other creditors can see that you did not repay your mortgage in full simply by reviewing your credit report.

Late Payments

Lenders are under no obligation to enter into short sale agreements and only allow people to arrange short sales as a last-resort alternative to foreclosure. People who have fallen behind on their mortgage payments often end up entering into short sale agreements. Credit bureaus maintain records of 30-day-late payments and, like short sales, late payments remain on your credit report for seven years. Therefore, late payments may have already caused your credit score to drop long before you actually complete a short sale.

Credit Score

The credit bureaus assign you a credit score that reflects your overall credit management, and this score can rise or fall regularly as the credit bureaus receive updated information from your creditors. However, credit bureaus focus more on your recent credit activity than your past activity. With every year that passes a short sale has less of an impact on your credit score. The more positive account history you have, the less harm a short sale can do to you in the long term.

Considerations

Although a short sale has a negative impact on your credit report for at least a few years, it does not cause as much harm as a foreclosure. You can obtain a new mortgage within a few years of being involved in a short sale and you can obtain a new Federal Housing Administration-backed loan without any time constraints if you never fell behind on your loan payments before your short sale. Most lenders require you to wait for between five and seven years before obtaining a loan after you go into foreclosure. Additionally, foreclosures take longer to settle and therefore you have to wait longer before you can begin to repair your credit score.

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What Information Do Apartments See When Checking Credit?

Part of the process of getting a rental property typically involves getting a credit check. When a landlord runs your credit, he can gain valuable information about your past and whether you will be a good tenant or not. When this type of credit check is run, the landlord can find out about your other accounts and payment history.

Running a Credit Check

When the landlord wants to run a credit check on you, he has to get permission first. You will need to sign a document that states you give the landlord permission to run a credit check. Once you have signed the document, the landlord can then run a credit check. This is a "hard" inquiry, which means you are essentially inquiring about credit. This means that it can affect your credit score, so you should not allow too many of these checks as they can lower your credit score.

Judgments

When a landlord runs your credit report, he can see if you have any judgments against you. For example, if you have filed for bankruptcy in the past, it will show up on your credit report if it happened in the last 10 years. If you have defaulted on any credit cards or any other type of debt, it can also show up on the credit report. If you have several judgments, this could reflect negatively upon you in the eyes of the landlord.

Evictions

In your credit report, the landlord can also find out if you have any evictions on your record. If you have been evicted from a previous apartment or rental unit, your previous landlord could have put this in your credit report. If you have been evicted recently, this will make it difficult to get an apartment. Most landlords will not want to open the doors to you if you did not pay your rent with the last landlord.

Credit Accounts

On your credit report, the landlord can also see what types of credit accounts you have open. For example, your report will have information about the various credit cards, loans and store accounts that you have set up. The landlord can see how much debt you have in relation to the available credit balances. The landlord can also see your payment history with each account to make sure that you pay your bills on time. This could be relevant when making a decision on a rental property.

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How Do I Quickly Rebuild a Credit Score?

More than 30 million Americans have credit scores in the low 600s or under. If you find yourself in this situation, you will pay more for any kind of credit. Whether your bad score results from unemployment, illness or careless management, you can improve it if your finances have stabilized and you manage them responsibly. Better yet, several fast techniques to repair your credit cost nothing.

Instructions

1

Get your credit reports and scores. Go to AnnualCreditReport.com or contact TransUnion, Experian and Equifax directly. You need to first assess the the state of your credit in order to repair it.

2

Dispute errors in your credit reports and have them corrected. Contact the major credit bureaus to ask them to correct incorrect information on late payments, low credit limits or other significant errors, as MSN Money author Liz Pulliam Weston suggests. Speed up the process by contacting the credit bureaus online.

3

Stop charging, and pay down the balances on your credit cards to 20 percent or less of the total credit limit on your cards. Kimberly Langford of Kiplinger's Personal Finance states that approximately a third of your credit score depends on the amount of your total credit card limits that you use. She says that a high used-to-available credit ratio will lower your score even if you never make a late payment.

4

Increase the credit you have available on your existing cards. This also will improve your ratio of credit used to credit available without costing you money. If you have a good payment record, call each credit card company's customer service number and ask them to increase your credit limit. Do not increase your borrowing, however, or your ratio will not improve.

5

Use your longest-standing account or accounts every few months. This will help your credit score because the bureaus value a long credit history. Keeping your oldest accounts active will give them more weight in your score.

6

Avoid mistakes that can counteract your positive actions, as Liz Pulliam Weston warns. Don't make any late payments; these will hamper your attempts to raise your score. Don't transfer balances if they end up on a low-limit card; keep small amounts spread around several cards. Do not apply for new credit if you already have a number of accounts.

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Improving Credit by Paying Old Balances

Old balances on your credit reports are probably accounts that are no longer active. Chances are you stopped paying on the accounts at some point and they were closed by the original creditor, who then sold them to a debt collector. The accounts are now considered to be collection accounts and will cause a drag on your credit scores. In some instances the dormant account is not sold to a debt collector but is kept in-house with the original creditor's collection department.

Instructions

1

Get a copy of your credit report. You can get a copy for free at the website AnnualCreditReport.com. Or call 877-322-8228. The nationwide reporting bureaus established the site to offer free reports as required by federal law. You can order up to three reports every 12 months.

2

Review your reports to find the delinquent accounts with old balances. The name and contact information for the creditor or debt collection company will be listed with the account.

3

Call the creditor or debt collector with an offer to pay. Offer less than the full amount owed through a process call debt settlement. According to The New York Times, debt collectors will sometimes accept as little as 20 percent of the balance to resolve the debt. Settlement for about half is more common. During your negotiations ask that the collection activity be erased from your credit report. It is now likely being listed as a "Collection" account, and once you pay, that will be changed to "Paid Collection." Both are negative entries that could impact your ability to get new credit. Asking for the entry to removed altogether will improve your credit scores. Also any reduction in your debt load--including paying off old balances--can improve your credit. Note that debt collectors can legally remove the negative information such as collection notations but are not required to do so.

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Is it Safe to Get a Credit Score From FICO?

A consumer's FICO score provides a rating for the consumer based off the consumer's credit report. Many creditors use the FICO credit score when determining whether to accept a loan or credit application and what rates to offer the consumer. Consumers should check their own credit scores on a regular basis, especially before applying for large credit or loan accounts.

Ordering a FICO Score

Consumers can order a copy of their credit score from the Experian, TransUnion or Equifax websites or from MyFico.com. Consumers can also request their FICO scores by mail or over the phone. While consumers can request a free copy of their credit reports in some instances, there is typically a small fee to purchase a copy of a credit score. A consumer can order a copy of his FICO scores as many times a year as he wishes.

Security

When a consumer orders his credit score online -- from MyFICO.com, for example -- he will need to provide several pieces of sensitive data, such as his full name, address, driver's license number and Social Security number. In order to reduce the possibility of identity theft, credit scoring websites use encryption technology, which hides the private information from possible hackers and identity thieves. The website will also ask the consumer several verification questions to prove his identity and further reduce the threat risk.

Effect on Credit Score

Typically, when a creditor pulls a consumer's credit report, the credit bureau logs this information in the consumer's credit file. This is known as an inquiry. According to myFICO.com, 10 percent of a consumer's credit score comes from the number of inquiries he has on his credit report. Several inquiries over a short span of time can lower the consumer's credit score. However, when a consumer orders a copy of his own credit score or report, it has no effect on his score. This is known as a soft-pull inquiry, and it will not appear on the consumer's credit report.

Tips

As a credit score only shows a ranking for the consumer, he may want to order his credit report as well to see detailed information about his financial history. Every U.S. consumer can receive a free copy of his credit reports from Equifax, TransUnion and Experian once a year through AnnualCreditReport.com. Consumers can also purchase their credit reports through the credit bureaus directly for a small fee.

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How to Rebuild Credit With Rent-to-Own

Rent-to-own scenarios are an ideal way for someone with bad credit to rebuild his credit without using credit cards. Contrary to popular belief, a consumer can improve or increase her credit score without credit cards by using rent-to-own opportunities, promptly repaying student loans and/or auto loans, and consistently reporting to PRBC (Pay Rent, Build Credit), a credit reporting agency.

Instructions

1

Start with rent-to-own appliances and/or furnishings. While rent-to-own stores may charge a higher rate and a higher retail price for their products, they do report a renter's payments to the credit bureaus. This allows a renter to slowly but consistently rebuild his credit history while enjoying the use and eventual ownership of the appliances and/or furnishings.

2

Find a rent-to-own home. Rent-to-own home opportunities are perhaps the best way to rebuild credit without credit cards, and give a renter who would not otherwise qualify for a mortgage the opportunity to buy a home. In home rent-to-own situations, the renter typically pays more than the market rental rate for a home and the seller uses the overpayment to fund a down payment account. Once the renter's credit is restored--usually within one to two years, she can use the down payment savings to qualify for a mortgage.

3

Pay any loans and credit lines in a timely manner and pay more than the minimum payment. Along with rent-to-own situations, a consumer can boost his credit by paying any other loans he holds on time and consistently for at least 18 to 24 months. If possible, pay more than the minimum payment on those accounts.

4

Use PRBC's credit reporting services. PRBC (Pay Rent, Build Credit) is a lesser known credit reporting agency that allows payments other than revolving and installment loans to be reported on a consumer's credit report. PRBC reports regular payments consumers already make to lenders that don't first require taking a loan--such as utility bills and rent payments.

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How to Establish a Credit Rating in Canada

Like the United States, Canada has three credit bureaus that keep track of money borrowed and how promptly it is paid back. Having a good credit history in another country isn't good enough to establish good credit in Canada. You have to build a good credit history when in Canada as a resident. The simplest way to build a good credit history is to open a secured credit card and pay at least the minimum payment on time every month.

Instructions

1

Contact a Canadian bank that offers a secured credit card. Examples are Royal Bank of Canada and Peoples Trust. Fill out the form online. Pay the minimum deposit amount required and the card will be sent to you usually in two to three weeks if approved.

2

Use the secured card wisely as you are building a credit history. Pay at least the minimum balance every month on time to ensure that the bank will report a good credit history to the three bureaus.

3

Within 18 months, your credit history in Canada should be solid if you paid everything on time. After 12 months, many banks will convert the secured card to an unsecured account, but check with the bank about this.

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How to Obtain FICO Score Used by Lenders

The Fair Isaac Corp. created the FICO score used by lenders. Your FICO score is compiled from data from the credit-reporting bureaus TransUnion and Equifax and is based upon your payment record, credit history and outstanding debts. Your use of credit cards is also monitored. Your FICO score ranges from 300 to 850. Scores above 700 are good, while scores below 600 are considered to present a risk to lenders. Your FICO score is used by most lenders to assess suitability for credit. Its easy to obtain your FICO score, although it is not free.

Instructions

1

Go online to obtain your FICO score used by lenders. The process is fast and simple, and you can view your score instantly. Go to the MyFICO.com website (see Resources). Click Get FICO Score. Check the boxes to get your score from TransUnion, Equifax or both. Individual scores are $15.95, or $30.90 for both, as of 2010.

2

Click Continue and then Create Account. Make sure you enter your details in the application form accurately. Inaccurate answers will prevent you from obtaining your FICO score.

3

Create your log-in ID, password and password reminder. You need to remember these to get your FICO score another time.

4

Click Continue and enter your payment details. Most major debit and credit cards are accepted. Click Continue. Carefully review your application form and payment details before submitting to get your FICO score.

5

Click Submit. Wait for your identity to be verified and your payment processed. Click Continue. Enter your log-in ID and password. Click Enter. You have now obtained your FICO score and can view it online instantly.

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What Does Buying Trade Lines Mean When Referring to Credit Scores?

People needing good credit instantly might hope that they could just buy a credit history--and they can. The credit scoring model used by most lenders has a loophole that lets consumers piggyback on the credit of another party. In 2011, this option is back after several years of being ignored by the bureaus, but only for people legitimately connected to an account.

Identification

Buying trade lines refers to the practice of paying a company or private individual to add a consumer to a credit account in good standing. When a consumer becomes an authorized user on a credit card, he adds all of the history to his credit history immediately. While authorized accounts are intended for close friends and family members of an account holder, anyone can become an authorized user. Thus credit repair firms sometimes use this tactic to help their clients. This is not illegal, even if the credit bureaus disagree with the practice. Authorized user accounts are preferred to cosigning, because authorized users are not responsible for the bill, whereas all cosigners are legally liable for a debt.

History

The credit bureaus ignored authorized user accounts for credit scoring during the mid 2000s. The bureaus and the Fair Isaac Corporation--developer of the most popular scoring model--brought authorized user accounts back into the fold in 2008 with the release of FICO 08. Authorized user accounts were reinserted because ignoring them denied credit history to the millions of legitimate authorized users.

Disadvantages

Although buying trade lines is possible in 2011, it is also very risky. The credit bureaus and FICO added authorized user accounts in FICO 08 because they found a way to root out accounts purchased for the purpose of building a credit score. This means that unless you are related to the primary account holder, the bureaus will probably identify it as a fraudulent account, according to Consumer Reports.

Considerations

There is no guarantee that buying a good trade line will boost your score enough to qualify for a loan. Most lenders want to see several accounts in good standing. You could look to family and friends who might add you as an authorized user without having to pay any fees and to help avoid the account looking like a way to circumvent credit scoring standards. If your spouse has an excellent credit history, for instance, it makes sense to become an authorized user, because the banks will look at both spouses' credit histories.

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Fastest Ways to Increase a Credit Score

Before you apply for a major loan, such as a mortgage, you want to get your credit into the best shape possible. Even a difference of a few points can cost you hundreds or thousands in interest over the lifetime of your loan. It's a simple fact -- those who have a higher credit score are eligible for the best rates. Quickly increase your score if you want a better deal.

Fixing Errors

Comb through your credit report at each of the three bureaus -- Experian, Equifax and TransUnion -- and look for errors. You may notice an account that you've closed is still open or that your credit card company isn't correctly reporting your credit limit. Contact the credit bureau to notify them of the mistake, providing proof whenever you can. The company must respond within 30 days of receiving your letter.

Increasing Credit Limits

The credit bureaus partially base your credit score on your debt to credit ratio -- the amount of debt that you owe as a percentage of the amount of credit you have available to you. While you may not be able to pay off your debts, you can improve your debt to credit ratio by asking for a credit limit increase. Before you do this, though, ask the company if it will trigger a look into your credit report, which can decrease your score.

Dealing With Negative Marks

Paying on time plays a large role in your credit score. If you have a few late payments showing up on your report, you may be able to have these removed by talking with the company that reported it. Explain that you are a good customer who made a mistake in the past and that you would like the company to remove that information from your report. Though this doesn't always work, in some cases, the company can erase that late payment.

Paying Off Collections

Having a collections notice on your credit report can decrease your score. If you pay it off, though, it will show that you've paid it, which can help your credit score. Negotiate with the collection agency and stress that you want them to report to the bureaus that you've "paid as agreed."

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Does It Affect Your Credit if You Get a Credit Card and Not Use It?

A new credit card is reported to the credit bureau by the card issuer and will appear on your credit report. Your payment history accounts for 35 percent of your FICO score. Negative payment history remains on the report for seven years, and positive history can remain for up to 10 years. If you don't make charges on the credit card, however, that credit card can still impact your FICO score in a number of ways.

Credit Utilization

The creditor will report the credit limit of the card as well as how much of that line of credit is used. Thirty percent of your score measures how much debt you have, according to the Fair Isaac Corp, which calculates credit scores. The score measures your credit-utilization rate, which is the amount of debt you have relative to the amount of credit you have. The more debt you have, the higher this rate and the lower your credit score. If you don't use the credit card, the more available credit you have. This available credit present on your report will help lower your credit-utilization ratio and increase your FICO score.

Credit History

Fifteen percent of your credit score is the length of your credit history. This percentage averages the age of all of your credit accounts. When you get a new credit card, that card will reduce the average age of your credit history, whether or not you use it. So you may initially see a drop in your score due to this; however, as the account remains on your report, it will continue to age and thus the average age of your credit history will lengthen, increasing your score over time. The longer your credit history, the higher your score.

Credit Mix

Even if you don't use the card, the mere presence of it can improve your credit score. Another 10 percent of your FICO score reflects the mix of credit types on your credit report. For the best score, FICO encourages variation among the types of accounts on the report. This means the report should reflect different kinds of installment loans, like a car loan and a mortgage, and revolving credit accounts, such as credit cards, charge cards and store cards. FICO warns, however, not to take on more credit than you need in order to improve your credit mix. Only apply for credit if it is necessary.

Inquiries

Most credit card issuers will pull your credit before approving you for a credit card. This will be a hard inquiry and will remain on your credit report for two years. Hard inquiries impact your credit score. The more hard inquiries you have in a small span of time, the more of a chance those inquiries will drop your score. Whether or not you use the card, the fact that you applied for the card means the inquiry will appear on your credit report. Although the inquiry remains on your report for two years, FICO only considers inquiries from the last 12 months when calculating your credit score.

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Is My Credit Score Affected If Someone Conducts a Credit Search on Me?

Consumers may access their credit reports for free once a year, according to the Federal Trade Commission, if they use the Annualcreditreport.com website. They may buy additional copies directly from Equifax, Experian and TransUnion. These self-inquiries do not affect their credit scores. Banks, credits and other companies conduct credit report searches when a person fills out an application. These inquiries do affect the score.

Definition

A credit score is a three-digit number meant to predict a consumer's likelihood of defaulting on bills within the next two years, Leslie McFadden of the Bankrate financial website explains. Credit card issuers, loan and mortgage companies and other creditors use credit scores to make credit-granting decisions. Some also base their terms on a person's credit score, charging more interest or higher fees to those who pose a greater risk according to their numbers.

Features

FICO is the dominant credit score provider and calculates its numbers through a mathematical algorithm based on a consumer's financial records and activities, McFadden explains. FICO considers factors like the number of accounts, their balances, credit limits, timeliness of payments and types of credit used. It also looks at the number of recent inquiries on a person's credit reports.

Effects

Inquiries in response to credit applications can bring down a credit score by as many as five points, according to the Lending Tree loan website. This effect lasts for about six months. The impact is not as great on people who start with high credit scores, but it can bump borderline people into the sub-prime borrower category. They might be denied, or the lender might offer them a higher interest rate account.

Prevention

Lending Tree advises against getting new credit cards just to get discounts or gifts. For example, retailers sometimes offer 10 percent off a purchase if a person opens a store credit card account. The immediate savings is offset by the credit score impact, and the FICO credit score company warns that too many accounts also hurt the score.

Considerations

Some credit searches do not affect a person's credit score. Lending Tree explains that searches in response to applications are known as "hard inquiries," but there is another type called a "soft inquiry." This happens when a bank or company checks the records of a current customer or pre-screens records prior to sending out solicitations. Soft inquiries do not influence credit scores at all.

FICO states that scoring models take "loan shopping" into account. Many consumers apply with several creditors within a short time for large loans like mortgages or vehicle purchases. These searches result in hard inquiries, but they are treated as a single inquiry, so their credit score impact is minimal.

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How to Use Credit Card Dispute Forms to Your Advantage

If you've recently received a copy of your credit report from Experian, TransUnion and Equifax you believe that contained errors, you can't simply sick back and do nothing. Instead, you have to take action to get those items removed from your credit report now so that they don't negatively affect your credit rating. And, you do this by filling out a credit card dispute form. In this article, we'll discuss how to use credit card dispute forms to your advantage. Let's begin.

Instructions

1

Thoroughly review a copy of your credit report. Go through your credit report line by line and compare it with your records. If you notice any discrepancies at all, circle them.

2

Obtain a credit card dispute form. If your credit report was mailed to you, the dispute form is enclosed in the paperwork. If you obtained the credit report online, you can use the online dispute form that is associated with the reporting agency. Lastly, you can obtain an online credit card dispute form for free by visiting http://www.oskie.com/credit-dispute.htm. Here you'll be able to print it out or save it to your computer.

3

State your case. It is now time to state your case. This is done by calling the reporting agency, mailing in the dispute form or phoning in your information. If you decide to call in the information, give the representative all pertinent information including the creditor's name, account , and explanation of why information is wrong.

4

Fill out correct information. For those of you filling out the information online or via the printed form, you will fill out the company's name, account , and why the information is incorrect. You will need to include a clear explanation of why the reported information is incorrect.

For instance, if your credit card company reported that a payment is 45 days late but you paid the item in full by the deadline, you must indicate this information in the credit card dispute form. For instance, you can say, "The reported information for XYZ creditor is incorrect because I paid the account in full on February 7, 2009 with check 230 for the amount of $200.00. Since this timeframe, I have not made any additional charges. Please update my account accordingly."

5

Double check your information. Check and recheck your inputted information and make sure that you have correctly listed your contact information, company name, account number, current reporting status, explanation, etc.

6

Submit your report form online or by snail mail. For addresses of where to send forms, please visit Equifax at www.equifax.com, Transunion at www.transunion.com or Experian at www.experian.com. Once they receive your information, they'll conduct further review and the credit card company will have to prove that the information is correct. If they can't, it will be automatically removed. Good luck!

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How Long Do You Owe Debt After a Charge Off?

If you aren't paying your bills no matter how much your creditors ask you to, then you may watch your credit score plummet. This is because somewhere in the area of 6 to 9 months after you stop paying on your account, your creditor will list the amount owed as a charge-off. This is an accounting term that means your credit no longer expects to get paid and has moved the account to bad debt. Before you start thinking you're off the hook, having an account charged off will show on your credit report making it impossible for you to get a good rate if you can even get a loan or credit card. It also means that your account can be sold to a collection agency and they will try to get you to pay.

Your Credit Report

The account that was charged off shows on your credit report for seven years. It will act as a red flag for anyone who views your report including banks, landlords and potential employers. Once the charge-off stops showing on your credit report even the collection agencies have to stop trying to get you to pay your account.

Paying the Charge Off

If you don't want to live without credit for seven years, then you should consider paying off the account. Call whoever owns the account and negotiate an agreement. If you can't pay all of the account off, see if they will accept so much on the dollar. You should also make sure that the creditor agrees to update the credit agencies so that the charge-off amount is marked "paid in full" or "paid as agreed." This won't totally repair that damage a charge off does to your credit report, but it can get you moving in the right direction.

Collection Agencies

Once the creditor charges off your account, they can sell it to a collection agency and at least get a little of what is owed them back. While your creditor may have stopped calling you, the collection agency is just getting started. According to Suze Orman, the statute of limitations for debt collection varies state to state but is generally, four to five years from the date of the last payment. Once this time period is up, the collection agency can no longer contact you about it.

Other Assets

There is a chance that having debt charged off could put other assets at risk to be garnished. IRAs, bank accounts or SEPs could be used to pay off your debt whether you want it to or not. This all depends on what the laws of your state are. Federal law protects employer-associated retirement plans, but other assets could be at risk. Your state attorney general's office can tell you if there is state law that protects your assets from being garnished to pay off bad debt.

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How to Get Creditors to Remove Negative Reports

If a company provides a negative report to a credit reporting agency in error, federal Fair Credit Reporting Act allows consumers the opportunity to dispute the negative reports. Inaccurate or incomplete reports must be corrected by the reporting company. If the negative reports are accurate, the company is not required by law to remove the information. Accurate negative information may appear on your credit report for seven years and bankruptcy information for 10 years from the date it occurred, according to the Federal Trade Commission.

Instructions

1

Obtain a copy of your credit report for free at annualcreditreport.com or call 877-322-8228. Have a copy for your records when disputing a credit reporting error.

2

Write a letter to the credit reporting agency, such as Experian, Equifax or TransUnion, explaining the error. Identify the items in the letter that you are disputing. Give an explanation of why you feel the companys negative report is an error. Use the template provided by the Federal Trade Commission (See References.)

3

Attach copies of the supporting documents you have, such as canceled checks or receipts. Do not send originals and make a copy of everything you send for your records. Mail your letter with a return receipt requested.

4

Contact the creditor in writing and inform the company that you have opened a claim regarding the negative report. Send the copies of the documents you mailed to the agency.

5

Receive an update on the results in writing after the agency investigates the dispute. Review another copy of your credit report for free showing the changes at annualcreditreport.com. If the negative reports were found to be an error, the agency will automatically remove them from your credit report.

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Are All the Credit Reports Supposed to Have the Same Information?

Credit-reporting bureaus probably each have a different set of a data on you that could lead to a 50-point differential or more on your credit score. Ideally, the bureaus should have the same information on you, because variance in scores leads to confusion on your true credit rating. You may have to fight with the credit bureaus to correct data on your report.

Identification

Credit reports are supposed to have the same information because it reduces credit score variance. Lenders often have to manipulate scores, such as taking the average or median score, because a borrower has wildly different reports from the bureaus. A single negative account, for example, could cause a swing of several dozen points. Also, some lenders do not pull reports from all credit agencies, so the creditor might not know your true score in this situation.

Credit Report Errors

Federal law does not require the credit bureaus to report anything, but it does ban the bureaus from reporting false information. If you have credit reports with different, erroneous information, you have the right to dispute and correct this mistake. The Federal Trade Commission suggests writing a certified letter that includes evidence of your claim, which item you dispute and your identifying information. You can also submit a dispute via an agency's website.

Considerations

The three national credit bureaus -- Experian, Equifax and TransUnion -- usually report the same information, such as public judgments, collection accounts and loans. However, some lenders choose not to report to some bureaus either out of preference or because they cannot afford a subscription to the services of all three bureaus. Most variance in credit reports occurs because the bureaus gloss over an outstanding account or an error in the system, such as when two people have the same name and their reports get mixed up.

Tip

The fastest way to get your credit report is by visiting the AnnualCreditReport website. You can pull a report from all three agencies once a year for free. Compare all three reports side by side and look for discrepancies. If your report contains an error, it is probably something minor, such as a wrong account balance or employer for which you never worked. Even if the error seems minor, dispute it.

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Meaning of a Personal Credit Score

A personal credit score represents how likely you are to default on future loans, based on your financial history. The most widely used personal credit score is the FICO score, which is calculated using an algorithm from the Fair Isaac Corp.

Function

Credit bureaus collect information about how you have handled debts in the past from financial institutions and then use this information to compute your credit score. Creditors look at your score as one measure of your creditworthiness when you apply for a loan.

Considerations

The FICO credit score weights five categories of information when calculating your score: your payment history (35 percent), your amounts borrowed (30 percent), your length of credit (15 percent), your mix of credit types used (10 percent) and how much credit you've applied for recently (10 percent).

Score Range

The FICO personal credit score scale runs from 300 to 850, with 850 representing perfect credit. According to the Motley Fool, an investing website, only about 1 percent of the population has perfect credit.

Significance

Creditors use your credit score to determine if you will be approved for a loan and how much interest you will pay. According to Bankrate.com, a score of 740 or higher will qualify you for the preferred interest rates.

Benefits

Your personal credit score gives lenders an objective way to examine your credit history because your score remains unaffected by your employment history, age, marital status, gender or ethnicity.

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How to Restore My Credit Report

There are five factors that determine a consumer's credit score: length of credit history, payment history, amounts owed on credit lines, types of credit accounts and new account openings. Of these five factors, when attempting to restore a credit report, a consumer should focus on amortizing credit balances, cease opening new accounts, be prompt with revolving payments, and dispute any inaccuracies being reported.

Instructions

1

Order a copy of your credit report from each of the three credit reporting agencies: Equifax, Trans Union, and Experian. Under federal law, each credit consumer is allowed to order a free copy of his credit report once a year.You do not need to order each report at the same time.

Review your credit report from each credit bureau for inaccuracies. Dispute any inaccuracies with the credit bureau(s) directly. Under law, credit agencies must remove any entry that cannot be verified.

2

Pay down the balance on credit accounts. Begin by listing all credit accounts from smallest to largest balance. Concentrate on paying the account with the smallest balance until that balance is fully amortized.

For accounts that have large balances (over $10,000), paying down the balance until it is below 25 percent of the original amount will reduce your debt-to-income ratio. This is particularly true of student loans and automobile loans.

3

Do not open new lines of credit. Opening new lines of credit automatically decreases your credit score because you are liable for a new debt. While a consumer may not actually spend up to the maximum credit limit, the unused credit amount is now potential debt; this is considered a negative factor when attempting to secure a loan.

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How to Get Prequalified With Bad Credit

Your credit score is the main tool with which creditors decide whether you are a low- or high-risk client. Your score can range from 300 to 850. According to the three major credit reporting agencies, bad credit exists when your score is below 550. If you have bad credit, you can still attempt to get prequalified for a loan and can begin to build your credit into an acceptable or even good credit score.

Instructions

1

Order your credit report from the three major credit reporting agencies: TransUnion, Equifax and Experian. All three have credit information on you and will give it to any creditor that pulls your report when considering you for prequalification. Look for mistakes on your reports that can be fixed to raise your score. Each report will have contact information to call or write to that agency to correct any issues. If you have questions about any of the information on your credit report, you have the right to ask that it be removed based on the Fair Credit Reporting Act.

2

Contact your preferred lenders or creditors to determine if they offer programs for people with bad credit. For example, if you want to prequalify for a mortgage, contact a mortgage company or bank and ask how you can prequalify with less than good credit. The bank will inform you of its policies and help direct you through the process, if it offers one.

3

Save your money and start a savings account or open a CD (certificate of deposit) with a small bank and get a loan secured with that savings account or CD. Many small banking institutions will help build your credit with this small loan (usually $1,000 to $5,000) that reports to the credit reporting agencies monthly.

Since your loan is secured by your savings account or CD, there is no real risk to the bank because if you do not pay the loan as required, it will pull the payment from your secured savings account or CD. If you do pay the loan as written, then you are building your credit for a prequalification with that bank and other financial institutions. These potential creditors recognize that you are in a building mode and that you are making an effort to improve your credit standing, which is a positive attribute when deciding whether prequalify you.

4

Apply for a secured credit card. Secured credit cards are similar to prepaid credit cards, but they report to the credit reporting agencies. If you have one or several secured credit cards being reported on your credit report, these are positive signs that cannot only raise your credit score, but get you prequalified as well.

5

Write letters to explain your bad credit; attach them to your application for prequalification. These letters help explain your situation and give the creditor an overall picture of the circumstances behind your bad credit.

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Do Late Payments Ruin My Credit Score?

According to Experian, one of the credit reporting companies, making payments on time is the best way to have a good credit score. Therefore, having late payments will negatively affect your credit score, but whether or not it will be completely ruined depends on the overall payment pattern.

One-Time Incident

One late payment mixed in with several years of timely payments will not destroy your credit. If the payment is just a few days late, the credit issuer may not even record the payment as late on your credit report. If the payment was between 30 and 60 days late, it will be recorded but you can try writing a goodwill letter asking that it be removed based on your record of good payment both before and after that incident.

Habitual Late Payments

Habitually making late payments on multiple accounts will go a long way toward ruining your credit score. If you find yourself constantly paying all your bills late, you may want to consider setting up automatic payments through your bank or through the companies you are paying late. This will help to begin rebuilding your credit score, but remember that those late payments will stay on your report for seven years.

Extremely Past Due

While one payment made 30 days or so late will not destroy you, having an account that is more than 90 days past due will be extremely detrimental to your credit score. If you know that you will not be able to make a payment within 90 days, contact the company and ask them for an alternative payment plan.

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Will Buying a Car Hurt My Credit Score?

When buying a vehicle, a buyer can finance the purchase in a number of ways. For older, less expensive cars, a buyer may choose to pay in cash. However, when buying more expensive vehicles, a buyer will often choose to take out of a loan. While purchasing a vehicle with cash will generally not affect a person's credit score, taking out a loan will -- like all new loans -- affect the borrower's credit score.

Credit Scores

Credit scores are determined using information contained in a person's credit report. The credit report, compiled by credit reporting agencies, contains information related to the borrower's credit history, including his payments on past loans and any debt outstanding. No information about large purchases is entered in the credit report if the purchase is made without credit. For this reason, the purchase of a car without credit will have no effect on a credit score.

Car Loans

When a person takes out a loan to purchase a car, she gets the loan from a finance company. The finance company pays the dealer of the car and then requires the car buyer to pay back the cost of the car in a series of regular payments, plus interest. This loan, as with most other kinds of loans, is reported to a credit reporting agency. Depending on the person's credit history, this loan can affect the borrower's credit score in a number of ways.

Immediate Effects

Generally, the more debt a person takes on, the lower her credit score will go. This is because credit reporting agencies base a person's score on the perceived likelihood that she will pay back loans. The higher a person's ratio of outstanding debt to available credit, the lower the person's score. For this reason, a car loan will lower a person's credit score, at least temporarily.

Long-Term Effects

Although taking out a car loan may lower a person's credit score in the short term, successfully paying off the car loan can actually improve his score over the long term. This is because credit scores are also based on a person's history of repaying debts. If a person has a record of paying debts on time and in full, his score will improve, as it suggests the borrower is more likely to pay off future loans as well.

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Why Isn't a Credit Score Free?

It is a bit of cruel irony that perhaps the most important three-digit number in your life costs money to see, even though it is based on your private information. Credit scores are not free because they are a product, whereas credit reports are more of a dossier on your life. Check with the bureaus frequently and they might let you see your score for free.

Legal Reason

As of 2011, neither the Fair Credit Reporting Act (FCRA) nor any other piece of legislation requires the major credit bureaus to give all consumers a free credit score. This is not the same as the free annual credit report consumers receive each year. Credit reports contain a consumer's private financial data, such as loans and debt balances, while credit scores predict the chance of you defaulting on a loan.

Considerations

Credit scores are a result of information in your credit report, and lenders are free use whatever system they want to rate you as a credit risk. There are dozens of scoring systems out there that can give widely different results. Information about your credit history, however, is relatively static. This makes credit reports more powerful than a risk calculation.

Push to Free FICO Score

In 2011, some people, like Mark Udall, a senator from Colorado, are talking about requiring the credit reporting bureaus to provide a credit score. A potential amendment to the FCRA would require the credit bureaus to provide one free credit score to all consumers each year along with their credit report. Already in 2011 new federal legislation requires some lenders and service providers to give consumers a FICO score when they turn down an application. As of March 2011, the regulations of this bill are proposed, but have yet to receive approval from the Federal Trade Commission.

Tip

You can sometimes get your FICO score for free by asking the lender after he runs a hard inquiry on your credit history. Also, the credit bureaus often offer free FICO scores for trying out a new service, such as credit monitoring. If you cannot find any way to get a free FICO score and do not want to pay for it, you can get a pretty accurate estimate from a FICO calculator tool.

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Does Bankruptcy or Delinquency Hurt Your Credit More?

A variety of businesses, such as mortgage lenders, credit card providers and insurance companies, rely on your credit rating to offer you products and services. The lower your credit score, the less likely you are to qualify for the products and services you need. When you cannot pay your creditors and your accounts fall into delinquency or you file for bankruptcy, this information appears on your credit file and adversely affects your credit scores.

Delinquency vs. Bankruptcy

The degree to which any negative item impacts your credit scores depends in part on the other data your credit report carries. As a result, estimating which derogatory notation is more harmful is not always possible. In general, however, one late payment on your credit report hurts your credit score less than filing for bankruptcy.

Because your payment history accounts for up to 35 percent of your credit score, numerous delinquent payments can lower your credit rating more than filing for bankruptcy. If you did not have any delinquent payments within your credit history prior to filing for bankruptcy, a bankruptcy notation can cost you 200 points or more on your credit score.

Time Frame

The Fair Credit Reporting Act prohibits credit bureaus from maintaining information about your past delinquencies once that information is no longer current. Even if your credit report carries numerous delinquencies, those delinquencies disappear after seven years and no longer affect your credit score.

Bankruptcies, however, can remain within the public records section of your credit file for up to 10 years. Thus, even if your past delinquencies caused greater damage to your credit rating than a bankruptcy, the bankruptcy can damage your credit score for a longer period of time.

Total Impact

Both delinquencies and bankruptcy hurt your credit rating more if you have a high credit score when the negative information appears within your report. For example, an individual with a 680 credit score would lose an average of 75 points after one late payment and an average of 140 points after filing for bankruptcy. If the individual's credit rating was 780, however, he would lose an average of 100 points after making a delinquent payment and 230 points after filing for bankruptcy.

Consumer Considerations

While both delinquencies and a bankruptcy petition cause considerable damage to credit scores, your credit scores can recover after you incur negative reports. Both positive and derogatory information have less impact on your credit rating over time. Thus, through positive debt and credit management skills, you can improve your credit rating while waiting for the credit bureaus to remove past delinquencies and bankruptcy records from your credit files.

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What Should I Look for on My Credit Report?

Consumers are entitled to one free credit report from each credit bureau each year through the Annual Credit Report website. You also might be entitled to a free report if you have been denied credit, are unemployed or are on welfare. It is your responsibility to ensure that your credit report is accurate. When you get your credit report, focus on a few major areas.

Identity Theft

Viewing your credit report is one of the best ways to discover credit-related identity theft. If someone opened an account in your name with your Social Security number, that account will appear on your credit report. Review your report and ensure that each listed account belongs to you. In addition, look at the section that lists credit inquiries made in response to an application for credit and ensure that you initiated each of those. If you find an account that does not belong to you, place a fraud alert on your report through the credit bureau, contact the creditor to close the account, file a complaint with the Federal Trade Commission and file a local police report. Also file a dispute with the credit bureau through the bureau's website or phone number listed on the credit report.

Missing Accounts

If your credit file does not contain all of your credit accounts, your score might not be as high as it could be. The creditor might be reporting the account information inaccurately or you might have opened the account under a nickname, which caused it to not appear on your report. If one of your credit accounts does not appear anywhere on the report, contact the creditor and ensure that the name and Social Security number they have on file for you both match that of your credit report. Ask the creditor to send an updated account history to the credit bureaus.

Incorrect Reporting

Creditors sometimes report inaccurate information to the credit bureaus. For example, a creditor might mistakenly report that your account had a payment that was 30 days late when you actually paid it on time. Or the creditor might have an incorrect date listed for when the account was opened, causing your credit history to look much shorter than it actually is. If you find inaccurate negative information, file a dispute with the credit bureau. The bureau will investigate the dispute and correct the error.

Utilization Ratio

Your credit report lists the credit limit and most recent account balances for all of your credit card accounts. With this information all in one place, you can easily calculate your utilization ratios. To find the utilization ratio on a credit card, divide your most recent account balance by your credit limit. This shows the percent of your credit that you use. Improve your credit score by paying down your balance so you use no more than 30 percent of your credit on each card.

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What Is Happening to People's Credit After Foreclosures?

The information found in your credit report determines your credit score. According to FICO, your FICO credit score ranges from 300 up to 850, and the higher your FICO score the better your credit is considered to be by lenders. Your credit score helps determine your approval for credit and the interest rate charged for that credit product. A foreclosure impacts your credit score both now and in the future.

FICO Scores

According to FICO, how well you pay your bills accounts for 35 percent of your FICO score and is the largest factor in the calculation of the score; it also has the greatest impact on how high or low your score is. Homeowners often have late payments leading up to a foreclosure, which damages a credit score. According to MSN Money, one 30-day late payment can lower a credit score by as much as 110 points.

Foreclosure Impact

A foreclosure is public record and will appear on your credit report. Once a credit bureau adds the foreclosure to a credit report, the appearance of the foreclosure will negatively impact the score. Thirty-five percent of a score is how well you pay your bills, and a foreclosure shows that you failed to honor a financial obligation. The foreclosure can further drop a credit score anywhere from 85 to 160 points.

Long-Term Impact

The Fair Credit Reporting Act determines how long negative items remain on a credit report. Late payments can remain on your credit report for up to seven years. A foreclosure can also remain on your credit report for up to seven years. Future creditors will be able to see this derogatory information whenever you apply for credit. Also, some employers check credit as part of the hiring process, and a negative credit history may impact your ability to obtain employment.

Recourse Impact

Some states are recourse states, which means the lender has the right to sue for a deficiency balance in that state. Deficiency is the difference between the price the lender sold the home for at auction and the amount still owed on the mortgage loan. If the lender sues and obtains a judgment against you, this judgment will also appear on your credit report as a public record and remain there for up to seven years, further damaging your credit score.

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Can Having Your Credit Checked Multiple Times Hurt Your Credit Score?

The time frame during which you apply for credit can have a huge impact on your score, because just the act of requesting credit can negatively your credit score. If you have several checks on your score, you could do significant harm to your creditworthiness. Not all credit checks will impact your score and you can soften the blow of multiple credit checks by looking for the best rate.

Identification

Credit checks can have a small but negative impact on your credit report. Hard inquiries coincide with an application for credit initiated by the potential borrower. Multiple inquiries have an escalating impact on credit scores, because financially distressed people tend to put in several applications loans in a short period of time. Soft inquiries, however, are performed secondary use, such as for an apartment rentals or pre-approved credit offers.

Effects

A single hard inquiry does no more than five points of damage to a credit score. However, multiple credit checks could make you unworthy of credit. Having six or more inquiries on a credit report coincides with an 800 percent increase in the chances of a person filing bankruptcy compared to someone with no inquiries, according to data from the Fair Isaac Corporation.

Benefits

Having multiple inquiries on your credit report can be a good sign to a lender, even though the inquiry dings your score. Multiple credit checks within a short window of time---usually within 14 days---looks like you are rate shopping and a responsible borrower. Once the inquiries become 30 days old, the FICO scoring model lumps them into a single inquiry.

Tip

When shopping for a loan, fill out your applications and submit them all at once, instead of one at a time. Also, review your report periodically for unauthorized credit checks. If you did not sign a consent form, a lender usually cannot check your report. You can remove any erroneous inquiries by contacting the lender or disputing the item with the credit rating agency.

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Are Charge-offs Supposed to Be Removed From a Credit Report?

Of all the negative information you can have on your credit report, a charge-off is one of the worst. It can be hugely detrimental to your credit score. It tells potential lenders that you cannot be trusted to pay back your debts. A charge-off stays on your credit report for seven years before automatically falling off. It is possible to remove it from your report before it expires, but not everyone is successful. You can improve your credit score by paying off the debt.

Charge-Offs

A charge-off on your credit report means that the account is past due and the lender has written it off the books, counting it as a loss. If you haven't paid your bill for 180 days, the status of that account will show as "charge-off". That doesn't mean that you are no longer responsible for that debt. It does mean that you won't be able to use that account to make further purchases. You can avoid a charge-off by paying at least the minimum due amount each month.

Paying Off a Charge-Off

If you pay off the debt, the status on that account will change from "charge-off" to "payment made/after charge-off". While that is an improvement, it doesn't change the fact that for the next seven years, your credit report will show that you were delinquent. It will hurt your credit score significantly, making it difficult and expensive to get a loan or a credit card.

Negotiating With the Lender

You cannot remove the charge-off from your credit report, but the lender can. Some lenders are more willing to do so than others. Whether they will depends on various factors, including your credit history with them. The best thing to do is to contact the lender before paying off the account. Offer to settle the debt in full in exchange for the creditor removing the charge-off. The lender is under no obligation to agree, but if you are polite and professional in your negotiation, the creditor may oblige.

Tips

It would help the negotiation to have a long-established history with the lender. The lender is more likely to remove the charge-off if you can show that it's a one-off mistake on your part, rather than part of a pattern of non-payment. If you do get an agreement, request a copy of it in writing. That way, if the charge-off is not erased, you can go back to the lender and complain.

Errors

Lenders are not perfect, nor are credit bureaus. Sometimes they make mistakes that can end up on your credit report. If you spot a charge-off on your report that you do not recognize, you can dispute it directly with the bureau via the bureau's official website. You may also want to contact the lender and ask that the mistake be fixed. The lender or credit bureau may ask you for proof, such as a canceled check or a copy of your bank statement, before deciding on your claim.

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How to Contest Derogatory Items Affecting a FICO Score

Keeping your FICO score high is important to many parts of your life. Not only is it important for getting credit or buying a home, some employers may even check your credit score. Therefore, when you see something on your credit report that is negatively affecting your credit score, you want to get it off. The tricky part is that you cannot dispute this information through FICO, even if you purchased your credit report from their website. You must dispute this information with the individual credit bureaus who are reporting it.

Instructions

1

Locate the negative items on your credit report that could be negatively affecting your FICO score. These are things like late payments, collections and public records.

2

Write a dispute letter. You can hire a lawyer who is educated on the Fair Credit Reporting Act to write this for you, or you can download a template from the Internet (see resources) and customize it to meet your situation. List all of the items that you want to dispute, and you may even want to include a copy of your credit report and highlight the items on there, so that there is no misunderstanding.

3

Find the address for each credit bureau (see resources) that you need to send the letter to. You only need to send it to the bureaus that are listing the derogatory items on your credit report. If it is not on your credit report, it does not affect your FICO score.

4

Send your letters off. You may want to purchase a service, like certified mail with return receipt, which confirms that the credit bureaus received your dispute. By law, they must resolve your dispute within 30 to 45 days of receipt, so it may be helpful to know exactly when they received it.

5

Wait for contact from the credit bureaus. If you don't receive anything within 30 to 45 days, then you can buy your report again to see if anything has changed. If the item was verified, it will remain on your report; if it could not be verified, it should be removed from your report.

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My Son's Information Is Showing Up on My Credit Report

If your credit history and your son's get mixed up, you may face months of headaches and possibly financial difficulty. Take action to correct your credit history immediately and keep monitoring your credit report until the matter is resolved. You may be able to obtain credit before the credit bureaus fix your problem.

Why It Happened

Any number of reasons can cause the bureaus to mix up your and your son's information, such as a computer glitch or an employee entering wrong information on your accounts. For example, if you and your son have similar names, such as Chris and Christopher Johnson, the bureaus may report data on the same credit report, especially if you live at the same address.

Taking Action

Write a letter to any of the three major credit bureaus explaining the credit file mix-up. Include a copy of your credit report and highlight the accounts you dispute. Furnish evidence of your claim, such as a photocopy of your birth certificate and driver's license. The bureaus normally have 30 days to investigate a claim, but the Fair Credit Reporting Act allows them more time in case of complicated cases, such as mistaken identity. Your son also should send information to the credit bureaus proving his identity and dispute any of your accounts that appear on his credit history.

Suing

Treat all communication with the credit bureaus as if you are preparing for a lawsuit. The bureaus automate their dispute resolution process, which can lead to re-reporting of errors, so you may have to sue one of the bureaus to gain attention. Unusual cases, such as those involving the courts, receive special attention that regular disputes do not, according to Anne Kadet of SmartMoney.

Letter of Explanation

While you resolve your mixed-up credit file, you can leave a 100-word explanation attached to any item on your credit report. An explanation has no effect on your credit score, but a creditor may overlook a negative credit mark if you can offer a good explanation. However, you must ask the creditor to review your credit report manually. Creditors usually use software that automatically pulls your credit report and calculates your credit rating based on data in your report.

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How a FICO Inquiry Affects My Credit Report

A person's credit score, sometimes called his FICO score, is a measure of his creditworthiness in the eyes of creditors. Credit reporting companies determine an individual's credit score using information related to his lending history. Information that suggests a person will pay back his loans on time boosts his score, while negative information pulls it down. This report is available to many lenders. Inquiries made by certain lenders will pull a person's credit score down slightly.

Hard Inquiries

Two types of inquiries are made into an individual's credit report by lenders -- hard and soft. Only hard inquiries will pull down an individual's credit score. A hard inquiry is an inquiry made by a creditor who has received an application from an individual seeking a new loan or a new line of credit. When these lenders check the person's credit report, these inquiries are themselves noted on an individual's credit report. A hard inquiry will pull down a score by several points.

Soft Inquiries

Soft inquiries are inquiries made by lenders or other institutions who have not received an application from the individual for new credit. Soft inquiries can be made by a number of parties, including lenders who are considering soliciting a borrower and want to check her credit history first; by landlords investigating a prospective tenant's lending history; and employers who are researching a job candidate's financial history. Soft inquiries have no effect on an individual's credit score.

Effects

Generally, hard inquiries will cause an individual's score to drop only several points out of a total score that can range from 300 to 850 points. According to the Fair Isaac Corp., who developed the scoring model for the FICO score, a number of similar hard inquiries made within a short time will only count as a single inquiry. This is because the credit reporting agencies interpret this as a sign that the individual is shopping around for a loan and not considering taking out multiple loans or lines of credit.

Explanation

It may seem odd that a credit reporting agency will penalize an individual for seeking a new line of credit. However, this is because credit reporting agencies formulate scores on the perceived likelihood that an individual will default. When an individual applies for a new loan, it suggests that she may be experiencing financial difficulties. In the eyes of credit reporting agencies, this means she has a modestly increased likelihood of defaulting -- causing her score to drop slightly.

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How Long Do Negative Items Remain on My Credit Report?

A positive credit report is a ticket to loans with low interest rates, according to Cari Noga of the Bankrate.com financial advice site. People who make a string of late payments or default on accounts start to lose the benefits, and those with big problems like bankruptcy face continual turn-downs. Fortunately, negative credit report items eventually go away.

Definition

Credit reports are summaries of a person's demographic information and financial activity, compiled by the Experian, TransUnion and Equifax credit bureaus. Positive information makes it easier for a person to open credit accounts, buy insurance policies and get jobs. Negative items may prevent these transactions. Common negatives include late or missed payments, as well as accounts that are charged off and sold to collection agencies, court judgments for unpaid bills, bankruptcies, foreclosures and repossessions of vehicles or other goods purchased on credit.

Time Frame

Positive information on open accounts stays on credit reports indefinitely, but Experian explains that negative items eventually disappear. Most items -- like delinquencies, collection accounts, legal judgments, liens, foreclosures and repossessions -- remain for seven years. Bankruptcies are reported for 10 years, while unpaid tax liens show up for 15 years or drop off after seven years if they are paid. Credit report requests are erased in two years.

Effects

Negative items have some effect for as long as they are visible to creditors. Quicken Loans warns that credit blemishes mark a person as a risky borrower. People with many negative items are turned down for accounts and loans or forced to pay higher interest rates if they are approved. They are often turned down for insurance policies, jobs and apartment rentals, and utility companies may require them to pay high deposits for service.

Prevention/Solution

Bad credit is preventable if a person has modest account balances and pays all bills on time. Once a credit report has blemishes, the FICO credit scoring company explains, the only way to fix it is to rebuild the payment history and use accounts responsibly. This helps a consumer overcome some of the negative effects until the old items are erased, because creditors pay the most attention to recent performance.

Warning

Negative items should automatically disappear from credit reports after the appropriate period. Sometimes they remain and continue hurting the person's credit rating. The Federal Trade Commission notes that everyone is entitled to one free credit report annually from each of the three credit bureaus through annualcreditreport.com. People who know they have items that should have dropped off their reports should order free copies and confirm the items are no longer reported They can dispute outdated items with the credit bureaus to ensure they are erased.

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How to Protect Your Credit History

A good credit history is a precious asset. It enables you to open accounts or get loans whenever you need them. Lenders will see you as a good potential customer and may offer incentives like a low interest rate to win your business. Identity thieves can destroy your good history by running up bills in your name unless you take steps to protect it.

Instructions

1

Order your current credit report from TransUnion, Equifax and Experian. You must check all three because the information often differs. The reports are free and carry no other purchase obligation if you get them through annualcreditreport.com, the MSN Money financial site explains. This website is mandated by the Fair Credit Reporting Act (FCRA) to give yearly reports at no cost.

2

Search each report carefully for signs of identity theft such as accounts you do not recognize or strange names and addresses linked to you. Look for other mistakes at the same time, as credit bureaus often include errors like incorrect balances or payments improperly reported as delinquent on reports. These can also hurt your credit history.

3

Contact the creditor for any unrecognized accounts and challenge other suspicious or erroneous information with the credit bureaus, the Federal Trade Commission recommends. Each bureau provides an electronic dispute form and allows you to track the progress of your dispute. Corrections must be made within a month for information that cannot be verified, according to the FCRA.

4

Place a credit freeze on all three of your credit reports, consumer advocate Clark Howard recommends. This runs from $3 to $10 for each bureau, depending on your home state and whether you are a fraud victim. You must do a separate freeze through each credit bureau. No one, including you, can get a new account in your name without providing a special code or password. This protects your credit history from virtually any fraud attempt.

5

Set up a monitoring schedule for your credit reports to catch and dispute any mistakes as early as possible. MSN Money advises ongoing monitoring of your history by getting one report every four months. This gives you ongoing protection by allowing you to catch suspicious information quickly.

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How Does a Beacon Score Work?

Inside Beacon Scores

There are five components of a Beacon (FICO) score. On-time payment of bills counts for the most (35 percent of the total score). Payments more than 30 days late count off heavily. Another 30 percent is based on total debt. Excess debt for a person's income lowers this part of a Beacon score. The type of debt matters as well (10 percent of the total). Secured debt is best. Too much unsecured debt (like credit cards) lowers the score. The amount of time you have used credit responsibly is a factor that counts 15 percent. The last component is how often you apply for credit or close accounts (10 percent).

Credit Killers

There are several things that affect several parts of a Beacon score and will drastically lower the overall score. Foreclosure, defaulting on a debt (especially a student loan), tax lien, or having a court judgment against you for an unpaid debt all stay on a credit record for years. That's also true of a bankruptcy. However, a bankruptcy puts you in a special category as far as credit is concerned and your use of credit following the bankruptcy matters most in restoring a good credit score.

Monitoring Beacon Scores

A study by the Public Interest Research Group in the early 2000s found that over 70 percent of all credit histories contain some inaccuracies and that over a quarter are serious enough to cause credit to be denied. A Beacon score is based on the individual's credit history, so it's vital to monitor your credit history on a regular basis. It's not necessary to pay for your credit history because you are legally entitled to a copy from each of the three major credit reporting agencies annually. The Federal Trade Commission authorizes only one provider for the free credit reports, AnnualCreditReport.com (see Resources).

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Does a Credit Score Decrease When Credit Is Checked?

It is impossible to determine if your credit score will drop once you apply for credit. The website MyFICO says that if your credit does drop, it will not be by more than about five points.

Inquiries

Each time you apply for credit, you authorize the lender to review your credit report. Each time a lender reviews your credit, it is listed on the report as a credit inquiry. You can see who has requested to see your credit by reviewing your credit report.

Multiple Inquiries

As MyFICO points out, a single credit inquiry will not hurt much, and it is also acceptable to have multiple credit inquiries over a short period of time---for example, 30 days---when you are shopping for a loan, such as an automobile or home mortgage. The credit scoring system treats such multiple requests for your credit report as a single inquiry, according to MyFICO.

Continued Inquiries

Your credit score may begin dropping significantly if you make a lot of credit inquiries over the course of a year. The credit scoring system could interpret that as a sign that you are loading up on credit for a spending spree, or you are taking on more credit than you can afford. Either event could make you a credit risk and lead to a drop in your score.

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