March 2005 ~ Personal Finance and Money Management

Wednesday, March 30, 2005

What Range of Values Is an Excellent Credit Rating?

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A credit rating, or score, is a three-digit number that is basically a grading system that gives creditors a quick snapshot of your credit report and insight as to how you pay your bills and manage your credit. A low score can cost you extra money in interest over the life of a loan or, if you have a really low score, can prevent you from getting credit at all.

A credit score is also known as a FICO score, which stands for Fair Isaac Corp., the company that developed the system. FICO scores range between 300 and 800. The exact formula for determining one's FICO score remains a secret but Fair Isaac has identified five areas that impact a FICO score: payment history (35 percent), amounts owned (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent). An "excellent" credit rating is a FICO score between 760 and 850, while a "very good" rating is a score between 700 and 759. The average FICO score is 687, which is calculated by adding up all scores and dividing them by the number of people.

If your FICO score isn't "excellent" there are some ways you can improve your score. Some tips include paying your bills on time, refrain from applying for new credit as multiple credit applications can hurt your score, keep open old accounts as having long-term credit can help your score and monitor your credit report for any errors.

The type of loan a person is seeking sometimes gauges credit worthiness. For example, a mortgage company could give more weight to different factors compared with a credit card company. According to Freddie Mac, credit scores ranging from 770 to 850 are considered "very good" and mortgage borrowers within this range usually get the best credit rates.

An auto loan lender might take into consideration how much a customer is putting down, as well as how long a person has been at one job and their debt-to-income ratio. In addition, past performance on similar type loans is also considered. So, if a person missed a car payment in years past, that might be more important than an overdue credit card bill.

Credit card companies may place a greater emphasis on credit card information, such as if a person missed any revolving credit payments. In addition, the system will usually evaluate a student seeking a starter credit card differently than a platinum cardholder, for example.

What Is a Credit Limit on a Credit Report?

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Your credit report can have a significant impact on your ability to gain credit, rent a home, get insurance and get a job. If your credit score is too low, it can affect your interest rates and the amount you pay for security deposits. Insurance companies may deny your application for insurance and a prospective employer may pass you over for employment if you have a low score. A large part of your credit score is the credit limit on your accounts. Your credit limit shows your credit utilization ratio, or the amount of credit you have for your various credit card and credit line accounts.

If a lender sees most of your accounts at their limit, it may assume that you are not a good credit risk. Typically, when consumers are having difficulty meeting monthly debts, they may access available credit lines to help pay bills and buy necessities. Credit bureaus realize this and can lower your score even if you are paying on time.

Low utilization of available credit can adversely affect new credit offers as well. If a prospective lender looks at your report and sees numerous cards with low balances compared with your limits, the lender may decide you are a bad credit risk. Credit bureaus look at how many open accounts you have when calculating your score. If you have more credit available than you can pay back, lenders can consider you a bad credit risk, according to the University of Connecticut.

Credit reports can contain inaccurate information. The Fair Credit Reporting Act enables consumers to request a free credit report from each of the three major bureaus once a year. Look at your credit limits and other information to be sure that your lenders are reporting your credit file correctly. If your report contains inaccurate information, you can file a dispute in writing with the credit bureau. The credit bureau will look into your claim and correct the error.

A high credit score is essential to receiving low-interest credit offers. Lowering your balances, paying bills on time and not having too many open accounts can, over time, increase your score. Although some companies advertise that they can raise your score, according to the Federal Trade Commission, many of them are frauds. A company may be fraudulent if it tells you to create a new credit identity, asks you to pay before it does anything or advises that you dispute accurate information.

Are Credit Scores Free?

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Your credit score is a number that represents the sum total of your financial history. Three different credit reporting agencies, Equifax, Experian and TransUnion, monitor your use of credit and compile a credit history as well as a credit score to provide to lenders who inquire about your credit. For you to receive your credit score, you'll generally need to pay a fee to the agency you choose.

Many people have heard about the availability of free credit reports, which can lead to confusion when it comes time to pay for a credit score. The federal government requires each of the credit reporting agencies to provide one free credit report to each American consumer once a year. However, this credit report does not need to contain the three-digit credit score. The credit score is based on the information in the report, so checking the free report may be enough to get an understanding of your credit. However, to access the actual score, you'll usually need to pay.

The cost of a credit score varies from one credit reporting agency to another and depending on what sort of credit reporting package you buy. According to the Federal Citizen Information Center, a credit score from one of the three agencies costs around $15 as of 2011. This means that a package containing credit scores from each of the three reporting agencies would cost around $45, though you can purchase packages online that deliver all three scores for a discounted price. You can purchase your credit score online from one of the reporting agencies or a third-party financial services website.

Many websites claim to offer free credit scores. However, these sites often represent marketing efforts from financial service websites that offer a free credit score only once you've committed to a long-term subscription or paid for other financial reports. When you apply to rent an apartment or get a mortgage loan, the landlord or lender will ask for a fee that goes toward accessing your credit score. Asking for a copy of the score is one way to access your credit score for free, although you paid for it as part of the application fee.

Even if you don't have access to your credit score for free, you may still find it worthwhile to pay for it. Your credit score is the number lenders use to determine whether to approve your loan applications. It also determines what interest rate you qualify for and whether you can rent an apartment or home. If you have reason to believe that you are a victim of identity theft, which would allow someone else to damage your credit score, the $15 charge for a copy will deliver a valuable tool to ensure that your credit is secure or identify damage quickly. Likewise if you plan to apply for a mortgage, you can make a more accurate interest rate estimate before you apply if you know your own credit score.

How Does a Bankruptcy Affect Credit After Two Years?

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While you should always do everything possible to avoid bankruptcy, sometimes it is the best thing for your financial future. You can recover from bankruptcy before it leaves your credit report. Take an active approach to rebuilding credit and two years might be all you need -- sometimes a bit less.

Bankruptcy will affect your credit in some way as long as the bureaus report it. Chapter 13 stays for seven years and Chapter 7 for 10 years. However, all negative items become less important with each passing day. After two years, a bankruptcy probably won't affect your credit enough to prevent obtaining a credit card or major loan, such as a mortgage. Some lenders, such as the Federal Housing Administration, approve applicants with a bankruptcy in the past year.

Even if you have a good credit score, a bankruptcy on your report will probably mean paying a bit more on future loans. According to Bankrate, borrowers tend to pay 2 or 3 percent more for mortgages when they have a bankruptcy in the last two to five years. You might have to shop around to find the lowest rate possible or a lender willing to overlook a recent bankruptcy.

If you filed Chapter 7 or completed your Chapter 13 repayment plan, bankruptcy might put you in a better position to obtain credit than before you filed, suggests Moran Law. You probably wiped out a significant portion of your debt or at least have a payment plan tailored to your monthly income. Also, the credit bureaus delete the history on bankruptcy accounts and list them as "included in bankruptcy." A bankruptcy filing could improve your credit score because you might wipe out several negative items that cost more points than the bankruptcy, according to Smart Money.

You must start using credit again after bankruptcy to build a good credit history as long as you feel you can handle a loan or line of credit. The first place to look for credit after bankruptcy is either a secured credit card -- a credit card with a security deposit on the limit -- or a store credit card, which typically have the lowest lending standards. Keep future balances and focus on paying bills on time. Avoid applying for too many accounts too soon. A rush of credit applications will make you look desperate for credit.

Can Canceled Debt Be Removed From a Credit Report?

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Canceled debt typically appears as a charge-off account on a consumer credit report. Charge-off accounts will negatively impact your credit rating for years. Canceled debt, or charge-offs, can be removed from a credit report in accordance with the laws outlined in the Fair Credit Reporting Act. Consumers should be aware of the laws that pertain to canceled debt and monitor their credit report for inaccuracies and items that fall outside the statute of limitations.

Canceled debt is the term used when a commercial lender forgives or cancels debt due to a consumer's inability to repay a loan. Canceled debt amounts often include accrued interest as well as the principal loan amount. If the amount of the canceled debt exceeds $600, creditors may issue a Form 1099-C to the consumer. Consumers must report the amount of the canceled debt as income for the tax year during which the debt was canceled.

Before a lender cancels the debt, the fact that the payments on the account are delinquent negatively impacts your credit rating. Payment history determines 35 percent of your credit score; creditors typically report delinquent accounts for six months prior to charging off the debt. After the debt is canceled, the resulting entry can negatively impact your credit until the statute of limitations expires. In addition, canceled debt affects your debt-to-credit ratio, which accounts for 30 percent of your total score. Closed canceled debt accounts reduce the debt, but they also reduce the available credit.

According to the FCRA, credit-reporting agencies must remove negative account listings from your credit report after seven years. Consumers can monitor their credit reports by receiving a free annual report from each of the three credit-reporting agencies. When the seven-year statute of limitations expires, the canceled debt account listing should be automatically removed. If the reporting agency neglects to delete the item, consumers can file a dispute based on the FCRA limitation statutes.

The only other ways that a canceled debt account can be removed from your credit report is if the information is inaccurate or if the lender agrees to delete the listing. Consumers must file a dispute with any and all of the three reporting agencies that incorrectly list the account information. Each agency -- TransUnion, Equifax and Experian -- offers online dispute forms. It is not likely that the lender will forgive the debt and agree to not report the account unless the debtor agrees to pay a larger portion of the debt, meaning a smaller amount of debt is forgiven.

Does Paying a Bill on Your Credit Score Make Your Score Go Up?

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Boosting your credit score takes time and patience. In order to boost your score, you must focus on the top areas impacting your credit score each month. Paying a bill on your credit report helps your score to increase as long as the creditor reports to the three major credit bureaus each month.

Creditors report information to the credit bureaus monthly. Based on the information reported, the credit bureaus calculate your credit score. There are five primary factors influencing your credit score each month which include payment history, amounts owed, length of credit history, types of credit and new credit. At 80 percent of your score, the top three factors to consider when boosting your credit are payment history, amounts owed and length of credit history. If you pay your bills on time, keep your balances low and maintain a positive account history over time, your credit score will go up.

Paying a bill can only impact your credit score if the creditor reports monthly to the major credit bureaus. While most credit card companies and lenders report to credit bureaus, there are many household bills you pay each month that do not get reported to the credit bureaus. For example, utility accounts, cell phones, and internet expenses. In most cases, these creditors do not report your account information unless your account is charged off. Once your account is charged off, it negatively impacts your credit score each month until paid in full. After you pay the bill in full, it is reported as paid, but may not fall off your credit report for another seven years.

How much you pay on your bills each month is an important factor when attempting to boost your credit score. Generally, the lower your balances, the more your score increases each month. This is due to your credit utilization ratio. Your credit utilization ratio is the amount you charge or owe relative to your credit limit or original account balance. For example, if you have a credit card with a $2,000 limit and charge $1,000, your credit utilization ratio is 50 percent. According to Bankrate, a good credit utilization ratio is 30 percent or below.

Making consistent payments on your bills helps to ensure your credit score improves each month. However, ensure your payments are substantial enough to reduce your credit utilization ratio to below 30 percent. If you can't afford making large payments, consider contacting your creditor to increase your credit limit or lower your interest rate. As long as you have a positive account history, your creditor may be willing to negotiate new rates to help you better manage your credit account.

How Does a Misdemeanor Affect Your Credit Score?

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A credit score is a summary of your credit history from the past seven years. It includes your borrowing and repayment information, as reported to the credit bureaus by lenders. Your credit report does not include your criminal record. Therefore, a misdemeanor will not affect your credit score. However, it could still keep you from getting a job or renting an apartment, as many employers and landlords run criminal checks, as well as credit checks.

Whenever you borrow money, whether a loan, a credit card, a mortgage or a cell phone contract, the lender will begin reporting about this to one or more credit bureaus. The credit bureaus collect this information and convert it into a three-digit credit score. The formula used to calculate the score is secret, but it includes the total amount you owe, your repayment behavior, the length of your credit history, types of credit you use, and the number of recent credit applications. When you want to borrow money, that lender will request your credit score from the credit bureaus. The score tells potential lenders whether you're a safe bet. The lower your score, the higher the risk for the lender. People with high credit scores find it easier and cheaper to borrow money.

Your credit report includes identifying information, such as your name, address, date of birth, driver's license number and Social Security number. It may have details of your employment. The report lists all your debts, including settled ones, from the past seven years. It includes any bankruptcies, financial court judgments and liens. If you've missed any payments or defaulted on a debt, it will be on your report.

Your credit report does not contain your criminal record. It also doesn't include any information on your income or any savings accounts you may have. There is no mention of your medical history, political affiliation, personal background, religious preference, sexual orientation or race.

While it will not show up on your credit report, a misdemeanor will appear on your criminal record. There are no expiration dates for misdemeanors. They stay on your criminal record forever. Depending on your field of work, a misdemeanor can prevent you from getting a job. Many colleges also run criminal background checks on applicants. A misdemeanor will not stop you from getting a mortgage, but it can cause problems if you want to rent a place. If the misdemeanor is a one-off, you may be able to get your criminal record sealed. This is known as expungement, and the option is only available to first-time offenders.

Effects of Credit Ratings

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The effects of credit ratings can be felt in almost every aspect of life. From jobs to purchases, your ability to obtain the job or goods that you want may be thwarted if your credit rating is too low. With a good credit rating, you have more access to savings, financing and job opportunities.

In finance-related jobs and the insurance industry, prospective employers routinely screen the credit rating of applicants to help determine employment eligibility. These employers believe that a good credit rating equates to positive work ethics and responsibility. A credit rating may also be used to screen for advancement opportunities.

Credit ratings directly correlate to the finance rate you are offered when applying for loans, credit cards and even bank accounts. The higher your credit rating, the lower the finance rate you are offered for loans and credit cards. Since there is less risk of nonpayment with a higher credit rating, banks can offer better rates. You may be offered higher interest rates for savings accounts if you have a high credit rating since you are a good prospect for other bank-related products.

Insurance rates for cars, homes and more are based on statistical risk models. One of the key components in these models is financial stability, which is measured through your credit rating. If you are more stable financially, you are statistically less likely to make insurance claims. Higher credit ratings lead to lower insurance rate premiums.

The size, rate and ability to obtain a mortgage depend in large part on your credit rating. With a good credit rating, you can obtain a larger mortgage at a better interest rate, which allows you to have more choices when you select a home to buy. A low credit rating could make it difficult to purchase a home, and could even make it difficult to rent an apartment.

Credit cards with reward programs and high credit limits are offered to potential customers with high credit ratings. Credit cards with yearly fees, low credit limits and no reward programs are offered to those with low credit ratings. With a high credit rating, you also receive lower interest rates and loan offers on your existing credit cards. If your credit rating drops, your existing credit limit may be decreased and your interest rate may be increased.

High credit scores help you secure your future financial stability. With a high credit score, you are able to pay less for insurance, housing and many purchases that require financing. This extra money can be invested at a higher rate than people with low credit scores. Between the savings and the increased savings rate, you are able to build your retirement nest egg faster and can save more to use for future expenses and emergencies.

Instructions on how to Read a Credit Report

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Building up a good credit score is vital to be approved for loans, buying a car or buying a house. There are various websites and organizations where you can get your credit report and look it over. Many people, however, do not know how to accurately read a credit report. Credit reports contain several sections, and these sections include abbreviations that sometimes cause confusion. Once you know what is covered in each section and what each abbreviation stands for, reading a credit report is very easy.

Instructions

Look over the ID section to make sure there are no errors. This section will have your name, current address, Social Security Number, date of birth and your spouse's name if you are married.

Read through the credit history section. The section will start off with the company that is reporting the information, your account number with this company, and whose account it is. The abbreviations for this are: I-individual, U-undesignated, J-joint, A-authorized user, M-maker, T-terminated, C-co-maker/co-shared and S- shared. The section will list the date you opened your account with the credit grantor, the number of months reported, recent activity on the account, the highest amount charged or the credit limit, any balance due, any amounts past due and whether the account is: O-open, R-revolving, I-installment,

Scan over the collection accounts section to see if you have had any accounts referred to collection agencies in the last seven years. Check to make sure there are no collections listed that you do not remember or seem out of place. Read through the courthouse records section to make sure all records and information is listed correctly.

Read through the inquiry section to see the list of businesses that have been given a copy of your credit report in the last two years.

How Can a Person Check His Credit Score If He Doesn't Have a Credit Card?

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Credit cards aren't the only determining factor when it comes to your credit score. Loans have an effect as well, so your credit score may go up or down regardless if you've ever applied for a credit card. You can check your credit score at any time, even if you don't own a credit card.

Annualcreditreport.com is the only officially authorized free credit report website, according to the Federal Trade Commission. You can use the website to obtain your credit report and score from all three credit reporting bureaus. After you enter in your personal identifying information, such as your name and Social Security number, you will have the option to view your TransUnion, Equifax and Experian credit report. You can only use annualcreditreport.com once a year.

All three major credit reporting bureaus offer detailed credit reports and scores. If you have already used annualcreditreport.com, you can use the services from one of the three major bureaus. You will need to enter your personal information so that the credit bureau can identify you. In some cases, you may need to call the bureau's customer service to verify your identity, particularly if you don't have a lot of credit history.

You can also sign up with a third-party credit reporting website. Many third-party websites offer customers credit reports from either one or all of the credit bureaus. Third-party websites may also offer additional tools, tips and plans to help reduce credit card debt and save money. Because credit scores impact approval decisions for credit cards and loans, many people want to know their score. Unfortunately, predatory websites know that and try to capitalize on it. Stick with third-party websites that you know for a fact are secure or research them before entering in your personal information.

Many credit report websites, including the three major credit reporting bureaus, advertise credit reports for $1 or even for free. Most of the time, that price is for a trial period only, after which the company will bill your credit card for a monthly fee. Look at the offered plans before you select one. Most plans cost a monthly fee and may not provide you with what you want. For example, Experian's Identity Theft Protection package provides you with your Experian credit report and also notifies you about possible identity theft, but it does not provide you with your Experian credit score. The plan also costs a monthly fee. Most websites offer a plan that will provide you with reports and scores for all three credit reporting bureaus, but it usually comes with a higher monthly fee.

How to Fax a Dispute to the Credit Bureau

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Guarding your credit report is an important element in maintaining financial security. In order to keep your score high and ensure yourself the best treatment by lending institutions, the three credit bureaus need to have accurate information. Occasionally you'll find information that doesn't reflect your borrowing habits. This could range from a simple reporting error to fraud. If you find a mistake, it's your responsibility to dispute the incorrect information and provide all the necessary proof to the credit bureaus.

Instructions

Gather all the necessary paperwork to dispute the mistake. This could include your statements from the creditor as well as bank statements or canceled checks to prove any payment dates. Make copies of this paperwork to send with your fax.

Create a dispute letter to send to the creditor and the bureaus. This letter should include your name, address, date of birth, and phone number at the top. You may also want to provide your social security number. The body of the letter should explain the discrepancy on the report. Include details about the mistake such as the date, creditor, and account number. Explain the items you are sending, like bank statements, that prove a timely payment was made.

Contact the credit bureau using the provided phone number (see Resources). It's important to speak to someone to get instructions on the procedure you need to follow. Once you know where to send your information fax your dispute letter along with a copy of your credit report and the necessary proof that's been requested. Make sure you mark the discrepancy on your report before sending it.

Fax the letter and all necessary documentation to the credit bureau. Be sure to follow the instructions you were given as failure to do so may result in delays. Keep the fax transmittal sheet in your file with the rest of the dispute paperwork.

Follow up as soon as you can if you are not contacted within 30 days regarding your dispute. You may need to provide more documentation. Continue to follow up with the credit bureau until you receive confirmation of your correction.

Help for Self-Repairing My Credit

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Repairing credit is a lot like weight loss. It seems to take no time or effort to create the damage, but turning things around is a lot slower and more difficult. There are some quick steps you can take to improve your credit. But, depending on the amount and type of damage, you will have to be steady and patient in creating a positive credit picture before your credit scores really start to climb.

Get a copy of your credit report. You are entitled to a free copy once a year and you may also get a copy if you've been turned down for a loan recently because of information on your credit report. You can get copies of your credit report from all three agencies -- Equifax, TransUnion and Experian -- by logging on to the Annual Credit Report website (see Resources). Look for errors on your report. If there are errors -- such as paid debts marked unpaid or someone else's debts attributed to you -- write a dispute letter and, with copies of documentation supporting your claim, send it to the agency (see Resources).

The best-looking credit reports have a few long-term credit accounts with low balances relative to credit available. The Fair Isaac Corp., which sets the standards for credit scores, discourages all forms of rash credit usage including closing accounts in order to improve credit scores, because the accounts will still be on the record. Also, opening new cards to transfer balances and asking creditors to lower balances all look bad on a credit report. Installment loans look better on a report than unsecured credit. If you have several cards, try to shift credit around so that each has a low balance. Then start paying them off.

Paying bills on time sounds easier than it is. But as you maintain solid payment history, your bad credit marks will fade further and further in the distance until they're relatively unimportant to creditors. If you can, put cards and other accounts on automatic payment. If you're having trouble figuring out how to get bills paid, see a credit counselor, preferably one recommended by the Association of Independent Consumer Credit Counseling Agencies or the National Federation for Credit Counseling (see Resources). These agencies give a free counseling over the phone, in person or via email and can help you make a plan for getting caught up with bills.

Focus your efforts on paying bills today, creating the right credit mix and paying cards down. With damage that is not an error on your report, you will have to just wait until it's far enough in the past. Paying off debts that are in collections will not take the black mark off your credit report. You may want to pay off the debt anyway, for peace of mind or to avoid a lawsuit. But the older a credit blotch is, the less weight it will carry with creditors, especially if your report has been positive since then.

How to Read Credit Rating Scores

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A credit rating score is a number based on a borrower's ability to pay the bills. The credit score reflects your payment history and debt profile, and lenders make use of this information to determine the level of risk you pose if given a loan. Because your credit rating score can affect your mortgage rate and credit card interest rate, among other things, it's important to understand the significance of the credit score and how to read it.

Instructions

Obtain a credit report. There are three credit reporting agencies--TransUnion, Experian and Equifax--from which you can get a copy of your credit rating score (sometimes referred to as a FICO score, or Fair Isaac Corporation score)for a fee. It is always a good idea to get the copy and check it thoroughly, in case of inaccuracies, before you apply for a loan. Take a close look at your credit score on your updated credit report. It is a number that reflects your pay-back ability and adherence to payment deadlines. The lowest score is around 300 and the highest 850. Missed payments, late payments and frequent defaults on payments all add up to a poor credit-rating score. A score in the range of 650 to 750 usually gets you better interest rates on loans. Anyone with a score of 760 or above is considered the best credit risk of all.

Determine if you need to apply for credit to raise your score. If you think having no credit cards at all will give you a better rating, think again. Someone who has cards and a loan and manages them responsibly--making payments regularly and on time--will get a higher rating than someone without any cards or loan.

Don't go overboard on your spending. Keep your credit card balances to a minimum and make sure you pay as much as you can instead of paying just the minimum balance. Avoid applying for new credit cards--this lowers your credit score. Maxed-out credit cards can lower the rating by approximately 70 points.

Improve your score each month by keeping up with all of your loan payments on time. Missed payments have a huge negative impact on your score; repetitive late payments only serve to lower your credit score. Making payments on time every time increases your credit rating, setting you up for better loan options and facilities.

How Fast do Changes on a Credit Report Appear?

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It can take 30 to 60 days for a borrower's credit report to be updated by the credit bureau. While the lenders have to send the credit bureaus updated information once a month, the credit bureaus may update the reports prior to the lender's update, delaying the information by 60 days.

A small change in a borrower's credit report, such as one late payment or an increase in one credit card balance, can have a significant change on a borrower's credit score.

A borrower's credit report and score reflect his ability and willingness to repay debt. If a borrower is looking to procure new financing, he wants his credit score to be as high as possible.

Lenders and credit bureaus are legally required to update borrower's information once a month. However, if a borrower makes a change in his debt history after the report date, it could lengthen the time for the update to make it to his credit report.

The lag time between activity and the effect on the credit report can be advantageous for borrower's shopping for new rates on more than one new loan. The less debt listed on the credit report, the better for most borrowers.

The only line item that shows up on a borrower's credit report immediately is when a potential lender checks the borrower's credit. This can also immediately drop the borrower's score by a few points. No other information is updated in real time.

How to Increase a Credit Score When I Have Defaulted on Student Loans

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Lenders report student loans as being in default when you fall four to 12 months behind on student loan payments depending on the lender. Having a default appear on your credit report significantly lowers your score and makes it difficult to get approved for loans and credit cards. After your loan goes into default, take action to remedy the situation and repair your credit score. The best course of action depends on whether you had a federal student loan, such as a Stafford, Perkins or PLUS Loan, or a private student loan from a bank or credit union.

Instructions

Call 800-433-3243 to find out what loan servicing agency is in charge of collecting on your defaulted federal student loan.

Call the loan servicing agency and tell the customer service representative that you would like to rehabilitate your defaulted federal student loan. In rehabilitation, you start making monthly payments again to remove the default status from your credit report.

Provide the required financial information to determine an affordable and reasonable monthly payment amount.

Make nine monthly payments, each of the agreed amount and within 20 days of the due date. The nine payments must all fall within a 10-month time period. After you satisfy this requirement, the loan will go back into good standing and the default will no longer appear on your credit report. This will help improve your credit score.

Call your lender and tell the representative that you would like to start making payments on the loan again. If the loan has not gone to a collection agency yet, you might be able to get back on track before the default gets listed on your credit report. Set up a payment plan that will keep the lender from sending the loan to a collection agency and stick to the plan.

Contact private student lenders and ask about getting a consolidation loan for your defaulted loan that has already been sent to a collection agency. Paying a lender rather than a collection agency will allow you to put more positive credit history on your report and boost your score sooner.

Make regular payments to the collection agency if you cannot get a consolidation loan. This will not help your credit score much, but an account that is paid in full generally looks better than one that is still past-due.

Obtain and make regular payments on other loans or lines of credit to put positive payment history on your credit report. This will help compensate for the negative payment history that is due to the defaulted student loan.

The Best Way to Get a Free Credit Report

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While it is easy to get a free credit report online, be careful where you go to get your personal information. Many websites try to deceive customers by enrolling them in a trial membership and then charging them a monthly fee soon thereafter, even when the customer asks to not continue the service after the trial period. To avoid the hassle involved with calling credit companies and disputing charges, go to the one correct website that will offer a free yearly credit report.

Everyone can get a free credit report from one website: annualcreditreport.com. It includes all three major credit reporting bureaus--Equifax, TransUnion and Experian. You are entitled to this service once every 12 months as a result of the Fair Credit Reporting Act. All three can be viewed at once, or at different times (for instance, every four months). Regardless, you will need to visit the website and provide your personal information such as your name, address and Social Security number. Once completed, you will immediately be able to view your reports. If you don't have access to the Internet, request the credit report through the mail. Call Annual Credit Report at (877) 322-8228 or fill out a credit request form and mail it to:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

There are different philosophies about when to view your credit reports. You can choose to view all three at the same time. This will allow you to see any discrepancies between reports, since sometimes inaccuracies may not appear on all three. Just because one looks normal doesn't mean there isn't something fishy on the other two. By viewing them on a rotating schedule, every four months, you can keep a more regular check on your credit history. Either way, you won't have to pay anything unless you enroll in a more regular monthly service.

There are other situations that will allow you to see your credit report for free. If you have been a victim of identity theft and have requested a freeze on your credit reports, you have the right to view your reports for free. Likewise, you might have noticed some inaccurate information on your credit report or requested the removal of outdated information. If any of these situations apply, the credit reporting companies must review your request and fix any information. When they do this, you are entitled to a free credit report even if you have viewed them within the last 12 months. Another situation is when you have been denied a loan or received negative acts from an individual based on your credit report. If you are unemployed with the intention applying for a job in the next 60 days or are on public assistance, you again can view your report for free.

Does My Husband's Credit Affect Mine for a Mortgage?

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Credit reports are individual documents, so credit solely in your spouse's name will not affect your report, and vice versa. However, when applying for a mortgage, most couples assume they will buy together. Each of your credit scores will impact the mortgage application unless only one of you applies for the mortgage.

You and your husband have separate credit scores. Each of your scores is based only on accounts in that spouse's name. Therefore, any accounts you have that list only your name will appear only on your credit report, and accounts in only his name will only be on his report. Joint accounts will appear on both of your credit reports. Therefore, any negative aspects of your husband's credit, such as delinquent payments on his accounts, collection accounts in his name or his filing for bankruptcy in the past will not affect your credit because your name was not on the account.

When you apply for a mortgage, the lender considers only the credit score of the applicant. If there are two applicants, the lender considers both credit scores. Therefore, if you would like your husband's credit not to affect the mortgage determination, you will need to apply for the mortgage without listing his name on the application. That way, you will get a more favorable interest rate based on your good credit score.

In addition to your credit score, another important factor for obtaining a mortgage is your income. Lenders generally do not allow your monthly payments to exceed 28 percent of your monthly gross income, according to The Mortgage Professor website. The only income the lenders consider is that of the person or people listed on the application. Therefore, if you leave your husband off the application because of his bad credit, you will not be able to count his income toward qualifying for the mortgage. This might mean you won't be able to buy as expensive a home as you could qualify to buy together.

One way to approach getting a mortgage when one spouse has bad credit is to take a few years to work on improving that spouse's credit so you can apply together. One simple technique is for the spouse with good credit to add the spouse with bad credit as an authorized user on longstanding credit card accounts. This will put all of that good credit history on the credit report of the spouse with bad credit, helping his score. The spouse with good credit can also help the spouse with bad credit stay on top of his individual debts, making payments on time and paying down credit card balances to improve his score.

How to Remove Paid-Off Collection Accounts From Credit Report

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Unfortunately, when you pay a debt that has been sent to collections, your credit score does not improve. Even though you have satisfied your obligations to the debt, it will remain on your credit record until the seven-year federal reporting period expires. Because you no longer owe money to the collection agency, you have lost any leverage you may have had to demand that the entry be removed in exchange for payment. Luckily, there are still options available to you to remove a paid collection from your credit report.

Instructions

Pull your credit report, and examine the entry from the original creditor of the debt. Look for the "date of last activity" on the account. It should be located either below the name of the creditor or in the top left of the entry.

Calculate the amount of time that has passed since the date of last activity. The Fair Credit Reporting Act states that a collection debt can only be reported on your account for seven years from this date.

Highlight the entry for the original creditor and the collection account on your credit report.

Mail a copy of your credit report to the credit reporting agency that is currently reporting the expired information. Include a letter explaining that the federal reporting period for the debt has expired and that it must be immediately removed from your credit record.

Pull your credit report again in 30 days to verify that the paid collection account has, in fact, been removed by the credit bureau.

Write a letter to each credit bureau that is reporting the paid collection requesting an investigation into the account. The FCRA requires the credit reporting agencies to comply with all consumer investigation requests.

Highlight the entry for the paid collection on your credit report.

Mail a copy of your credit report and the investigation request to each credit bureau that is currently reporting the paid collection.

Wait 30 days for a response from each credit bureau. The FCRA states that credit reporting agencies have no longer than 30 days to conduct a full investigation into the debt and attempt to validate it with the creditor. If the paid collection is not properly validated, it must be immediately removed from your credit report. A creditor has no financial incentive to validate an account that has already been paid.

How Often Does a Credit Reporting Agency Update Your Score?

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How often the credit reporting agencies update your credit score can have a dramatic effect on your ability to obtain loans at a favorable interest rate. Typically, there is no schedule for score updates because your lenders report to the agencies throughout the month and your score can change with each report. A low credit score can lead to higher interest rates on the things you buy or prevent you from receiving credit offers.

Lenders report your payments to the credit bureaus every 30 to 40 days. When the bureaus receive a report, they update your score to reflect the payment. If the payment is more than 30 days past due, it will show on your report as late. The agencies track your payment patterns for two years, although reports of late payments remain for seven. Your payment history can account for as much as 35 percent of your overall score, according to the Treasury Department of West Virginia.

Each agency has its own way of scoring your credit report and not all lenders report to all three main credit bureaus. A bureau cannot calculate a score if it does not have at least one account that has had at least one report within the last six months. Lenders typically do not check each bureau's report but use only one. This can mean that while one lender who checks your credit with one bureau may refuse to grant you credit, a lender who checks a different bureau may offer you a loan.

Request your credit report from each of the three main agencies to look for errors that can be lowering your score (see Resources). Federal legislation provides you with one free report each year and a free report if a lender denies your credit application. If you see an error on your report, you can dispute it with the agency and the agency will remove the error after investigation. The bureau will immediately update your score to reflect the new data.

Making payments on time and reducing your debt will raise your score over time. If you are already behind in your payments, getting your accounts current will go a long way toward raising your score. Each late payment will show on your report for seven years. Contacting your creditor for help in bringing your account current can help you get back on track if you are experiencing financial difficulties. Do not open accounts that you do not need just to raise your credit score -- it might not help and could even lower your score, according to MyFICO.

How to Use Credit Cards to Build a Credit Rating

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Getting a credit card is a key way to build a credit rating. Establishing credit and maintaining a decent FICO score demonstrates a measure of responsibility. And with a high score, you'll qualify for most types of financing, from auto loans to mortgages. Acquiring a credit card is only one aspect of building credit. To achieve a high rating, you'll need to use credit cards wisely.

Instructions

Consider your options. Apply for a prepaid credit card or a student credit card to begin establishing your credit history. Contact your bank for information on secured or prepaid cards, or look for student card applications around your college campus.

Choose the right company. Prior to applying for a prepaid credit card, check with the financial institution to see if they report activity to the credit bureaus.

Use your credit card to pay for inexpensive purchases. Regularly use your credit card for inexpensive or low-ticket items such as fuel for your car, groceries or dining out.

Set limits. Keep your credit card balance low by establishing a monthly limit and staying within this limit.

Pay off debt each month. Maintain a low debt-to-income ratio and a high credit rating by paying off credit card debt every month.

Avoid skipping payments. A good payment history strengthens your credit rating. Pay your credit card on time each month. Avoid late payments and penalties by using online payment forms, or by sending payments at least 1 week before the due date.

How to Clean Up, Restore & Repair Credit

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Disregarding your credit file and history can have lasting consequences. Try to maintain a satisfactory relationship with your creditors: they have the power to lower your interest rate and submit positive remarks to the credit bureaus. In return, future lenders are more apt to approve your applications for credit based on your prior history. But even if you currently have poor credit, it's possible to clean, repair and restore your rating.

Instructions

Take an active approach. Wrong information can find its way onto your credit report. Head off credit problems by closely monitoring your personal report. Order a copy once a year and dispute mistakes.

Control spending. Using credit cards excessively increases your balances and lowers your credit rating. Put your cards away (use for emergencies) and pay with cash.

Create a strategy to reduce debt. Calculate your outstanding credit card balances and devise a plan to eliminate debt. Borrow from your personal savings or sacrifice extras such as eating out and vacations in order to become debt-free.

Limit credit application. Only apply for new lines of credit when necessary. Excessive inquiries or credit applications have a damaging effect on credit ratings.

Rebuild after a credit blunder. Bankruptcies don't last forever. Begin restoring your credit immediately after a discharge by applying for a secured credit card and continuing to pay debts that weren't included in the bankruptcy.

Make sure creditors receive payments on time. Don't postpone paying credit card statements and other loans. Schedule payments at least one week prior to the due date to avoid late fees.

Definition of a Good Credit Score

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Your credit score is a number used by lenders to measure your creditworthiness. This score is also known as the FICO score, having been developed by the Fair Isaac Corporation. According to SmartMoney.com, a good credit score is 760 points or greater. However, this definition varies among lenders--many consider anything above 700 to be fine.

A person's FICO score can range anywhere from 300 to 850, with the higher number being the best possible. Very few people ever reach either extreme, with the vast majority residing somewhere near the middle.

As of January 2010, the median FICO score was 720. The median is the midmost score, if you were to line all scores in a sequential row and begin counting from both ends. This means that half of borrowers had a score higher than 720, and half had a lower score.

You can obtain your score for free, once a year, from AnnualCreditReport.com. The site works together with Equifax, Experian and TransUnion to provide you with a complete credit report, allowing you to see all your debts and credit sources.

You can increase your score by using credit regularly, but maintaining as low a balance as possible. Having large quantities of outstanding debt harms your rating. Having a well-maintained major credit card, such as MasterCard or American Express, will help you get a higher score.

Avoid websites that offer to increase your credit score for you. Many of these are scams, and they'll both overcharge you and resort to illegal methods that will ultimately lower your score even further. The best way to increase your score is to do it on your own, using credit and paying off debt.

What Will CCCS Do to My Husband's FICO Score?

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Consumer Credit Counseling Service agencies are nonprofit agencies in communities throughout the U.S. that offer free or low-cost services to help individuals and families resolve financial difficulties.

CCCS offers educational services, such as financial counseling, credit report review, bankruptcy counseling and housing counseling. If you are having difficulty meeting your debt obligations, a CCCS debt management plan might reduce your interest rates and fees, allowing you to make lower monthly payments.

Participating in a CCCS educational program to increase your financial knowledge will not adversely affect your credit score. If you participate in a debt management plan, though, your creditors might report that you are in a debt management plan that you are not repaying your debt as originally agreed. Because 35 percent of your FICO credit score is based on your payment history, this can negatively affect your FICO credit score.

Late payments will remain on your credit report and will influence your credit score for seven years. Keep in mind, though, that your credit score is a holistic evaluation of your creditworthiness and also depends on the amount of debt you owe, how long you have been using credit, how much new credit you have and the different types of credit you have used.

Will Consolidating Student Loans Help My Scores?

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Student loans can reach into the hundreds of thousands of dollars, so a consolidation loan could save you thousands. However, even though the lender might claim it will positively affect your credit score, the effect, if any, will probably be nominal in either direction. Installment loan debt is not nearly as important to credit scores as revolving debt. Just having an installment loan is sometimes the most important thing.

Consolidating student loans into one account causes a few points of damage to your credit score because the new lender will perform a hard inquiry into your credit history. Also, a new loan lowers the average age of all accounts, and if the original loans contained your oldest account, eliminating them will shorten your overall credit history. Since you are just shifting debt around, it has no effect on your debt load; it may even increase it, if the consolidation loan has origination fees. On the plus side, you can start building good history on a new account and still retain the old, positive accounts on your report for 10 years.

Consumers with an elite credit score usually have twice as many credit card accounts as they do installment loans, so reducing your installment accounts by paying off student loans could boost your mix of revolving to installment accounts to the more optimal ratio of 2:1, according to MintLife. However, the credit check could be the most important factor if you have at least five other credit checks in the past year. Once you get past six hard checks, the FICO score considers you a very high credit risk.

If all of your student loans exist with the same lender, that lender will not perform a hard credit inquiry, so it will probably have no effect or a slightly positive effect on your score if it means you can make payments on time more easily. Even if your score goes down, you can usually recover in a few months, as long as you do not add more debt to your profile.

More important to your creditworthiness is your monthly total debt bills to monthly income. If you make $3,000 a month, for example, and pay $600 to all of your lenders, you have a DTI of 20 percent. Lenders probably won't consider an application for credit unless your DTI ratio is less than 20 percent, according to Steve Bucci of Bankrate. Consolidation might help your DTI if it results in a lower overall monthly payment.

How to Repair Bad Credit Fast

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Gone are the days when you could get credit if you had a job and promised to pay the debt back. Now, lenders are stricter. A bad credit score can keep you from getting a loan, renting an apartment and many other things. Its also very stressful to live with financial woes. Its important to clean up a bad credit score, and you can start today. It will take some time, but some things can speed up the process.

Instructions

The first step you should take, if you have not already, is to get a copy of your credit report. You can find one online through several different outlets. This will show you what your actual score is, and what kinds of things are bringing it down. If you are able, pay off any outstanding debts you see on the report, starting with the oldest debt. It is also possible that false data is being reflected on your report, and a credit counselor can help you fix it. Knowing exactly what your credit report says is key to fixing your credit score.

One of the best ways to improve a credit score is to start to pay your regular bills on time. This will reflect very well on your credit report. Pay on time for loan payments, utility payments, medical bills, credit cards and items like that. Keep accounts in good standing.

If you have a checking account, keep it in good standing. If you dont have one, open one right away. Keep money in the account, and never allow it to go negative. A good history with a bank will also do wonders for your credit score.

When you have fully paid off some of your credit cards, keep a few of them open. Having credit that is in good standing helps improve your credit score the same way credit in bad standing will hurt the score. Use the cards once a month on something like gas or groceries, so that the account is not automatically closed. Then, pay off the balance in full each month.

To avoid future problems, watch your spending and put yourself on a budget. Be sure that each month you are first paying off all bills and then if you have money left over you can treat yourself to something small, such as a dinner out. Do not take out more loans if you dont have to. This will only add to your debt and will reflect poorly on your report. Avoid over-spending at any cost, or you will end up right back where you started.

What Information to Fix First on Your Credit Report

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A credit report is a record of your borrowing and repayment history from the last seven years. Credit bureaus use the data from your credit report to calculate your credit score. Negative information on the report will lower your score, making it difficult and expensive to borrow money. If you find a mistake on your credit report, you should fix it as soon as possible to avoid ruining your credit history.

A credit report is a record of your borrowing and repayment history. In reality, you have not one but three credit reports. Each of the credit bureaus -- Equifax, Experian and TransUnion -- compiles its own report. Much of the information will be the same across all three, but it may differ slightly as not all creditors report to all the bureaus. When you check your credit report, be sure to check with all three bureaus.

A credit report includes a lot of information about you and your finances. It includes personal information like your name, Social Security number, date of birth, address, driver's license number and possibly a record of employment. It also includes all of your borrowing and repayment activity from the last seven years, including balances, missed payments and defaults. If you've filed for bankruptcy in the past 10 years, it'll be on your report, along with court judgments and liens.

You can get a free copy of all three credit reports from AnnualCreditReport.com. This is the only website authorized to issue the reports. Do not be fooled by copycat sites, which may be trying to steal your money and identity. You can also get the reports separately by going directly to the credit bureaus' websites.

When you get your credit report, go through each line to check for errors. If you find an error, get it fixed as soon as possible. It could just be a typo, or it could be a sign of identity fraud. To fix the mistake, file a claim with the bureau through its website. You may need to provide evidence to support your claim, such as receipts and canceled checks. The bureau will investigate and make a ruling within 30 days and fix any incorrect information.

If you see any accounts on your credit report that you don't recognize, deal with those first. They could be a sign of fraud. It can take years to sort out identity fraud issues. Next, fix any mistakes that relate to settled accounts. If you've settled a debt year ago, but it still shows up as unpaid on your credit report, it could be hurting your credit score. File a claim with the bureau, then contact the lender and ask to have the record updated. When you've dealt all of the major issues, try to fix small mistakes, such as typos. Even a small mistake can hurt your credit score.

If you have negative information on your credit report that's accurate, you cannot erase it. You can only fix mistakes. You will have to wait until it expires automatically after seven years (10 in the case of bankruptcies). If you maintain a good repayment record for several years, the older negative information will matter less and not affect your credit score as much.

What Contributes to Your Credit Score?

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Each individual consumer has his own credit score as reported by three major credit reporting bureaus. Based on the Fair Isaac Corp. scoring model, each bureau reports what are referred to as FICO scores. Each score offers creditors a glimpse of your individual credit worthiness which is used in loan decisions and the establishing of rates and terms.

Equifax, Experian and TransUnion are the three major credit reporting bureaus. Each issues its own credit score with varying scoring models. However, all three are based on or modified from the FICO scoring model. Credit scores are not only important when applying for credit, but many insurance companies also use credit scores in assessing insurance risks and determining premiums. Credit scores are always changing so your score on one credit check could go up or down at the next check based on your credit activity.

Ultimately, a top predictor of your current creditworthiness is your previous credit behavior, at least if you believe the FICO scoring model. According to the MyFICO website, your payment history accounts for 35 percent of your FICO credit score and your length of credit history is another 15 percent. Thus, about half of your score is your consistency in making on-time payments and using credit responsibly for a period of years. Some financial advisers encourage young people to get a credit card early to build credit history at a young age.

Another key consideration in your credit score is how much debt you currently have relative to your available debt, or debt capacity. Debt utilization is the percentage of your available debt currently in use. Other related considerations are the total number of debt accounts in use, the types of accounts with balances and balances in proportion to original loan amounts. According to MyFICO, "Amounts Owed" accounts for 30 percent of your score.

Though it is a relatively small proportion of the total score, borrowers need to know that new loan applications and credit checks can influence credit scores. MyFICO indicates 10 percent of your score is based on "New Credit" factors. This includes new credit inquiries, recency of credit inquiries and the number of new accounts opened. The important point in this category is to avoid unnecessary credit checks through too many credit applications.

How to Report Information to a Credit Bureau

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A credit bureau is an organization or corporation that catalogs financial data to categorize and track an individual's money management and debt repayment abilities. The credit bureau's data is used to calculate a person's credit score, which is then used by banks and financial institutions to make lending determinations. Report inaccurate or missing information on your credit report to avoid a damaged credit score.

Instructions

Review your credit report. Double-check your personal data (name, phone number and address) and current outstanding debt, which lists your current loans and mortgages.

Write down any information that is inaccurate, and any personal data that is missing. This may include a change in address or name, or the failure of a bank to notify the credit bureau that you have paid off a specific debt.

Report the information to the credit bureau. Draft a written letter to the bureau and clearly state the personal or financial information that you wish to report. Sign the letter in pen. Make a photocopy of the letter and mail the original via certified mail to the credit bureau (see Resources). Include any forms or documents that back up your report. For example, if you are reporting the payment of a debt, include a letter or document from your bank that shows that the mortgage or loan has been repaid.

Wait two to three weeks for the credit bureau to receive the information you've reported. Follow-up with a phone call to the credit bureau's customer service department. The customer service representative will notify you whether they have received your report, and when you information will be updated. This process may take several weeks, depending on the amount of correspondence the bureau has received.

How to Raise a Mid-Six Credit Score

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A mid-six credit score isn't horrible, and you'll likely obtain a loan approval. However, if you're looking for the best rate on auto loans or mortgages, it pays to raise your credit score into the high-six or 700 range. Raising your score involves understanding how credit scoring works and recognizing factors that bring down your score.

Instructions

Make purchases using your older credit cards. Creditors may fail to report inactive accounts to the credit bureaus, so your credit record might not reflect that you have been deemed credit-worthy and granted credit. Occasionally use those older cards to keep them active. For example, you could use the cards for smaller purchases such as fuel for your car, and then pay off the balance once you receive the statement.

Rely on cash. If you have a spending problem, use cash for everyday and major purchases. If you do not have the cash, postpone the purchase.

Destroy unnecessary credit cards. Cut your credit cards in half to help curtail your spending.

Open your credit card statements promptly. Don't let mail pile up. Open statements upon arrival and mark the due date on a calender or day planner.

Pay your bills online. Ensure that your payments arrive on time by signing up for online account management with your creditors. Take advantage of their online payment system.

Eliminate your debt. Get into a routine of paying more than your minimum balance. For example, if you have an extra $200 a month, apply this money to your balance. This methods helps reduce your debt and raise your credit score.

Reduce the number of credit inquiries. When you apply for credit, the new creditor asks credit reporting companies for a copy of your credit report. This is known as a credit inquiry. Credit inquiries lower your credit rating. Reject those credit card offers you receive in the mail and decline offers to apply for retail charge cards.

Obtain a copy of your credit report. Check your own credit report once a year to ensure accuracy. Carefully read each entry, and dispute unknown accounts or reporting errors.

About Poor Credit

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Poor credit, which is generally considered a credit score that is lower than 619, can have a major effect on your personal finances. If you have a low credit score, you need to learn what you can do to improve it. If you have a good credit score, you need to protect it by being responsible with your finances.

Your credit score is an important part of your personal financial health. This is the number that lenders will look at to determine whether you are a good risk as a borrower. Poor credit will affect your ability to get loans, or leave you with high interest rates on the loans or credit cards you can get. It can also affect your ability to get a job, because some employers will look at credit scores in determining whether job applicants are responsible.

For most people with poor credit, it took a long time to get to that point. A few missed payments do lower your credit score, but not usually enough to make it terribly low. Your credit rating gets dangerously low if you habitually miss payments or make them more than 30 days late. The exception to this is if you face foreclosure or bankruptcy. Those two actions have an instant effect on your credit score, and they cause it to drop well below ideal levels. Bankruptcies stay on your credit report for 7 to 10 years, and other types of collections will stay on your report for seven years.

If you suffer from poor credit, you can take steps to raise your credit score. The first thing to do is to make all of your accounts current. Start making your payments on time every month. Do not open new credit cards if you do not need them. Start working on paying down your debts. Remember, it took time to lower your credit rating, and it will take time to raise it, but it can be done.

There are some common misconceptions about the best way to raise a poor credit score. Many people think that the best thing to do is to pay off all of your debts as quickly as possible. This is not the best strategy. It actually makes more of an impact if you pay down your debts so that each one is about a third of what the credit limit is, rather than paying them off completely one at a time. Another misconception is that closing old accounts will raise your credit score. This can actually have a lowering effect.

You may be tempted to hire a credit repair company to help you with your poor credit score. This is not usually a good idea. A credit repair company will not do anything you cannot do yourself. The company will negotiate with your creditors on your behalf and check your credit history for errors. You can do these on your own and save the money you would pay that company.

No matter how financially secure you may feel, you must realize that almost everyone faces the potential of dealing with poor credit at some point. If you have good credit, keep it high by continuing to pay your bills on time and not taking on too much debt. Also, protect your personal and financial information to avoid identity theft, which usually ends up having a bad effect on your credit score.

If Your Credit Scores Are Down From Being Late How Long Does it Take to Bring Them Back Up?

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Borrowers currently delinquent on a monthly debt can reverse almost all of the damage from a late payment if they act quickly. A revamp of the Fair Isaac risk model in 2008 resulted in the algorithm punishing the random slip-up far less than people that constantly miss payments. Once you become current, take extreme care not to mess up again, because you could cause heavy damage for years.

Payment late by 30 to 60 days are the least serious of the missed payments. As long as you pay the delinquent bill now, you can probably gain back most of those points, according to The Motley Fool. The Fair Isaac Corporation, designer of the algorithm used by most lenders, changed its scoring system in 2008 to make these occasional missed payments much less insignificant unless defaults become habitual. )

Missing a bill due date by 90 days or more is a serious event in a borrower's credit history. It will probably take a year or more to recover from a bill this late. Also, any future missed payments look much worse in comparison. Lenders often refuse to lend to borrowers with a 90-day late payment on their report, and it does not matter how small or large your bill is.

Once you become 180 days late on a bill, the creditor must legally write off as a bad debt. The lender probably sells it to a collection agency and this new negative account does more damage for a longer period of time than any late payment. Unfortunately, the FICO formula contains so many variables and other incidents or changes can happen after paying the delinquent bill, that it is impossible to say how long you need to recover. If you act like a good borrower and pay bills on time, you might only need two years.

You cannot remove late payments from your credit history unless the creditor reported the bill date incorrectly, so it is better just to catch up on what you owe and continue paying on time every month. Assuming you continue paying down debt, your score eventually recovers. Creditors usually offer help for temporary emergencies, such as large hospital bills or unemployment. Thus, letting a bill go unpaid is the worst course of action.

Will My Credit Score Increase When Old Debts Drop Off?

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Your credit score includes information about your credit management and lenders review your credit report when evaluating applications for new credit. However, inactive debts only remain on your report for seven years. If you have outstanding debts on your credit report that you were unwilling or unable to settle, your credit score may increase when these debts are no longer included in your credit report.

Creditors typically submit consumer reports to the credit reporting agencies about once a month. These reports include information pertaining to your account balances and payment history. Banks and merchants can also report noncredit-related information to the credit bureaus such as unpaid medical bills, overdrawn bank accounts that were charged off and never settled and delinquent bills for services such as satellite or cable TV. If you declare bankruptcy, that event remains on your credit report for up to 10 years whereas other debts and credit events are removed seven years after the last account activity.

The three national credit rating agencies, Equifax, Experian and TransUnion, all use different formulas to calculate your credit score. However, all three base your score on your payment history, your level of debt as a percentage of your available credit and other factors such as the frequency with which you apply for new credit. If you miss a debt payment by more than 30 days, it harms your credit score. If you fail to pay a bill at all it can severely damage your score. However, if you have debts, but pay your bills on time, the positive payment activity helps your credit score.

Credit scores are heavily tilted to recent account activity rather than past credit activity. Therefore, debts have very little impact on your score as the seven-year mark for removing information from your credit report approaches. Paying your current liabilities on time will probably help your credit score more than will removing a payment that was late six or seven years ago. Additionally, your score only improves if you improve your credit management habits. If you continually make late payments, the removal of a 7-year-old debt will not impact your score.

People who utilize different types of credit tend to have higher credit scores, assuming they pay their bills on time and keep account balances fairly low. Therefore, if you stop using credit, your credit score could decrease over time as fewer and fewer positive accounts are listed on your report. If you close credit cards that have zero balances, this can also hurt your score because it raises your overall level of credit utilization. Therefore, debts disappearing from your credit report can both help and harm your score.

The Advantages of Having a High Credit Score

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Your credit score is a three-digit number that carries significant weight in several arenas. The major type of credit score is provided by FICO and ranges from 300 to 850, with higher scores for individuals who pose lower risks to creditors. According to the Bankrate website, K.E. Varner, a former manager at credit reporting agency Equifax and the author of " The Insider's Guide to Credit Repair," claims a credit score over 700 is considered good, although people should shoot for scores of over 750 for the best results.

If you have a high credit score, you will not have much trouble getting approved for new credit, such as a car loan, mortgage or credit card. Landlords also use credit checks to screen applicants, so a good credit score will make it easier for you to rent a home or apartment. In addition, you may have an easier time starting service with a utility provider, such as a cell phone company or cable company. These providers often run credit checks before starting service and waive deposits for people who have high credit scores.

Interest rates are inversely related to credit scores. People with high credit scores typically get low rates, whereas people with low credit scores pay high interest rates. This is because the lender runs a larger risk of not having the debt repaid by people with low credit scores, so the lenders charge higher interest rates to compensate for that risk. Paying a lower interest rate can save you thousands of dollars in the long term. For example, if you have a mortgage loan for $200,000 to be repaid over 30 years, your monthly payment is $65.04 lower with an interest rate of 6 percent than it is with an interest rate of 6.5 percent. This amounts to a total savings of $23,414.40, just for having a good credit score.

If your credit score reflects a consistent history of paying back your debt on time, you are more likely to have lenders offer you high credit limits. This is because your credit history gives lenders confidence that you will repay the money they lend you. High credit limits provide the flexibility to borrow more money.

Insurance companies often factor in an individual's credit score when determining insurance premiums. Statistics show that people with low credit scores are more likely to make insurance claims than people with high credit scores. Therefore, the companies charge higher premiums to the riskier individuals. You can get the best insurance premium possible by having a high credit score.

When you apply for a job, potential employers often ask for your Social Security number to run a credit check. Employers can use your credit history as a factor to determine whether to offer you a job. This is because responsibility with personal finances often translates to responsibility with job duties. In addition, people who have low credit scores likely have stressful financial obligations that may impact their ability to focus at work.

If Credit Is Approved Does Your Credit Score Drop?

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A credit approval means someone found your credit history worthy enough to extend a new line of credit. This new account may or may not drop your score. Your credit history contains dozens of items that can have a host of effects on the credit scoring system used in America. As long as you use a new account responsibly, it will likely have a positive effect on your score eventually.

Regardless of approval, any application for a line of credit usually requires consent to a hard credit check by the lender. This usually drops your score between zero and five points--higher if you have excellent credit above 760. Overall, a hard inquiry is fairly meaningless to a score, but six or more credit checks in any 12-month period tend to signify a potential high risk to future lenders.

The effect of a new account depends in part on the type that you open. Installment accounts always add debt to your profile, so your score probably takes a hit to the "amounts owed" category. Also, you lower the average age of your accounts--worth part of the 15 percent "length of credit history" category. If you opened other accounts recently, you could damage your "new credit" category, worth 10 percent of your score.

Your score might see a boost of a few dozens points if you add a new type of account to your profile. The FICO model gives a 10 percent weight to using a variety of accounts. You should have a few revolving accounts, such as a credit card, for every installment loan. Also, adding a credit card, and not carrying a significant balance automatically lowers your credit utilization ratio--balances outstanding over your total limit.

Adding an account to your credit history usually does no harm when you have a perfect credit history of never missing a payment or carrying much debt. Continue along the path to repaying debts on time, and the account likely only boosts your score in time. However, you should not take out more than one or two new loans each year if you want to have excellent credit at all times, especially all at once or close to each other.

The Effect of Paying Down a Mortgage on a Credit Score

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Your credit score is impacted by each financial move you make in regards to debt. Paying down any debt, especially mortgage debt, will help to raise your score bit by bit.

Your credit score is a numerical indicator to a lending institution as to what risk you might hold when lending you money. The higher your credit score, the better chance that the lending institution has of getting prompt and full payment. Therefore, you want to make financial decisions, such as paying down your mortgage, that will positively impact your credit score.

There are three credit bureaus: Experian, Equifax and TransUnion. Your mortgage debt is recorded with all three bureaus; however, each calculates your score differently. Even if exactly the same information is reported to all three bureaus, you will have three different credit scores.

A large principal down payment on your mortgage will positively affect your credit score. Additionally, the longer the time span from the date you opened a new mortgage, the more positive impact your payments will have on your score. There is no set time span on when a large payment will affect a score but a normal time span is 30 to 60 days.

The larger the difference between the initial loan and the current balance of the loan, the more positive impact your on-time monthly payment will have on your credit score. Even if you have been prompt in your monthly payments, a new mortgage loan (less than a year) will have a negative affect on your credit score.

Any late payment on your mortgage of 30 days or more will have a large negative affect on your credit score. A 60 or more days late payment will have an even larger negative affect on your credit score. To protect your credit score, always pay your mortgage bill on time.

What is the Maximum FICO Score?

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When most lenders request your permission to review your credit report and score, they are referring to your FICO score. FICO scores are not the only credit scores available, but lenders depend on the FICO scoring model than any other when assessing lending risks. The Fair Isaac Corporation, which introduced FICO scores in 1958, owns the mathematical formula used to calculate FICO scores. A high FICO score indicates that you are likely to repay your debts and therefore present a low risk for lenders.

FICO credit scores range from 300 to the maximum credit rating a consumer can have: 850. Very few individuals ever earn a perfect FICO score. A FICO score of 850 is so rare than in 2005 the credit reporting agency TransUnion ran a contest through its TrueCredit credit monitoring service to find individuals with perfect credit scores, awarding each consumer with a FICO score of 850 a check for $1,000.

A variety of information that appears on your credit report can influence your FICO score. The types of accounts you carry, the age of your oldest account, your payment history for current and past creditors and how much you owe all influence your score.

A single derogatory item on your credit report, such as a late payment or collection debt, will prevent you from attaining the highest possible FICO score. Consumers with perfect credit have reports that demonstrate low debts, an impeccable payment history and a good balance of credit cards and loans.

The FICO formula uses the financial information present on your credit file to assign you a score. Because of this, your credit score may differ depending on the credit reporting agency that provided the report.

Each of the major credit reporting agencies--Experian, Equifax and Transunion--collect information from your creditors but maintain different standards companies must meet before earning the right to file reports. Thus, the information on each of your credit reports will vary depending on which of your creditors report to all three agencies and which report to only one or two. Earning a FICO score of 850 with one credit reporting agency does not guarantee that you also hold a perfect credit score with the other two.

Just because you lack a FICO score of 850, that does not mean that you won't qualify for low interest rates and other services and benefits that require a high credit rating. Lenders assign interest rates based on credit brackets. Credit brackets differ depending on the lender but, if your credit score falls into the highest bracket, lenders will offer you the same excellent rates that an individual with a maximum FICO of 850 would receive.

Wednesday, March 30, 2005

Credit Score Calculations

Raising Your Score

Mortgages

Auto Lenders

Credit Cards

Tuesday, March 29, 2005

High Credit Utilization Ratio

Low Credit Utilization Ratio

Look at Your Credit Report

Improve Your Score

Free Credit Reports

Cost

Free Scores

Reasons to Pay

Monday, March 28, 2005

Identification

Considerations

Potential Benefit

Tip

What Is Canceled Debt?

Credit Report Impact

Statute of Limitations

Inaccuracy Disputes

Credit Score Impacts

Creditor Reports

Amount of Impact

Considerations

Saturday, March 26, 2005

Credit Score

What Is on Your Credit Report

What Is Not on Your Credit Report

Misdemeanors and Criminal Records

Employment

Finance Rates

Insurance Rates

Housing

Credit Cards

Financial Stability

Friday, March 25, 2005

Instructions

Wednesday, March 23, 2005

Free Annual Credit Report

Major Credit Reporting Bureaus

Third-Party Websites

Plans & Hidden Fees

Instructions

Tuesday, March 22, 2005

Tackle Your Credit Report

Manage Your Credit

Pay Bills On Time

Focus Efforts

Monday, March 21, 2005

Instructions

Sunday, March 20, 2005

Significance

Function

Time Frame

Considerations

Misconceptions

Instructions

Federal Student Loan

Private Student Loan

Friday, March 18, 2005

How to Receive a Report

Viewing Options

Other Situations

Wednesday, March 16, 2005

Separate Credit Scores

Applying for Mortgage

Income for Mortgage

Improving Spouse's Credit

Sunday, March 13, 2005

Instructions

Method One

Method Two

Lender Reporting

Different Scores

Reporting Errors

Raising Your Score