How Does a Credit Score Relate to Fraud Protection?

Credit fraud is rampant as thieves steal account numbers and identities by "skimming" credit cards at businesses, through malicious software installed on computers, bogus email messages and website or various other means. This endangers your credit score because fraudulent activity can hurt it badly unless you take steps to protect yourself.

Definition

Fraud protection is a service in which a credit bureau or private company monitors your credit reports. You are notified of any activity that might indicate fraud, such as inquiries and new accounts that could be the work of an identity thief. You can also do your own fraud protection by getting one of your credit reports through annualcreditreport.com regularly to do your own search for strange entries and carefully scrutinizing your credit reports every month. Three credit bureaus and the Fair Credit Reporting Act make them each available every 12 months at no charge, so ordering one every four months will cover you for the year.

Factors

Your credit score is based on the information in your credit reports. Your score is high if you pay your bills on time and manage your accounts responsibly, keeping your credit limits reasonable and not maxing out your balances, credit score provider FICO states.

Relationship

An identity thief may commit fraud by making charges on your current cards or opening new accounts in your name and spending as much money as possible without making any payments. Your credit score will plummet as your spending appears to rise or you have delinquent payments appearing in your name without your knowledge. A commercial fraud protection service helps you catch the problem early so you can minimize the damage. This is also true if you are diligently monitoring your credit yourself.

Solution

Report any suspicious activity to your credit card company as soon as you notice it on your statement, the Federal Trade Commission advises. They will close your account and issue a new number to stop any additional charges. They will also credit you for the fraudulent purchases. Put a fraud alert on your credit reports if you find accounts you did not open. This can be done through the Equifax, Experian and TransUnion websites or by calling the bureaus. Contact the involved banks or card issuers to alert them of the problem and ask them to stop reporting the accounts on your reports. The fraudulent accounts will stop affecting your credit score when they are removed.

Alternative

Purchased fraud protection can cost up to $180 per year, according to "Consumer Reports" magazine. Consumer advocate Clark Howard explains there is a lower cost option that offers more protection for your credit score. You can put a freeze on your credit with each of the three bureaus. This costs a few dollars in some states, while it is free in others. No one can open an account in your name, including you, unless you temporarily unfreeze your credit with a password or code. This virtually eliminates fraud and helps keep your credit score high as long as you are financially responsible.

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How to Dispute Something On Your Equifax Credit Report

Equifax is one of the big three credit reporting companies. They keep track of everyone's credit ratings and history. It is very common for Equifax to have incorrect information on your credit report. Here is how to dispute something on your Equifax credit report so it does not harm your credit rating.

Instructions

1

Get a copy of your Equifax credit report. Never pay for this. It is your legal right to obtain a copy of your Equifax credit report free of charge once per year. You can do this at annualcreditreport.com. A link to their website is provided in the Resources section below.

2

Examine your Equifax credit report for errors. Do not assume that it is accurate. Most people will find several errors on their Equifax credit report over the course of their life. This is the result of millions of people with similar names and social security numbers conducting billions of transactions every year. Be sure to check every claim of default, late payment, credit card, and loan. You might find things that do not even belong to you.

3

Document everything that you are contesting. Gather all canceled checks, statements, and letters that prove you made timely payments. If an item does not belong to you at all, make note of discrepancies in their documents. For example, you could have items on your Equifax credit report that belong to someone with the same name but has a different social security number.

4

Go directly to the Equifax website and file a dispute claim. A link is provided below in the References section. Enter your 10 digit report confirmation code from your Equifax credit report. Provide Equifax with specific information about the claim on your Equifax credit report that you are disputing along with your supporting documentation.

5

Wait one month. An Equifax credit report dispute investigation takes between 30 and 45 days to complete. It is up to them to prove that the information on their credit report is correct. If they can't, they will remove it from your record. You should receive a letter in the mail informing you of the Equifax credit report dispute investigation status within one month. If you don't, contact Equifax directly and ask what's going on.

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How to Repair a Credit Report Fast

Your credit report is not only viewed by potential lenders but by employers and insurance companies. Having bad credit can result in higher interest rates, higher insurance premiums, and may result in an employer rescinding a job offer. Credit repair, in general, is not a fast process, but there is one area of the credit report that -- if you can fix it -- you can see an almost immediate rise in your credit score.

Instructions

1

Look at your credit report and circle all of the credit card accounts. Write down the credit limit and the current balance.

2

Multiply your credit limit by .20 and write down the amount. For example, if your credit card limit is $500, enter 500 on the calculator, press "X," enter .20, and hit the "=" sign. The dollar amount should be $100. This equals 20 percent of your credit limit.

3

Contact the credit card companies by calling the customer service number and ask what date your account is reported to the credit bureaus. Write this date down by each credit card account.

4

Make a payment to the credit card company to reduce your balance under the dollar amount you calculated in Step 3. On a $500 credit limit, you should reduce your balance to under $100. If you are unable to pay enough to go under 20 percent of the credit limit, reduce the balance as much as possible. The lower your balance, the higher your credit score will rise. Try to make the payment before the date the credit card company reports to the credit bureau.

5

Check your credit report and score after the credit card companies have reported to the credit bureau. The score will immediately rise following the updated balances. Credit card companies report one time per month so the positive impact to your credit report and score can be as soon as one day to no more than 30 days.

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Do Employment Credit Checks Go on Your Credit Report?

You should be concerned with credit checks, because too many can seriously damage your credit, but employment credit checks are benign. However, the credit bureaus still keep track of employment screening and authorizing employment credit checks can potentially damage your credit if it leads to identity theft.

Identification

Employment credit checks go on your credit report under the "soft check" section. Soft credit checks do affect your credit like a hard check -- a request for credit. The bureaus track soft inquiries for your own information and so you can see who checks your report. Nobody but you can see the soft inquiries into your credit.

Considerations

You must consent to a credit and background check before an employer can screen your credit history. However, you should limit how many employment credit checks are performed to protect your private information. You would not want, for instance, a rogue employee to steal your private information, such as your Social Security number, and open a credit card in your name. The missed payments would wreck your credit history until you prove fraud to the credit bureaus.

Employment Credit Checks

Employment credit histories are slightly different than a normal credit check. For instance, an employment credit history does not list your age, but there are no restrictions on reporting other data if you apply for a job that pays more than $75,000 a year. If the employer rejects your employment application because of credit issues, the employer must provide you a free credit history report.

Tip

Employment credit checks only appear on your credit history for two years. Some states, such as California and Maryland, have tried to ban the use of employment credit checks. However, employment credit checks are a necessary security measure for some companies, especially for positions that require the employee to handle money. Thus, if you have a negative credit history, you should write a letter explaining the circumstances surrounding any negative events -- you can also leave a comment on your credit history.

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Does Piggybacking Help Your Credit Score?

A common strategy among consumers with bad credit is to use someone with good credit to get loans, also called piggybacking or co-signing. This can work -- somewhat. The credit bureaus have a high success rate of determining whether someone piggybacks on another person's credit for legitimate reasons or to circumvent the traditional credit scoring system. Thus, you may still have to build credit using individual accounts.

Identification

Piggybacking can boost your credit score because co-signing on a loan also means you share the payment history on the account. For instance, if you make an on-time payment, your credit report also receives an on-time payment. This is a common tactic for people who cannot obtain credit, such as those trying to build a new credit history or rebuild a poor one.

Considerations

The piggybacking tactic gave credit repair companies an easy loophole to help customers with poor credit, so for several years the credit bureaus ignored authorized accounts -- credit card accounts that give you use the card but not the responsibility for it or access to account settings. In 2007, the designer of the dominant credit scoring in the U.S. -- the Fair Isaac Corporation -- allowed authorized accounts to impact credit ratings because it found a way to weed out fraudulent accounts. A creditor must use the FICO 08 model for an authorized account to boost a credit rating, however, and not all creditors have upgraded to this version of the FICO software.

Danger

You can damage the other borrower's credit rating too if you piggyback on an account and miss a payment. For example, if you co-sign or become an authorized user on a credit card and max out the limit, together you may not have enough money to pay the minimum balance due. Missed payments can cause the other borrower's and your score to drop by more than 100 points and a maxed-out card can cost you more than 45 points, according to Ellen Cannon of Bankrate.

Tip

Only piggyback on accounts owned by trusted friends and relatives. Credit repair companies sometimes offer to list you as an authorized user for a fee, but this probably won't help you as of 2011. Instead of piggybacking, you can get a department store or gas station credit card with a low limit and make on-time payments to reestablish a record of positive payment history. Also, eliminate debts listed on your credit report and never use more than 25 percent of any line of credit.

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How to Know If Credit Report Sites Are Safe

Protecting your credit, and your financial future, is more important now than ever. The recession, paired with record-high unemployment, means that identity theft is increasing in popularity. One way to keep an eye on your credit is to get your credit reports from the three main credit reporting agencies, Equifax, Experian and TransUnion. However, with all the advertising and misinformation out there, it's hard to know which credit report sites are legitimate and which are only looking to take advantage of your situation. Luckily, it's not as hard as you think. Just follow a few simple steps and you'll know whether a credit report site is legitimate.

Instructions

1

Go to the official free credit report site. The best (and first) place you should look to get your credit report is at the official site where TransUnion, Experian and Equifax collaborated to give consumers access to their credit report. The U.S. government mandated that each consumer is entitled to one report free each year, even if they haven't been denied credit. The address to this site begins with https://, meaning it's on a secure server (that's what the "s" means). A site without that '"s" could be a fake site, so don't trust it.

2

Visit the main sites of each credit-reporting agency. Each of these sites gives consumers access to their credit reports from the respective agency. Note that you might have to pay for this service if you've already received your annual credit report and haven't been turned down for credit recently. Again, don't enter your personal information until you've ensured that the address begins with https://, this means it's secure.

3

Do your research. If you'd rather go for a pay site, then make sure it's legitimate. You've probably seen advertisements for certain companies offering credit reports. Sites like FreeCreditReport.com do give you access to your credit information, for a monthly fee. Again, make sure the site is on a secure server to protect your information. However, visiting a pay site should be your last option after using the free resources available to you.

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Do You Absolutely Need Credit to Get Car Insurance?

You might not need good credit or a credit history at all to get car insurance, but here is the sobering part -- expect to pay far more than a person with good credit. Boosting your credit score pays off as long as you can put your car shopping on hold for a few months. If you apply for car insurance and the company denies you because of credit problems, you might never know credit issues were the cause.

Identification

You generally do not need a credit history to acquire some amount of car insurance. However, over 90 percent of car insurance underwriters use credit reports when calculating premiums, according to GMAC Insurance. They also factor in other variables to set your rate, such as driving record, gender, vehicle make and model, location and age.

Effect

A low credit score or none at all might raise your premium up to 50 more than if you had good credit, according to credit education and referral company Carreon and Associates, though bad credit alone may not be enough to deny coverage. Most insurers use a formula similar to that of the credit reporting bureaus, but give categories different weight, which can give drastically different results.

Rejection for Credit Reasons

If the insurance company rejects you because of information contained in your credit file, they do not have to notify you of this reason after a 2007 Supreme Court decision, according to Sandra Block of USA Today. The 2011 Dodd-Frank Wall Street regulatory reform bill might change this. The bill passed both Chambers of Congress and as of March 2011, the final regulations of the legislation are still only proposed. The final version of the bill might require insurance companies to notify you of a rejection based on credit and give you a free FICO credit score.

Tip

Start building your credit history now and you can get a credit score within six months. A good place to begin is a national bank that offers a secured credit line, or a department store card. You will probably have to pay an annual fee and a high interest rate -- somewhere over 20 percent -- but this could save you money on insurance as long as you do not carry a balance. Limit outstanding debt and meet minimum payments every month to build your score faster. Some factors, such as length of credit history, only come with time.

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How to Pull Other People's Credit Reports

A credit report documents a person's history of financial payments and debt management. The information in a credit report is used to determine your credit score. Lenders and landlords commonly use credit reports to determine whether a person should be issued a loan or accepted as a tenant. Prospective employers are increasingly examining credit reports before hiring new employees, especially in jobs involving handling large amount of cash or secretive information. You can pull another person's credit report only if you have his or her permission.

Instructions

1

Obtain written permission from the person whose credit report you want to check. Checking a credit report without permission, even if by accident such as ordering the wrong person's credit report, can make you liable for damages.

2

Request identifying information from the person whose credit report you are checking, including full legal name, address, prior address and Social Security number.

3

Order a credit report from one or more of the three major credit bureaus (Experian, Equifax and TransUnion). If you are requesting a credit report for a potential employee, be sure to notify the credit bureau because the credit report you will receive does not include the employee's birthday, to minimize the risk of age discrimination.

4

Alert the person if any of the information you discovered in the credit report caused you to decide against him, whether it is not issuing a loan, not hiring him or rejecting him as a potential tenant. You are legally responsible for doing this so the person can challenge any information in the credit report that is wrong.

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Why Are There 3 Credit Reporting Agencies?

If you have good credit, chances are you never think twice about your credit score or the companies responsible for contributing to that score. But while many people believe only three credit reporting bureaus exist in the United States---Equifax, Experian and Transunion---the truth is that thousands of them are out there collecting your financial information.

History

Credit reporting bureaus began when small groups of merchants began exchanging financial information about their customers. These groups grew and consolidated over the years into credit bureaus. While many companies that report financial information exist today, most creditors are only interested in the information collected by the three largest credit reporting companies: Equifax, Experian and Transunion. Equifax, the oldest of the three, was created in 1899. Its original name was Retail Credit Company, and it collected every type of information about people imaginable, including marital problems, sex life, political activities and so forth, whether true or merely rumored. This information could then be requested by anyone who paid for the report. Only negative financial information was originally reported, and consumers had no right to see what was in their files. This changed in 1971, when the Fair Credit Reporting Act was passed into law.

Identification

The phrase "credit bureau" is somewhat misleading, as "bureaus" are often thought of as governmental entities. However, credit bureaus are in no way connected to the United States government. All credit reporting companies are private businesses to which creditors report your financial information.

Considerations

Experian, Equifax and Transunion are the three credit bureaus known to most people because they are the ones used most often by major creditors in determining consumers' creditworthiness. These same creditors report their customers' financial information to these same credit bureaus, which perpetuates the system. Not all creditors report to all three agencies, nor do all creditors obtain reports from all three agencies. However, it is in the best interests of the consumer to ensure that the information contained on all three reports is accurate. Do not make the mistake of thinking the credit bureaus are on your side: You are the only one who really cares whether the information on your credit reports is accurate.

Misconceptions

Along with the perception that credit bureaus are run or sanctioned by the U.S. government, many people believe that correcting the information contained on one credit report will correct it on all three. This is incorrect because each credit bureau is a separate entity, so you must file separate disputes with all three.

Tips

If you send documentation to a credit bureau or creditor when attempting to dispute negative information, keep the original document and send only copies. Big businesses are notorious for losing documents. The credit bureaus are supposed to send you a letter that states whether any changes have been made to your credit report as a result of their investigation. Be prepared to follow up with each credit bureau; do not assume that if you haven't heard anything that the disputed item has been removed. If the matter has not been corrected, additional documentation to support your position will be helpful. If you cannot get satisfaction through the credit bureaus, try directly contacting the company.

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What Does a Credit Score Represent?

A credit score is a number assigned to your credit report to reflect your likelihood to default on a loan or credit account or pay-off the same. A credit score takes all of the data from your credit report, such as account information, inquiries and public records, and assesses it to arrive at your number.

Account Information

Your credit score takes into consideration a variety of information related to your accounts. According to the Consumer Federation of America, your payment history on credit accounts constitutes up to 35 percent of your score. Consistent, on-time payments increase this number. Thirty percent of your credit score comes from your debt to credit ratio. The higher the percentage of credit used to available credit, the lower your credit score.

Credit Inquires

The number of new credit accounts opened and applied for during the period immediately before the credit score inquiry determines approximately 10 percent of your credit score. Applying for too many accounts at once can lower a credit score. Accessing your own credit report and credit score, however, does not impact your credit score as an inquiry, despite appearing in a full credit report.

Public Records

Public records affect your credit report and credit score. These include any tax liens imposed for delinquent taxes on your personal property or real estate. Bankruptcy records are also visible on your credit report. Accounts included in a bankruptcy filing stay on your report for seven years while the bankruptcy itself appears for seven years, if you filed a Chapter 13. Chapter 7, 11 and 12 filings remain for 10 years.

Your Credit Score to a Lender

Your cumulative credit score represents the individual components in your credit report to a potential lender. According to Experian, a credit score of 700 or above demonstrates good credit management skills. A score below 700 does not mean you cannot receive credit or secure a loan, but it does affect the terms of any such arrangements. Lower credit scores may not receive competitive interest rates or the higher credit limits awarded to applicants who apply with more solid credit histories.

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How to Establish Credit With a School Loan

Your credit history is one of the main factors lenders consider when evaluating your application for a credit card or loan. Whenever you borrow and repay money, the lender reports your payment information and loan details to the credit bureaus. The credit scoring formulas consider the whole of your credit history, including how long you have been managing credit, what types of credit you have, whether you have applied for credit recently, how much you owe and how consistent you are with payments. Borrowing and repaying a student loan can help build history in each of these areas.

Instructions

1

Fill out the Free Application for Federal Student Aid to apply for federal student loans. Even if you and your family make a lot of money, you can still qualify for unsubsidized Stafford loans from the federal government. These loans have a relatively low interest rate and you do not need a co-signer.

2

Apply for private student loans with other lenders if you need more money for school. If you have no credit history, the lender will likely require you to have a creditworthy relative or friend co-sign the loan for you. However, you should not borrow more than you anticipate you will be able to afford to pay back.

3

Make payments on your student loan while you are in school to start building your credit history sooner. According to MSN Money, your student loans might not appear on your credit report until you begin repayment. If they aren't on your credit report, they won't help much with building your credit. Contact your lender to find out how to make payments.

4

Sign up for automatic monthly payments after you leave school. This will ensure that you make your payments on time every month. Late payments hurt your credit score, whereas on-time payments build credit.

5

Make extra payments on your student loans when possible. Reducing your balances improves your credit score because part of the formula compares the amount you owe to what you originally borrowed.

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Does Applying for Credit Cards Lower Your Credit Rating?

Credit scores are used by lenders to determine if you are a trustworthy borrower. The score is based on your payment history, the amount of money you owe, the length of your credit history, the types of credit that you use and your applications for new credit. Applying for credit cards will usually show up as an application for new credit on your credit score, which can negatively impact your credit rating.

New Credit Applications Score

10% of your credit score is based on your applications for new credit. If you apply for a number of new lines of credit, you appear desperate to creditors, and your credit score suffers. This section takes into account if you are applying for a home or auto loan and make multiple inquiries because of that, but does not allow for multiple credit card inquiries without docking your score.

What Is an Inquiry?

An inquiry is any time a creditor orders your credit score with your permission. For example, if you apply for a credit card, the credit card company orders your credit score to make sure you are a worthwhile credit risk.

Exceptions to Inquiries

There are some exceptions that allow people to look at a credit score without it counting as an inquiry, such as when you look at your own score, an employer requests your score for nonfinancial reasons, periodic monitoring by a credit card company and pre-screening by credit card companies for special offers.

Effects of Inquiries

Applying for new credit cards is much more likely to negatively impact your score if you have a short credit history or have had defaulted in the past.

Benefits of Credit Card Accounts

If you have an old credit card account that you no longer use, don't close it. It adds to your length of credit history and increases your available credit so you are using less than your maximum amount of credit, even if another one of your cards is close to the credit limit.

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National Credit Reporting Services

Most lenders use credit reporting services, called credit reporting bureaus, to check a borrower's credit scores. The United States has three major reporting agencies and a plethora of smaller, more specialized services. The big three are TransUnion, Experian and Equifax, the most common bureaus used by lenders for consumer credit transactions.

TransUnion

TransUnion was founded in 1968, although it was not a credit associated business until the following year, when it acquired the Credit Bureau of Cook County. This credit bureau had 3.6 million files, listed on hard copy card files. TransUnion developed a system for transferring files to automated tape-to-disc to ease data collection and usage. Today, TransUnion runs the True Credit website for consumers, providing credit report monitoring and credit scores. TransUnion's customer base is located in 25 different countries.

Experian

Experian started out as CCN Systems, founded in 1980. Global headquarters are not in the United States, but in Ireland. Experian offers credit monitoring, data collection and a number of other credit related services for consumers and businesses. Experian does business in over 90 countries, both in consumer credit and business credit solutions. Other markets that Experian targets include automotive and retail businesses.

Equifax

Equifax has the title of being the oldest credit reporting bureau among the three largest in the United States, with a start date of 1899. The corporate headquarters is in Atlanta, Georgia. Equifax offers both consumer and business credit reports, as well as information regarding credit risk and credit groups to third party companies. Equifax has an on-line credit monitoring service and credit scores, geared towards consumers.

Specialty Services

The big three credit reporting bureaus aren't the only ones offering financial information, but most of the smaller credit bureaus concentrate on one area of specialization. For example, Chex Systems specializes in bank accounts, especially where accounts are overdrawn including bounced checks. This system is consulted by banks prior to a new account being opened. Insurance Services Office is another specialty service that deals with insurance information and statistics.

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How to Get the Best Possible Credit Rating

Although having a good credit rating always has been important, it has become even more vital as lenders tighten credit and raise lending standards. Having a good credit rating means you will be approved more easily for things like credit cards, auto loans and a mortgage. That can save you money in the long run, because lenders will give you lower interest rates on your loans. Therefore, you should do everything you can to get the best possible credit rating.

Instructions

1

Get your credit reports. By law, you're entitled to a free credit report each year from each of the three credit reporting agencies; you can get all three from www.annualcreditreport.com. These reports won't give you your credit score, however; for that, you have to pay a small fee.

2

Check your reports. The reports say what accounts you have open, when they were opened, how much you've paid, if the payments were late, when the accounts were closed, and who requested your reports and when. If you notice any discrepancies or anything strange, report that immediately to the credit reporting bureau.

3

Pay down your debt. A big part of your credit rating is based on your overall debt load and your debt-to-credit ratio, or the amount of debt you have as a percentage of the amount of credit you have available. You can improve both those by paying down your debt. Generally, paying down credit cards will improve your score more than paying off an installment loan, such as an auto loan, student loan or mortgage.

4

Keep using your oldest credit cards. An important factor in determining your credit score is how long you've had the accounts--the longer, the better. If you don't use an account, the credit bureaus will stop updating that card; if that happens with your oldest cards, it could make your credit history look shorter than it actually is.

5

Be cautious about opening new credit accounts. It can be tempting to apply for a new credit card, because of discounts or rewards you might get. But each time you apply for credit, whether it is a credit card or a loan, the credit bureaus record the credit check made by the lender. Multiple requests, especially in a short period of time, can act as a red flag to lenders.

6

Pay your bills on time, and preferably pay more than the minimum payment. Late payments have a negative impact on your credit rating. In addition, the credit card company probably will hike your interest rate, costing you much more money in the long run.

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Will Forbearance Status Affect My Credit Score?

Forbearance -- whether on a mortgage, student loan or other financial obligation -- provides temporary financial relief for those who are unable to make payments on their loans due to unforeseen circumstances. Under forbearance, your lender agrees to halt collection of payment for a specified amount of time. This can be anywhere from a few months to several months or even a year in the case of student loans. During this time, you are not obligated to make payments, and your lender will not make collection attempts. While forbearance is often used when people have a financial hardship, being under forbearance in and of itself will not harm your credit score.

Considerations

Your credit score is a measure of several factors, including your available credit ratios, payment history and current debt load. When you cannot afford to make payments, these missed payments are recorded in your credit report and will lower your credit score as time goes on. Even one missed payment can cause your credit score to drop. Forbearance, on the other hand, is not recorded as a missed payment because you have made official arrangements with the creditors. While this can be a good option if you are having a temporary financial hardship, forbearance is not a long-term solution. Additionally, each creditor will have different qualifications you'll need to meet in order to qualify for forbearance, which means you'll have to discuss the option with your lender in order to find out if you qualify.

Benefits

Because your credit score will drop if you miss payments, forbearance allows you to avoid the hit to your credit score without having to make payments you currently cannot afford. Some creditors will not consider debt currently under forbearance as a part of your overall debt when issuing credit, and this can help you get approved for certain types of credit when your debt-to-income ratio is an important factor.

Another benefit to forbearance is the fact that lenders consider working with creditors for payment arrangements to be a sign of responsible behavior. Instead of having your credit score lowered due to non-payment, the forbearance indicates you have made a good-faith effort to work things out with the creditor.

Warning

While forbearance may seem like an ideal solution, it is not for everyone. Intended only as a temporary solution, forbearance will not correct underlying problems in your ability to pay. If you are still unable to make payments after the forbearance period runs out, some lenders may add additional late fees or other payment penalties. And while it won't negatively impact your credit scores to have a single forbearance listed on your report, having several accounts in forbearance may make lenders hesitant to lend to you, regardless of your credit score.

Planning

If you plan to take advantage of forbearance, it's best to act early; if you wait until you are several months behind, your lender may not be able to work with you. This is especially true in the case of student loans, when going into default will remove most options for resolving the debt. As soon as you realize that you will not be able to pay, contact the lender to discuss your options. If you are already a couple of months behind, ask if you can have the forbearance applied retroactively; this is possible with student loans -- in which case your past-due payments will be resolved. That can boost your credit score.

Solutions

Consider forbearance as a temporary solution to a temporary problem. Being laid off, having an unexpected bill such as car repairs or medical bills, or other one-time, temporary expenses fall into this category. If you aren't making enough money to meet your financial obligations, or if you have an ongoing problem with paying your bills, forbearance will not be a viable solution. You must make sure that when forbearance ends, you will be able to resume payments; otherwise, your credit will be negatively impacted.

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Do Employers Check Your Credit?

Even if you have a stellar resume, relevant experience and good interviewing skills, you might not get the job if you've got bad credit. MSN reports that a 2006 poll -- the latest data available as of 2011 -- showed that 43 percent of companies check the credit history of some or all potential employees.

Why Check

Employers view a credit check as a way to vet employees. A good credit history shows that you are responsible with your money, which the employer assumes will translate into being responsible with your job. Additionally, an employer could worry that someone who has a lot of debt will be more likely to steal money from the company and commit fraud.

Most Likely Candidates

Although some companies check all employees, others target only certain job candidates for a credit check. Primarily, these include upper-level management and anyone who has access to the company's cash. Your company might not check your credit until you are applying for a promotion.

Dealing With Problem Credit

The company cannot check your credit history without your signed consent, so you will know when your employer is doing it. If you have negative marks on your report, it's best to talk to the company to explain your actions. Something that looks bad on paper might not be so bad when the employer hears the full story. If it's an obstacle that you cannot overcome through explanation, you'll have to build your credit back up before you apply for the types of jobs that require good credit.

Controversy

Many people feel that checking a potential employee's credit score is an unfair practice. In economic downturns, it's much more common for people to struggle financially, which can wreak havoc on your credit report. From time to time, representatives in Congress have submitted bills that would make this practice illegal, but as of 2011 there is no law in place to forbid employers from checking credit.

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How to Improve Your Credit After Divorce

If you suffered a nasty divorce and your credit rating has taken a big hit, you are hardly alone. Though you may not see a way out, you can indeed take some actions that will quickly get you on the road to recovery. In time, you will restore your credit and your good name.

Instructions

1

Obtain copies of your credit reports from Experian, TransUnion and Equifax, the three major agencies that creditors use. Go through these reports, highlighting all negative items. Then highlight the ones resulting from your divorce. Send a letter to the credit bureau to notify that a divorce is the reason for these deficiencies. Creditors may take that into consideration when you apply for loans.

2

Mark any incorrect or outdated information. Send a certified letter to the credit bureau stating that the information is incorrect and why. Include any available supporting information. The bureaus have only 30 days to resolve misinformation; otherwise, they are required to remove it from your report. In certain instances, the bureaus can have up to 60 days.

3

Cancel any joint credit cards you had. Though cancellations may look bad, you can always add a comment as to the reason. Then, apply for a couple credit cards in your own name. Do not use this credit to pay for everything. Instead, reserve it only for gas or coffee, then pay off the entire amount each month. This will build your credit.

If your credit has already suffered too much to qualify for a credit card or a loan, get a secured credit card. Though the fees are more costly, it is a vehicle to restore your credit. After six to nine months of small purchases and regular payments in full, you will begin receiving credit card offers again. Once your credit score is high enough, then cancel the secured credit card and eliminate the high fees.

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How Does an Eviction Affect a Credit Score?

The Eviction

While an eviction can make your financial situation that much harder, it will not go on your credit report or affect your credit score. However, it will go on a publicly accessible search database and can secondarily affect your credit.

The Eviction Database

After you're evicted, your information will most likely be passed on to a public database. This public database is searchable by any future landlord. Even if your credit is great, having your name in this database can affect the possibility of you being able to get an apartment.

Evictions and Your Credit Score

One way an eviction could indirectly affect your credit score is if it came with a fee or from not paying your rent. If you continue to ignore what you owe, it will go to collections. This will dramatically affect your credit score as well as make knowledge of your eviction that much more publicly accessible to anyone who pulls your credit profile.

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Information to Increase Your Credit Score

If you are getting ready to apply for a new loan or credit card in the coming months, consider whether there is anything you can do to increase your credit score. Having a good credit score can secure a lower interest rate and save you thousands of dollars over the life of a loan.

Timing

About 35 percent of your credit score is based on making timely payments to all of your credit accounts. Set up automatic payments from your bank account to ensure that you never miss a payment.

Amount of Debt

Decrease the amount of debt owed on revolving lines of credit such as credit cards to increase your credit score. The ratio of your amount of outstanding debt to your total amount of available credit contributes to about 30 percent of your credit score. Keep unused credit cards and large credit lines to help decrease the ratio of your debt to credit.

Warning

It is your responsibility to ensure that all the information on your credit report is accurate. Get a copy of your credit report every year and review it for errors such as accounts that do not belong to you and accounts reported as having late payments when you have paid on time. Follow the instructions that come with the credit report to fix any errors you find.

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How to Instantly Improve Credit Scores

Improving your credit score generally requires consistent and ongoing work over a span of a few months. There is, however, one method that can create an immediate increase in your score. A good credit score is important in many facets of your life. Your credit score can affect your insurance premiums, employment, loan interest rates and even determine whether you qualify for financing. To increase your credit score in a matter of even hours, you have to reduce your credit utilization. This is the ratio of credit limits to credit utilized.

Instructions

1

Allocate funds to pay down your revolving credit accounts. Revolving credit accounts are accounts with a credit limit, but you can continually charge new items as long as you remain under the credit limit. The goal will be to pay down each account to less than 30 percent of the credit limit.

2

Order your credit report with the credit score. Locate all of your revolving credit accounts and circle the date the creditor reports the account to the credit-reporting agency. In the event the date is not listed, call the creditor and ask when accounts are reported to the credit-reporting agency. Circle the credit limit and balance on each of these accounts.

3

Write down the name, reporting date, credit limit and account balance of each revolving credit account you have. Perform a calculation to determine what is 30 percent of the credit limit. If the credit limit is $1,000, you take $1,000 and multiply it by .30. (1000 x .30 = 300) Write your dollar amounts on your paper.

4

Send a payment to each creditor so that it arrives one to four days before the date your creditor reports the account to the credit-reporting agency. If you cannot make a payment large enough to bring the balance to less than 30 percent, pay as much as you can. Your score will show an improvement with any reduction in balance.

5

Wait until the day after the creditor has reported the new balance and pull your credit report with score again. Make note of the credit score increase and repeat the process for each account you reduce the balance on.

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How Do I File on Someone's Credit Report?

A credit report is designed to show a potential borrower's creditworthiness--that is, the likelihood that he will be able to pay the loan back on time. Many small and personal lenders assume that they do not have the same power as large companies to report debts and delinquencies on a borrower's credit report. However, any business owner can file such reports. After the initial setup, reporting credit data is a fast and simple task.

Instructions

1

Open an account with each of the three major reporting bureaus: Experian, Transunion and Equifax. You can open an account on the website for each bureau. Each agency will charge a fee, typically in the form of a subscription charge that you pay online with a credit or debit card.

2

Draft a disclosure notice that advises the borrower that you will report her payment history to the three credit bureaus. State in the disclosure notice that you have the right to access the borrower's credit report. If a prospective borrower refuses to sign the disclosure, do not do business with her.

3

Complete the credit data reporting form for each agency. On each form, you will include the borrower's identifying information, such as name, address and Social Security number. You will also include the type of debt owed, the amount of the debt, and whether the borrower is current on his loan. Submit the reporting form to each agency online.

4

Report data for your borrowers each month until they pay off or otherwise close the loan. If the borrower does not make timely payments as agreed, this consistent reporting gives other prospective lenders the information they need to deny the borrower a loan or charge higher interest rates. If the borrower does pay as agreed, it helps the borrower to build a solid credit history.

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Does Paying Off a Collection Negatively Affect Your Credit Score?

When you are faced with debt collectors calling you, paying off your accounts may be at the top of your priority list. In this situation, besides just getting rid of the debt, you also have to consider how it can impact your credit score. When paying off your accounts, it should not negatively affect your credit score unless you close them after paying the balances.

Paying Off Old Items

When a debt gets to a certain age, it passes a statute of limitations. This statute of limitations is different for every state and once the time limit has passed, the collector cannot take you to court. However, this does not mean that you should not pay off the debt. Paying off old accounts cannot hurt your credit score, but it may not necessarily help it right away either. Once you pay off the debt, the creditor will report it to the credit bureaus as paid; however, accounts less than 7 years old will remain on your reports. But as MSN Money points out "any potential lender, landlord or employer would much rather see a paid collection account than an unpaid one."

Credit Utilization Ratio

One factor that must be considered in this situation is your credit utilization ratio. This is the ratio of the amount of debt you have in relation to the amount of available credit. If your credit utilization ratio is below a 35 percent, it helps your credit score. This means that paying your collection account balances down can actually boost your score in this regard. When creditors know that you have little debt, it makes you a more attractive borrower.

Closing Accounts

When you pay off your credit accounts, closing them could actually hurt your credit score. If an account is closed, it lessens the amount of available credit that you have. Even though you have less debt also, it can make the credit utilization ratio less attractive. Once your ratio rises above the 35 percent mark, it hurts your credit score and makes lenders think twice about extending credit to you. If the account is delinquent, the creditor may freeze it, which prevents you from accessing the rest of your credit limit. Once this happens, it can actually negatively affect your credit utilization ratio. Paying off the account, could help improve your ratio again. In some cases, the creditor may be willing to reinstate the account once you pay off the delinquent amount. When this happens, it can significantly improve your credit utilization ratio again.

Frequent Use

Once you pay off all of your collection accounts, you may be tempted to avoid using credit completely. While this can help you avoid paying interest and it can keep you out of debt, it can hurt your score. In this situation, using your credit accounts lightly but frequently can help boost your score. Once you make a purchase on your credit cards or other credit accounts, pay it off when the statement comes and your score will increase over time.

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How to Put a Credit Alert

The Federal Trade Commission says you can place fraud alerts on your credit reports to protect your identity. The alerts will make it difficult for crooks to use your name and personal information to open fraudulent credit accounts. The alerts can remain in place for up to seven years, and during that time federal law requires potential creditors to make reasonable efforts to verify your identity or even meet with you before issuing credit in your name.

Instructions

1

Contact the three major credit bureaus--TransUnion, Experian and Equifax--to place the fraud alerts on your credit report. Call the bureaus for the fastest service, or write them. If sending a letter, include your name, Social Security number, address and telephone number. The credit bureau will contact you by standard mail or telephone to confirm your identity and activate your fraud alert. If you call, this can be accomplished during the initial conversation. Contact the credit bureaus at their addresses.

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19022-2000
800-916-8800

Equifax Consumer Services
P.O. Box 740256
Atlanta, GA 30374-0256
800-846-5279

Experian
P.O. Box 2104
Allen, TX, 75013
888-397-3742

2

Ask for one of two types of fraud alerts: an initial alert or an extended alert.

3

Request an initial alert if you need only temporary protection. An initial alert remains on your credit reports for at least 90 days and is a good choice if you've lost your wallet or purse and need time to notify your creditors. You can specify how many days you want the alert to remain in place beyond the minimum of 90. For an emergency situation like this, call the credit bureaus to activate the alert. Once the alert is in place, federal law requires creditors to follow "reasonable polices and procedures" to verify your identity before issuing credit in your name.

4

Select an extended alert if you have become a victim of identity theft and crooks have already used your personal information to open fraudulent accounts. To activate the alert, you must provide the credit bureaus with an Identity Theft Report that describes how you were victimized. Sample reports are available at the FTC website. Or gather information from your police report. The credit bureaus can guide you through the process. The extended fraud alert will remain on your account for seven years. While the alert is in place, creditors must contact you directly or even meet with you before issuing credit.

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What Is the Meaning of Your Credit Score?

Credit reports are detailed dossiers of your credit accounts and financial transactions, compiled by three reporting agencies called Experian, Equifax and TransUnion. Many lenders review your reports, but some prefer to use your credit score, which compacts all your report data into a simple number. Your score changes regularly, based on the information in your reports, so it is always up to date, according to the Board of Governors of the Federal Reserve System.

Definition

A credit score is a three-digit number calculated by original scoring company Fair Issac Corp. or a credit bureau. It summarizes your creditworthiness based on your current and past financial activity. Scores run between 300 and 850, according to Leslie McFadden of the Bankrate website, and a higher score means you are a more trustworthy borrower. Low scores mean you are at higher risk of defaulting on bills or filing for bankruptcy.

Factors

Credit score formulas are based on various factors related to your credit use, with some actions weighed for heavily than others. For example, the timeliness of your payments and signs of financial mismanagement, like charged-off accounts or repossessions, are 35 percent of your score, according to the MyFICO scoring site, while owed balances account for 30 percent. Fifteen percent of the total number is based on how long you have had loans and credit cards, while your newest accounts and your mix of revolving and installment credit makes up the remaining 10 percent.

Range

Lenders grant new accounts and determine interest rates, fees and other terms based on a range of credit scores that marks you as a highly desirable or average customer or high-risk credit user. The best scores fall between 760 and 800, while anything below 620 classifies you as "subprime" and raises your application rejection risk. Creditors may insist on charging higher-than-average interest if they do agree to work with you.

Access

The Fair and Accurate Credit Transactions Act, an amendment to the Fair Credit Reporting Act, entitles you to see your credit score but allows FICO and the credit bureaus to charge you for it. Experian, Equifax and TransUnion must give you free credit reports yearly through AnnualCreditReport.com, but the law lets them impose a "reasonable" fee for your score. The usual charge is around $8, according to the Federal Trade Commission. Two websites, CreditKarma and Quizzle, which is owned by Quicken, give free credit scores with no purchase requirements, according to financial adviser Clark Howard.

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How to Add Years of Positive Payment History to a Credit Score

A credit score is a rating credit agencies place on the level of risk involved with lending to an individual. Higher credit scores indicate a lower level of risk, whereas low credit scores indicate high risk. Several factors go into determining your credit score. The number of credit lines you have, outstanding debt, banking information, judgment and lien filings and payment history all have a significant impact. Adding positive payment history to your credit report will improve your credit score and increase your borrowing ability.

Instructions

1

Contact the information provider or creditor. Creditors provide the details or information regarding payment history to the credit agency. You can report positive payment history related to credit cards, rental agreements, mortgages and other financial obligations by contacting specific creditors. Notify them that you do not see payment information on your credit report. They, in turn, should furnish the information to credit agencies for reporting.

2

Contact the credit agencies. Many consumer credit agencies or bureaus compile credit scores on the reports they sell or furnish. Adding your positive payment history can improve your credit score. Notify credit agencies such as Equifax, TransUnion and Experian of the missing payment information. They will conduct an investigation that includes contacting the creditor for verification.

3

Verify the payment information has been added to your credit report. Any changes made to your credit report require the credit agency to notify you in writing and provide you with a free copy of your credit report. If you do not receive a notification from the credit agency, contact them to see whether any changes were made. After any changes occur, compare the credit score on your new credit report to the old one. You should see an improvement.

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Can Banks Report Credit for Participating in the MHA Program?

Creditors will report a Making Home Affordable, MHA, loan which might seem like a bad item, but it usually helps borrowers keep their home and avoid more serious incidents. When the MHA program first started, the normal credit reporting codes hurt credit scores of participants. As long as you abide by the rules of your MHA program, your credit score will be fine in 2011.

Identification

Banks will report a mortgage in a MHA modification program. In 2011, a MHA account appears as ""modified under federal government plan" on a credit report, according to the Making Home Affordable website. Lenders do not have to report any account to the credit bureaus, but most mortgage providers do this to keep credit bureau files as accurate as possible.

Effect

When the federal government introduced the MHA program in 2009, modification usually hurt scores, because the government told lenders to report accounts taking part in MHA as partially paid. Anything less than "paid as agreed" damages a credit score. In 2010, the government fixed this by authorizing a new reason code for consumers taking part in a federal modification program.

Considerations

The status of your mortgage before entering an MHA program determines how the creditor reports it to the bureaus. If you are in default before the trial period -- a three-month testing time to see if the loan modification helps you meet payments -- the creditor will report the account as delinquent unless the modification lets you catch up on the missed bills. If you are not behind on payments, the creditors reports the account as "paid as agreed."

Tip

Always ask the lender how he will report the modification to the credit bureaus. As of 2010, taking part in an MHA program does not lower your credit score. The Fair Isaac Corporation, designer of the popular FICO score, does not have enough data to determine how the MHA program affects borrowing habits. Since most people requesting help from MHA are having trouble paying a mortgage, there is a good chance that just taking part in the program could lower a person's credit score in the future.

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How to Improve Credit Using the Piggyback Method

The Equal Credit Opportunity Act helped to give homemakers credit scores by adding them as an authorized user on their husbands' accounts. Being added as an authorized user of an account--known as "piggybacking"--can help you increase your credit score through association with someone who has good credit, even if you never use the account. Unfortunately, credit repair companies began using piggybacking to boost the scores of strangers' accounts. The credit bureaus have caught on to this method and are developing ways to catch deceptive use of piggybacking, but it still works in legitimate cases of adding family to credit accounts.

Instructions

1

Ask a family member to help you out. You need to have someone who is willing to add you as an authorized user to her account. Typically, this would only be a parent or a husband or wife.

2

Call the credit card company. The card owner must call the credit card company and ask to add you as an authorized user. You may or may not get your own credit card. Even if you never use the account, you will still benefit from being an authorized user.

3

Wait for your credit score to rise. You may see an initial jump of 20 or 30 points, but you'll have to wait several months to see a significant increase.

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Can a Creditor Only Report Negative Information on My Credit Report?

Taking a closer look at your credit score is associated with an increase in creditworthiness, according to the Consumer Federation of America. Credit reports show you everything about your financial history, such as when you missed payments or how many loans you have open. Although negative information can have a major impact on a credit score, it is not the only thing reflected on it.

Identification

Technically, a creditor could only report negative information about an account, because the credit rating agencies require input from lenders who are free to report as much or as little as they want. Most lenders, however, will report positive information, because accuracy is highly desired in the credit industry and as a courtesy to customers.

Other Information a Creditor Reports

Creditors can report almost any information you put on an application. Credit reports show demographic data, such as last known address and employer, and any type of public record or judgment, such as a tax lien, according to the Privacy Rights Clearinghouse. Lenders can report salary information, but the credit rating bureaus choose not report this out of concerns about accuracy.

Effect

Once a creditor reports a negative item to the credit bureaus, it stays on the consumer's report for seven years. The most derogatory items are those that show a person cannot pay a debt at all, such as bankruptcy, foreclosure and a collections account. State law may require certain negative items to stay for a lesser amount of time.

Mistakes

Mistakes can happen, with lenders or with the credit rating agencies, such as when an account is posted to the wrong report. Consumers should scan their reports frequently for errors. If you find one, dispute it with the credit bureaus---who must verify the error with the lender in 30 days or take it off the report. Negative items identified as errors are removed from the record and you receive a free copy of your credit report.

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Effects of Unemployment on a Credit Score

There are no direct effects of unemployment on your credit score. However, the loss of income might affect your credit score. For example, if you have more bills than you have money while you are unemployed, this can certainly cause you to get behind in your payments, which will in turn affect your credit score.

Late Payments

When you are unemployed, you may be receiving unemployment benefits, which might not be enough to cover your bills. You may end up making late payments, which can affect your credit score negatively.

Fees

Should you make late payments or go over your credit limit as a result of unemployment, then you may be assessed late fees. This will only increase your debt load and the amount of the next payment, which can negatively impact your credit score.

Higher Interest Rates

When unemployment forces you to make late payments or go over your credit limit, then your creditors may impose higher interest rates because you defaulted on the original agreement. Your credit rate will suffer if you can't keep up with the payments as a result of the higher interest rates.

Foreclosure

If unemployment causes the bank to foreclose on your home, then this will cause your credit score to drop dramatically. A foreclosure will remain on your credit report for seven years.

Bankruptcy

If unemployment causes you to file for bankruptcy, this will negatively impact your credit for up to 10 years.

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How to Delete Things From Your Credit Report

Credit scores have become increasingly important in just about every area of a consumer's life. Credit scores, and the reports used to generate the numbers, are used for auto loans, home mortgages, health insurance premiums and even potential employment evaluations. A negative item on your report can make a huge difference in your life. You can take a number of steps to delete disputed items from your report.

Get Your Reports

Get your credit reports from all three of the credit bureaus so you can delete negative items off all your records. The three agencies are Experian, TransUnion and Equifax. You are entitled to a free credit report by law via AnnualCreditReport.com. If you know you have an item to dispute, you can also get free reports from any of the bureaus. Simply go to each bureau's website and follow the links to dispute an item. You will be shown your full credit report so you can request any disputes.

Dispute Items in Error

If there is an item on any of your reports that is a legitimate error, you should dispute it immediately with all three bureaus. Each one has a dispute process that you can do online, by mail or on the phone. To get an item removed, you will need to provide a reason or proof that it has been reported in error. Legitimate reasons include the fact that it is not your account, it has been paid in full prior to going to collections and it is an invalid debt.

If you are disputing an item that you simply believe you should not be responsible for paying, you should dispute the item by mail and provide evidence documenting the claim. The Federal Trade Commission provides a guide for consumers to help with disputes.

Contact the Creditor

Contact information for the creditor reporting each negative item should be included on your report. Call the number to inquire about the item. If it is a credit card company, bank or other established institution, it should have a process for determining the validity of the item. Provide written documentation. If it is a collection agency, it is likely to be less willing to remove the item. Send a formal letter to the collections company along with any proof you have that you are not responsible for the debt. ExpertLaw provides sample letters as well an explanation of your rights under the Fair Debt Collections Practice Act. If you are at all unsure what to include in the letter, consult a reputable attorney who specializes in collections.

Offer to Pay Debt

Some collections agencies are willing to remove the reporting of a negative item if you agree to pay the debt in full. Call the collections company and request a "pay for delete" letter mailed or emailed to you, but do not claim responsibility for the debt. You should keep a record of the letter and check your credit report again in 30 days. If the item has not been removed, you can dispute the item with the credit bureaus and send them a copy of the letter.

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Can Being Added to Someone Else's Credit Card Improve My Credit?

Your parents have good credit. You, not so much. You may wonder if you could improve your credit by having one or both of your parents add you to their credit cards. Under the most recent credit scoring models, gaining access to someone else's credit card account may not boost your credit score much, if at all, even if the other person maintains excellent credit.

Equal Credit Opportunity Act of 1974 and Regulation B

Under the Equal Credit Opportunity Act of 1974 and Regulation B of the Federal Reserve Board, lenders and credit granters must consider accounts held and administered by both spouses when considering the creditworthiness of a married person's credit. As a result of Regulation B, Fair Isaac Corp. also includes accounts where an individual is listed as an authorized user in calculating the credit score of that user.

Authorized Users and Piggybacking

Primary credit card holders are permitted to add one or more authorized users, usually family members, to their account without an additional credit check for either party. The authorized user enjoys the same access to a credit card account as the primary card holder and also receives a credit card. However, in so-called piggyback operations, a commercial company adds the individual as an authorized user to the credit card account of a complete stranger with excellent credit who receives a fee. The authorized user pays a hefty fee for the credit boost, but never receives a credit card, according to Bankrate.

FICO 08

In reaction to the broad popularity of piggyback schemes, Fair Isaac Corp. proposed a new algorithm in 2007 that would exclude authorized user accounts from the calculation of credit scores. However, Fair Isaac conceded before a Congressional subcommittee that the proposed change would violate Proposition B and abandoned the plan. FICO 08, Fair Isaac's most recent credit scoring algorithm, continues to factor authorized credit accounts in an individual's credit score. However, Fair Isaac Corp. claims that the revised algorithm will diminish the credit boost from piggyback schemes without punishing so-called legitimate authorized users such as spouses and offspring, according to Reuters, quoting an industry press release.

Credit Bureau Reporting

If you are not the spouse of the primary credit card holder, the company may or may not report your status as an authorized credit card holder to credit reporting bureaus. In addition, VantageScore, an alternative credit scoring agency created jointly by Equifax, Experian and TransUnion, the three major credit bureaus, does not include authorized credit accounts in its scoring model. The agency claims that it is in compliance with Regulation B because it draws its data from credit bureau reports, which do not indicate whether an authorized account is a spousal account, Bankrate states.

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How Do Collections Affect a Credit Score?

Your credit score is affected by many things, including the way you handle your finances, obtain and use credit and make payments on your accounts. You may have an account go into collections if you skip several payments. This pulls your credit score down and leaves you open to other negative consequences.

Definition

Your credit score is a three-digit number derived from a compilation of financial information. Companies like FICO, the top credit score provider, use data from your credit reports to calculate the number. FICO explains that 35 percent of your score is based on how well you repay your accounts, 30 percent is based on your total owed debt, 15 percent is based on the length of time you've had credit, 10 percent is based on your mix of different account types and 10 percent is based on how many new accounts you've opened. Collections accounts fall under your payment history, which has the largest effect.

Credit Score Effects

If you skip several months of payments on a credit card, loan or other account, the creditor will most likely send the matter to its collections department. This hurts your credit score because of the delinquent payments and the creditor's action. Other lenders will view you as a poor credit risk because you now have a history of not paying your bills. You will pay a high-interest premium on new accounts or you won't be able to open them at all because your poor credit score will peg you as a high-risk customer.

Other Effects

Collections can affect you beyond hurting your credit score. Collection departments can be aggressive, bombarding you with phone calls and letters demanding payment. The lender may decide to sue you and get a judgment against you for the debt. Depending on your state of residence, the lender may be able to place a lien on your property or garnish your wages. The lender might opt to sell the account to an independent collection agency which may add fees that boost the total due.

Prevention/Solution

You may be able to prevent creditors from sending your account into collections by contacting them as soon as you know you will have payment problems. Explain the situation and ask about potential solutions like reducing the monthly payment or changing the due date. Some lenders will refuse to work with you, but others may be open to assisting rather than having you potentially default on the debt.

Warning

You may hurt your credit score even more by paying off a collections account, Liz Pulliam Weston of MSN Money warns. A paid collection is still a negative item, and it looks even worse if you negotiate with the lender or collection agency and settle for a discounted amount. You will restart the statute of limitations on an old debt if you acknowledge it and make payment arrangements. Ask the creditor or collection agency for an agreement to report the debt as "paid as agreed" in exchange for paying it off. Insist on written confirmation before handing over any money so you can force the company to follow through, Melanie Sullivan of the Military Money website advises. This change will erase the effect on your credit report since there will be no evidence the account was ever in collections.

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Could My Ex-Wife Use My Credit?

Your ex-wife cannot legally apply for credit under your name, but since you probably opened a few accounts with her, she might damage your credit or increase your financial obligations. Even if you have nothing to do with some charges, you could owe money due to community property laws. Thus, you may need a lawyer to sort out which expenses you and your ex jointly owe.

Identification

Your ex-wife cannot apply for credit under your name; using another person's information on a credit application is illegal and called file segregation. However, your ex-wife can use joint accounts, such as credit cards and a mortgage. When you put your name on an account with a spouse, you agreed to pay the bill even if a judge gives the bill to only one of you.

Community Property

Some states assign debt to both spouses regardless of the type accounts they hold. In a community property state, spouses jointly own any debt incurred during the marriage even if they use individual accounts. However, a judge can assign debt to one party, such as if a spouse were to sneak off to a casino and rack up thousands of dollars in gambling debt, usually called a "hold harmless" or "indemnity" clause. Although community property states stop assigning debt to both spouses after a judge signs the divorce papers to end the marriage, community property might extend to your assets long after your marriage, such as contributions to your 401(k) retirement plan during the marriage.

Preparation for Divorce

Experian recommends monitoring your credit during the divorce to know which accounts creditors say you must pay. You must pay joint accounts even when you dispute the validity of a debt or include them in a divorce proceeding. Missing payments damages both of your credit histories. If you anticipate a divorce, try to settle accounts before an argument arises. You might not be able to remove your spouse from some accounts, such as a mortgage, unless you refinance, or pay off the loan with a new contract, and the spouse agrees to selling the property.

Tip

You should consult a divorce attorney to help you figure out which charges were made by your ex-wife. You might need to ask a judge to order your ex-wife to furnish credit card statements so you can determine which charges were made after the judge signed the divorce papers. You also can ask the judge to reaffirm that you do not have to pay debt which your ex incurred after the judge signed the divorce decree.

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How to Interpret Credit Score

Credit scores are often used by loan companies, banks, and other credit card companies to determine if you qualify for a loan, credit card or mortgage. They can also be used as a guideline for yourself to determine how carefully you should spend in the future. To understand credit scores, you'll need to understand what most commonly determines a credit score, and what a good one is.

Instructions

1

Understand where the credit score comes from. Generally, credit scores are calculated by looking at your payment history, current debt, credit history, how much new credit you've applied for recently, and some other minor factors such as the variety of debt you have.

2

Determine whether or not your credit score is good. The most common credit score scale is the FICO scale. This scale ranges from 300 to 850. A good credit score is close to or more than 650.

3

Determine what this score means. A credit report will generally break down the individual categories behind a credit score. If you have a bad credit score, this means you have a number of negative factors affecting your credit score. Negative factors include: A lot of outstanding debt, a lot of recent credit checks, and a lot of late payments.

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