How to Improve Credit Scores Legally

Your credit score, also known as your FICO rating, is a three-digit number based on the items in your credit report, such as collection accounts, credit cards, lines of revolving credit and home mortgages. Lending agencies and businesses use this score, which ranges from 300 to 850, to determine your credit risk, or the likelihood that you will repay your debts. A top credit score will qualify you for the best rates and terms on credit cards and loans, while a low score can prevent you from qualifying for a credit card, buying a home or even getting a job.

Instructions

1

Contact TransUnion, Equifax and Experian, the three major credit bureaus, to request copies of your credit reports and credit scores. You can do this either online by visiting the companies' websites or by calling the bureaus to request credit reports by mail. You will have access to your reports and scores instantly online, while it will take a few weeks to receive the items by mail.

2

Analyze your credit reports. Look for your score, which usually is at the top of the report, as well as positive information such as nondelinquent credit cards and paid-up student loans, along with negative information like collection accounts and judgments. Make sure all information is accurate and up to date.

3

Call the credit bureaus and advise them of any inaccurate or out-of-date information on your reports. Inform them of information such as incorrect addresses, inaccurate account status, such as paid-off accounts showing as "unresolved," and incorrect account dates.

4

Contact your account holders, such as credit card companies and collection agencies, and inform them of incorrect information like false accounts, incorrect status and erroneous dates. Ask them to remove or change the incorrect information.

5

Develop a plan to pay down your credit card debt, as well as pay off any collection account or judgments, over a period of one to three years. According to CNN Money, carrying a large balance on your credit cards will drag down your credit score. Additionally, unpaid collection accounts will also damage your score.

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Does Carrying a Balance Hurt Your Credit Score?

Credit cards have become almost a necessity in modern day life. They make day-to-day living more convenient, help with emergencies, and show other lenders, like mortgage bankers, your ability to repay a debt. However, with credit cards comes a balance, which may hurt your credit score.

What Is a Balance?

When you open a new line of credit, the issuer sets a spending limit for that credit card. Anything you charge on the credit card adds to your total balance. If you do not pay the balance in full by the due date each month, the bank will add interest on the unpaid amount to your balance. The lender also adds fees to your balance when you make late payments or when your balance goes over your credit limit and the bank covers the payment (over-limit fees), annual fees, and maintenance charges.

Credit Card Balances and Credit Scores

The balance on your credit cards has a direct effect on your credit score. According to Fair Isaac, the company that invented the FICO or credit score, the balance your carry makes up 30 percent of your total score. This percentage includes the balance on every credit card you have, as well as any installment loans such as mortgage payments or car loans.

A High Balance

The higher total balance you carry on your credit card, the lower your overall credit score will be. Your credit score is at its lowest when you have maxed out your credit card, or spent up to the available limit. Even if you have not reached the credit limit, carrying a high balance still has a negative effect on your credit score. CNN Money conducted an interview with credit expert Rex Johnson. According to Johnson, you lose one point from your overall FICO score for every percent of your credit limit you spend.

A Low Balance

Carrying no balance, or a balance much smaller then your actual available credit limit, can improve your credit score. According to CNN Money, your balance should be less then 30 percent of your credit limit. This total includes interest from previous balances and any fees associated with the credit card.

Using Your Balance to Improve Your Credit Score

You can use your current credit card balance to raise your credit score. If you have a balance higher then 30 percent of your total available limit, paying the balance down, on time, every month will give you positive ratings in both the payment history and amounts owed factors in your credit score.

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Facts About Doing Credit Checks

A credit check is a method by which a company can review your recent financial behavior to render an informed decision about whether or not to lend to you. The information contained within your credit report will also likely determine the interest rate you are charged by the lender.

The Facts

A potential creditor or employer must have your permission before performing a credit check on you. Government agencies, however, such as the FBI, can review your credit report in the interest of national security without your permission.

Time Frame

Evidence of a credit check will appear on each of your credit reports for a period of time no longer than two years, although credit inquiries are commonly dropped off before the standard two-year time limit.

Types

A "hard pull" is a credit check conducted by an employer or creditor and will have a slight negative impact on your credit score. A "soft pull" is a credit check that you perform yourself or when your credit score is reviewed by a company for marketing purposes. Soft pulls have no impact on credit scores.

Considerations

Unless you contact the credit bureaus and prohibit the practice, your credit score will be sold to credit card companies which will include you in their credit card marketing programs. Because the personal information these companies have access to is limited, the practice is perfectly legal.

Warning

Numerous hard pull credit checks over a short period of time reflect badly on your financial situation by making you appear to be searching for new debt. Lenders will consider individuals with multiple recent credit inquiries to be a higher lending risk.

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How to Expunge a Collections Record in Michigan

Debt collection practices are governed in the state of Michigan by state statutes known as the Michigan Collection Practices Act (MCPA) and by the federal law known as the Fair Debt Collection Practices Act, or FDCPA. The state of Michigan adds further protections to debtors over and above those mandated by the FDCPA. If you have collection accounts on your credit report, you can expunge or delete them.

Instructions

1

Get copies of your credit reports. Go to AnnualCreditReport.com for your free yearly credit reports from all three credit bureaus: Trans Union, Equifax and Experian. In the alternative, order all three reports directly from each agency.

2

Read each credit report to determine which Michigan collection agency is reporting a debt. Cross reference each collection account to determine which credit agencies are reporting the debt.

3

Dispute the collection accounts. Go to each credit bureau's website and file a dispute against the collection account (see Resources).

4

Speak directly with the collection agencies. Tell the Michigan collection agency you are disputing the account and wish to settle the account in exchange for expunging or deleting the account from your credit report. Get the agreement in writing and pay the settlement with a money order or cashier's check. Send a self-addressed stamped envelope along with your payment for an official acknowledgment of receipt of payment and agreement to delete the collection account.

5

Follow up with each credit bureau. Mail a copy of the settlement agreement and agreement to delete the collection account to each credit bureau reporting the collection account. Phone the credit reporting agencies with 45 days to confirm deletion of the collection accounts.

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Is There Any Way to Increase Your Credit Score With a Charge-Off?

Financial hardships such as unexpected expenses or the loss of a job can lead to missed payments on your credit card. After a period of time, your creditor will close the credit card account, leading to a charge-off on your credit report. Charge-offs have a negative impact on your credit report and score, but you can take steps to improve your credit.

What Are Charge-Offs?

Charge-offs occur when you fail to pay your credit card. If a credit card debt goes unpaid for a period of time, typically 120 to 180 days, the creditor will close the account and report it as a charge-off to the credit bureaus, according to Bankrate. You will still owe the debt despite the creditor closing the account, and the creditor will likely sell the account to a collection agency that will begin contacting you for payment.

Effect on Your Credit Score

A charge-off can have a snowball effect on your credit score. When you fail to make a payment on time, the creditor will report a late payment to the credit bureaus, lowering your score. When the creditor declares the account as a charge-off, it will lower your credit score even further. If the creditor sells the account to a collection agency, the agency will report the account on your credit report, giving you another negative hit to your credit report and score.

Disputing Inaccurate Charge-Offs

Occasionally, either the credit bureau or the financial institution will report inaccurate information on your credit report. For example, the creditor may report that you owe more than you do or the credit bureau may list a charge-off account on your report that does not belong to you. Under the Fair Credit Reporting Act, you have the right to order a copy of your credit report and dispute any inaccurate information with the credit bureaus. The bureau will have to correct or remove inaccurate information, which may increase your credit score.

Minimizing the Damage

You can lessen the negative effective of a charge-off on your credit report by entering into a repayment agreement with the creditor. The creditor may be willing to report the charge-off account as "paid as agreed" or "settled" if you pay the debt, which will slightly improve your credit rating, according to Bankrate. However, you will need to pay the full debt or an agreed-upon settlement amount before the creditor updates your credit report.

Improving Your Credit

You can improve your credit going forward by paying your bills on time and paying down your total debt. While you are working on improving your credit, be careful of applying for too many new credit cards or loans as multiple inquires can lower your score. However, you may want to open one new credit card to build a history of timely payments if you do not have any open credit accounts.

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How Long Does It Take for a New Credit Card to Show Up on a FICO Report?

The FICO scoring system is the most widely used method for calculating credit risk in America. Your FICO report contains most of your history as a credit consumer as reported to the three major bureaus by past creditors. New creditors can begin reporting on you almost immediately.

Time Frame

Creditors usually update information with the three bureaus--Equifax, Experian and Transunion-- the first day of the month after you opened the credit card account, says Credit-Factor. However, "All creditors do not send updates to the bureaus on the same day," advises My Credit Center.

Considerations

According to myFICO.com, there is sometimes a lag between when you perform an action, such as establishing a new credit card account, and when the creditor reports it. There is no easy way to know when a creditor will update the bureau and when the bureau will update their database to reflect on the FICO report, says My Credit Center.

Warning

Not all credit card companies keep the bureaus updated with your performance. They don't all report to the same bureaus and some may only report to one out of the three bureaus, says Credit-Factor.com. "Some of the worst offenders are issuers that don't report their customers' on-time payment records at all," warns MSN Money.

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How Much Will a Secured Credit Card Boost My Credit Score?

A secured credit card is a credit card where the corresponding credit limit is determined by a deposit made with the issuing financial institution. The cards are often used to rebuild credit history. According to MyFICO, your FICO credit score ranges between 300 and 850 and changes as the information in your credit report changes. A secured credit card can boost your credit score but could also lower it.

Identification

Your credit score is based on your credit report. Thirty-five percent of your FICO score reflects your payment history, 30 percent is your debt load, 15 percent is the length of your credit history, 10 percent is the mix of credit types you have and the remaining 10 percent is the level of new credit you've applied for recently.

Significance

When you apply for a credit card, secured or unsecured, the credit issuer checks your credit, which places a hard inquiry on your report. This inquiry may cause a small drop in your score, less than five points, according to MyFICO. Once the new credit card account appears on your credit report, that new card will shorten the average length of your overall credit history, which may cause your score to drop. How much it drops depends on the other items in your report. Your score may initially go down before it goes up.

Consideration

Paying your bills on time is the biggest contributor to a higher credit score and represents the largest percentage of your score's calculation. When you obtain a secured credit card, how well you pay the bill on that card will help determine how much your score will rise. If you make your payments late, your score will decrease. One 30-day late payment will drop your score by as much as 45 points, according to Bankrate.com. On-time payments, over time, raise your credit score, according to MyFICO but how much depends on the other items in the report.

Warning

Never pay a company to fix your credit in an effort to boost your credit score. Often the promises made by such companies are not legitimate, according to the Federal Trade Commission. The Fair Credit Reporting Act gives you the right to dispute credit report errors yourself at no cost. Once you file a dispute, the bureau has up to 30 days to investigate and correct mistakes. According to Bankrate.com, correcting credit report errors will help boost your credit score.

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Does Paying More Than the Minimum on a Credit Card Increase Your Credit Score?

Paying more than the minimum on your credit card does not directly affect your credit score, but the more you reduce your debt usage the better your score becomes. Card providers typically set minimum monthly payments at just 2 to 3 percent of your card balance, which makes for a slow repayment period and more interest earnings for them.

Minimum Payments

Your monthly credit card statement shows your minimum payment due. Many consumers opt to pay just the minimum balance required because of budgetary concerns or simply to have more discretionary spending money. However, paying only the minimum not only delays paying down your debt, which does help your credit score, but makes your costs of borrowing much higher in the long run.

Check Your Credit Score

Three reporting bureaus -- Equifax, Experian and TransUnion -- prepare individual credit scores. Each of these agencies has its own scoring model, but all are based on the well-established FICO scoring model, developed by the Fair Isaac Corp. The FICO score includes numerous specific factors, generally categorized into five areas -- credit history, length of credit history, amounts owed, types of account, and new accounts. Paying more than your minimum payment has the most impact on the amounts-owed section that includes your debt in use and available credit amounts.

Benefits of Paying More

Paying more than your card minimum makes financial sense, according to the website Financial Wisdom. You can save significantly on interest even with a few extra dollars per month. The affects on your credit score may evolve slowly, but over time, reducing your debt relative to your available credit boosts the amounts-owed section. That boosts your score.

Debt-Utilization Example

Assume a $10,000 credit card limit with a $7,000 balance. This is a 70 percent utilization, which FICO considers high. Lenders prefer that you have lower credit utilization before issuing new debt. If your minimum monthly payment is $150, you would only pay down your debt by this amount in the initial months. As your balance falls, your minimum payment requirement also falls. However, by paying $200 or $250 per month, you quickly pay down your debt, reducing your utilization ratio and ultimately helping your credit.

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Does Closing Credit Card Accounts With a Zero Balance Harm My FICO Score?

Your FICO credit score will be harmed if you close a credit card with a zero balance. The size of the drop will depend on several factors, including how long you've had credit and how many other cards you have.

Function

If you close one of your credit cards, it will eventually stop being reported on your credit report. According to the Motley Fool, positive credit history will remain on your credit report indefinitely as long as the card is open. If you close it, that information will drop off your credit report and your payment history, which accounts for 35 percent of your score, will suffer.

Time Frame

Ten percent of your FICO credit score depends on your length of credit history. If the credit card you close is one of your older credit cards, your length of credit history will be shortened, lowering your score.

Considerations

Your credit score considers how much of your credit limit you are using. When you close a credit card with no balance, you instantly are using more of your available credit because you have shrunk your total credit limit without decreasing your balances.

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How Long Can a Mark Legally Stay on Your Credit Report?

Many people find themselves in a situation where they have bad credit. People have financial problems and have a hard time paying their bills on time. Sometimes, they get divorced and the income that was paying for one household is now paying for two. Maybe medical bills have put you in a tough place. Whatever the reason, you should know that bad marks on your credit are not permanent.

Time Frame

Information stays on a credit report for different amounts of time, depending on the nature of the information. Derogatory accounts, or accounts with late payments, charge-offs or other negative information, stay on your credit report for seven years from the original date of delinquency. Chapter 7 bankruptcies stay listed on your report for 10 years from the date of filing. A Chapter 13 bankruptcy will remain for seven years from the filing date. Public records, such as judgments or liens, will stay on your report for 7 years from the date that you paid them, or indefinitely for an unpaid tax lien.

Considerations

While not necessarily negative marks, inquiries or requests people make to view your credit report stay on your report, visible to everyone, for two years. Soft requests, or requests from people that you do business with or people requesting to see if you fit a general profile, stay for the same two years, but are only visible to the person who is named on the report. Positive credit accounts are generally kept on your report for 10 years from the date that the account was closed.

Function

Negative entries have a serious effect on you and your credit. You may have problems getting credit at a good rate, if at all. You may pay a higher premium for car insurance. You may also have a problem getting a new job.

Prevention/Solution

Derogatory marks have less of an effect on your credit as time passes. You can take other steps to improve your credit. Pay down your credit card balances to less than 30 percent of your available credit. Use your credit cards lightly, so that they are not reporting your statement ending balance being more than 30 percent of your available credit. Check your credit limits, to be sure that they are being reported correctly, and use an older credit card. Part of your credit score is based on the length of time that you have had credit.

Warning

If you are behind on bills, or have balances that are impossible for you to pay, you may consider filing for bankruptcy. This is not a decision that you should take lightly, but it may be what you need to do. Bankruptcy destroys your credit with the ultimate derogatory mark, but the good news is that your credit generally improves after this. This is because the banks have stopped reporting the negative accounts. As negative entries get older, your credit score increases.

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Does Closing Credit Cards Improve Credit Score?

Closing credit card accounts typically does not improve your credit score. In fact, it would more likely hurt your credit score because your credit history with the card remains the same but canceling the card lowers your credit utilization ratio. History and credit use are significant components in your individual FICO credit score.

Closing Cards

Typically, consumers consider closing credit card accounts when they have paid off balances and want to avoid the temptation to overspend and build up debt again. Some credit card providers charge annual or periodic maintenance fees, which can also motivate cardholders to cancel accounts. An alternative to closing a credit card account is to put your cards in a safe deposit box or cut them up to avoid using them, while also preserving the history.

History and Utilization

Your credit card history and length of credit history, along with credit utilization, make up a significant portion of your FICO credit score. FICO was developed by the Fair Isaac Corporation. The FICO scoring model is used by Equifax, Experian and TransUnion--the three major reporting bureaus--as the basis of their scores. On its website, MyFICO, Fair Isaac breaks down major scoring factors into five key areas. Payment history and length of credit make up half the score. Credit utilization, or amounts owed, comprises another 30 percent. New accounts and types of credit are 10 percent each.

History Factors

The credit history section, which accounts for 35 percent of the FICO score, includes accounts on which you have consistently and responsibly made payments. It also includes any late payment or past due notices reported by creditors. When you cancel a credit card, your history with that card stays on your credit report. Essentially, your history with the card has the same influence as before the account is closed. You are not eliminating negative marks by closing the account.

Credit Utilization

Credit utilization is where your credit score is typically negatively affected when you close a credit card account. Credit utilization is the percentage of your available credit currently in use on each given card and in total. Assume that you have a card limit of $5,000 with a zero balance. If you close that account, your available credit drops by $5,000, but your credit in use stays the same. This lowers your utilization, which can knock several points off your score.

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Will Paying Off a Mortgage Help Boost Your Credit Score?

Paying off your mortgage will affect your credit score, but the impact will vary depending on your individual circumstances. The higher your score is, the less of an effect paying off your mortgage will have. Other personal financial circumstances must be considered when calculating how your credit score will be affected.

Effects

Paying off your mortgage can help to boost your credit score. Credit scores take into account the ratio of available credit you have to what you have utilized. If you have a lot of credit available to you but do not use it all, this reflects better than if you tend to use a large percentage of your available credit. However, personal finance author Liz Pulliam Weston notes that paying off a mortgage will likely not have as great an effect on your credit score as paying off unsecured revolving debt such as credit cards. Consider paying those off before paying off your mortgage.

Time Frame

Your credit history will reflect all of your accounts for the last seven years. If you had a bankruptcy in the past 10 years, that will also be reflected. Your credit score takes into account everything that is reported on your credit history. Think of it as a numerical summary of your all your good credit deeds and misdeeds. The credit scoring process includes how recently actions were reported in your credit history. Fair Isaac is the company behind your FICO credit score, which is the score most lenders and one of the three credit reporting bureaus use.

Considerations

How much effect paying off your mortgage will have on your credit score also has to do with what your credit score is at the time you pay it off. If your credit score is already above 700, which is considered very good, any positive things you do to boost your credit score will have minimal impact. Above 760, your credit score is considered excellent, and a smaller positive impact will be felt, perhaps just a few points.

Warning

Paying off your mortgage at the expense of not paying other bills for which you owe money can have a negative impact on your credit score. Just how negative the impact will be depends on your existing credit score, your history with each of your creditors and how long you allow your accounts to lapse before making payment.

Prevention/Solution

Do not consider paying off your mortgage in full unless you have already paid your other outstanding debts, such as credit cards. Many financial experts consider mortgages to be good debt. Good debt is borrowing that enables you to make money over the long term, such as through the appreciation of a home's value. In addition, you can take tax deductions on your mortgage payments--something you cannot do with credit cards.

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Differences in Credit Reporting Agencies

The three primary credit reporting agencies in the U.S. are Equifax, Experian and TransUnion. These companies are competitors and don't usually share information with one another. Thus, consumers should review all three reports to get an overall view of their credit ratings.

Significance

Each credit report contains information about credit cards, loans, collections and legal judgments. According to Consumer Reports, lenders tend to use the Equifax report more often than other reports. However, in many cases, lenders look at all three reports and may sometimes use the average score of the three when making credit decisions.

Review

Consumers should review all three of their credit reports annually to check for mistakes and discrepancies. In some cases, you may be able to dispute errors online when reviewing your report. You can also explain errors in writing and mail those explanations directly to the credit reporting agency.

Considerations

Your credit score at each of the three credit reporting agencies may be different. Each reporting agency calculates your credit score based on the information contained in the report. Each report may contain different information, so the score calculations can vary between agencies. The website Truecredit reports that scores may vary by as much as 40 points.

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How to Read a Canadian Credit Check

A credit score is used by various Canadian financial institutions to decide whether to lend you money, and at what interest rate. Various factors, such as your level of current debt and credit card usage, are used to calculate this credit score. Occasionally, information on your Canadian credit report may be inaccurate and negatively affect your credit score. Learn how to read a Canadian credit check to verify your financial data and protect your credit rating.

Instructions

1

Flip through your Canadian credit check. Canadian credit reports are several pages long. Verify that no pages are missing, and note the four main sections of the Canadian credit report: identifying information, public records, financial inquiries and credit history. If you do not have a Canadian credit report on hand, you may order a credit check from Equifax Consumer Services Canada (see Resources) for $15.50 CDN.

2

Read the identifying information section. This is your personal data, such as your name and mailing address, provincial driver's license number and spouse's name (where applicable). Depending on your personal data file, it may also list your Canadian Social Insurance Number (SIN), used by all Canadian employers. Jot down any discrepancies for future reference.

3

Review your personal credit history on the report. Some Canadian credit checks call this "trade lines." This section of the Canadian credit report will identify each instance in which you were lent money from a Canadian bank or financial institution. Check that the list of financial institutions and account numbers match your records. Look for important errors such as credit cards being listed that you have since closed. This section of the Canadian credit check will also include information such as when the credit account was opened and what type of loan it is.

4

Read the third section of the Canadian credit report, which lists all public financial records filed under your name. This includes instances of back taxes owed to the Canadian provincial or federal governments and bankruptcies. Individuals with good credit scores will find that this section of their credit check is blank. A blank section is preferable.

5

Review the last section of your credit check, which lists all instances in which a financial institution or company ran a credit report on you. A company will request to see your credit report anytime you apply for a new loan or credit card, or open a new account at a bank.

6

Go back over your notes after reading your Canadian credit check and see if there were any errors or discrepancies. If so, file a correction report using the included form that came with your credit report. Alternatively, call Equifax Canada at (800) 465-7166 or write to Equifax at Box 190, Jean Talon Station, Montreal, Quebec, H1S2Z2.

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Which Items Correct a Credit Report and Raise a Score the Fastest?

You have a right to dispute incorrect items on your credit reports, according to the Federal Trade Commission dispute information website. Mistakes on reports hurt your credit score because FICO, the major score compiler, uses information from your reports to come up with the credit score. Your score goes up quickly if you correct your report by forcing the removal of incorrect items with heavy influence on credit score calculations.

Payments

The Motley Fool financial website cites payments as the most frequently misreported items on credit reports. On-time payments that show up as late or missed hurt your credit score badly because 35 percent of your score comes from your payment history, according to information on the MyFICO credit score company website. Your score takes a bigger hit for lengthy delinquencies, so focus on payments incorrectly shown as at least 60 days behind.

Amounts

Your credit score looks at the balance of money you owe and your available credit lines, according to the MyFICO website. These amounts sometimes show up incorrectly on your reports, and they count against you if you have too much available credit, which gives you the ability to get into debt quickly, or owe too much money, which could lead to repayment problems. You help your score by disputing mistakes if there is a big discrepancy between the listed amounts and the real numbers because these factors count for 30 percent of your score.

Collection Accounts

Collection accounts hurt your credit score badly, according to MyFICO's list of score calculation factors, because they fall under the payment history area. Debt collectors sometimes agree to pull their entries from your credit reports if you pay the account. Bankrate's Debt Adviser online column recommends negotiating for erasure as a condition of paying. Otherwise you may be able to get rid of the item if the collection agency is reporting incorrect information. Use any mistakes as grounds for a dispute and your score will jump if you are successful.

Incorrect Accounts

Your credit report can get mixed up with someone else's records, according to MSN Money. Mix-ups happen accidentally or when identity thieves steal personal data and use it to get credit cards in your name. Correct such mistakes immediately by notifying the credit bureaus and account issuers, especially if the accounts are pulling down your score because they are not in good standing.

Missing Accounts

Accounts in good standing do not help your credit score if they do not appear on your credit reports. Bankrate advises that account data has to go to the credit bureaus to have any effect in your credit history. Older accounts are especially helpful because the length of time you have had credit makes up 15 percent of your score. Contact lenders if certain accounts are missing from your records and ask them to start reporting the information.

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What Does Tier 1 Mean for a Consumer Credit Score?

Not being in the top tier of credit score means you pay much more in interest on loans even if you have above-average credit. A borrower with a few more credit score points than another does not always mean he is a better borrower than the other, so most lenders lump borrowers into categories or tiers.

Identification

A Tier 1 credit score puts you in a lender's highest-rated credit score category. The top tier changes in time, often with the state of the economy and lending sector, and with whatever financial institution you choose. A good rule of thumb is that anything above 750 to 760 falls in the top tier for most lenders, according to Wallet Pop. Some lenders might offer super-premium rates for scores above the 800s or "Tier 1 plus."

Benefits

The most important aspect of tier credit is the low interest rate. To give an example of how much bad credit costs borrowers, take a $15,000 auto loan. A borrower with good credit can probably get an annual percent yield of 8.5 percent, while a bad or sub-prime borrower usually pays about 21 percent. This works out to about $1,020 extra per year, or $5,100 over the life of the standard five-year auto loan.

Considerations

You might be able to overcome a credit score in the second tier and get the best interest rate by lowering your debt-to-income ratio. Lenders also factor in your monthly bills and monthly income in the underwriting process. If you have an extremely low DTI---lenders usually won't offer credit to someone with a DTI higher than 35 percent---the creditor usually forgives the borrower for less-than-excellent credit.

Tip

Most borrowers can enter the top tier of credit scores by paying off as much debt as soon as possible and always meeting the minimum pay on all accounts. Pay off credit card debt first, because the ratio of balance outstanding-to-limit available is an important part of the "amounts owed" category in the FICO model. When you have one or two negative items, such as a 30-day missed payment, the lender might reverse this standing with the credit agencies, particularly when you have a long history with the lender and rarely miss payments.

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Do Collections Ruin Your Credit?

Collection agencies are third-party businesses that attempt to collect outstanding debts due to a creditor. Collection agencies can report that debt to credit bureaus if they have purchased the debt from your original creditor. When you are first faced with a collection letter, exercise your right to dispute the debt or request further information verifying that the debt is valid within 30 days of receiving the letter.

How collection agencies locate you

If your original creditor is a credit-card company, utility company, student-loan institution or medical provider, it will likely turn the debt over to a collection agency if you fail to pay for an extended period. Collection agencies will receive the most recent information the original creditor has about how to contact you.

Reporting the debt to credit bureaus

A collection agency must initiate contact with you before reporting the debt to credit bureaus. Typically it will first notify you of the debt by mail. The letter will include the original debt amount plus fees and information about disputing the debt. If a significant amount of time passes with no response from the debtor, the collection agency will report the debt to the credit bureaus, lowering your credit score.

How collections ruin your credit

Collection agencies can ruin your credit because theoretically the debt from the original creditor may appear on your credit report as a charge-off and the debt from the new collection agency will also appear on your credit. The original creditor is supposed to update your credit report by saying the account was sold to another agency. Collection debt can stay on your credit for seven years.

Negotiation

Get any and all payment arrangements in writing and signed. Get an agreement to have the collection item removed from your credit report if a certain amount is paid in full. Collection agents will tell you this is not possible, but they have this option.

Collection on your credit report

Contact all three credit bureaus and obtain a copy of your credit report from each. You get a free credit report per credit bureau once per year or if you were recently denied credit for any reason. Contact the collection agency (its address and phone number will be listed next to the debt). Make arrangements to either pay or dispute the debt. Dispute the debt with all three credit bureaus if there any inaccuracies. By law, the credit bureaus have 30 to 45 days to validate the debt or remove it.

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Things That Lower Your Credit Score

Protecting your credit score from damage is crucial because your major purchases in life such as a home or a car depend on it. Maintaining a healthy credit score or improving your credit worthiness starts with being aware of the things that can lower your credit score. It does not take long to learn the basics of good credit management, but achieving a favorable credit rating requires consistent responsible behavior over time.

Missed Payments

Failing to pay on time can significantly lower your score. Even if you have been delinquent only for a month, the negative impact on your score can be major. Late or missed payments give the impression that you are less trustworthy. If you missed payments, get current. Avoid transferring your balance from one credit card to another.

Closure of Old Credit Cards

Do not close your old credit cards because they show how you have handled credit through the years. The older your account, the higher your credit score is because it signifies that you can be relied on to make payments on time.

Excessive Inquiries

When you apply for a credit, you allow the lenders to inquire or ask for a copy of your credit report from a credit bureau. When you see your credit report later on, you will find that these inquiries are listed. A high number of credit inquiries over a short period of time may be interpreted as a sign that you are financially desperate or that you may be taking on more debt than you can manage.

High Credit Card Balances

Your credit score will be affected if your credit card balance is close to the credit limit. Ideally, it is best to keep your credit card balance below 35 percent of your credit limit. For example, if your credit card has a $5,000 limit, keep your balance below $1,750. Exceeding your credit limit will also affect your credit score.

Opening Many New Accounts

If you have a short credit history, do not be in a hurry to open a lot of new accounts. These new accounts could lower the average age of your accounts. Give yourself time to establish your credit worthiness.

Bankruptcy

Your credit score takes a dive after you declare bankruptcy. You will find it hard to obtain a credit card, and you may have to settle for a secured credit card that requires a deposit to help you start rebuilding your damaged credit. The credit limit of a secured credit card is equal to the amount that you have deposited with the financial institution. The lender can then use the deposit to pay your debt in case you fail to meet your obligation.

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How to Get a Free Credit Report Through Experian

Experian is one of the nation's major consumer credit reporting agencies, the other two being Equifax and TransUnion. The Fair Credit Reporting Act requires each of the credit reporting agencies to provide a free copy of your credit report every 12 months. Your credit report includes personal information and details of your financial behavior. This information is used by employers, credit card companies, insurance companies and businesses to evaluate your application for buying or renting property, insurance, employment and credit. It's therefore a good idea to know what your credit report contains.

Instructions

1

Understand that there are two main ways of getting your credit report: directly from Experian or from the Annual Credit Report website (see Resources below).

2

Log onto the Experian website (see Resources below). You will be required to fill out a two-stage application. Input valid credit card details in order to validate and establish your account. By submitting your order, you will be enrolling into a trial membership of Triple Advantage Credit Monitoring. Although your initial report will be free, you will need to cancel your membership within the first 9 days to avoid further billing.
You can also order your report via phone by calling (888) 397-3742.

3

Log onto the Annual Credit Report website (see Resources) and fill out the application to request your report. You can also call the Annual Credit Report phone system at (877) 322-8228. Your report will be mailed to you within 15 days.

4

Print and fill out the Annual Credit Report Request Form from the Fair Trade Commission website (see Resources below). Mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You'll receive your report within 15 days of receipt of the form.

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Critical Information on Bad Credit

Checking your credit report will either reveal a pattern of good credit or a patten of poor credit. Credit scores 650 or higher are acceptable by most lender standards. Regrettably a score lower than 650 places you in the sub-prime category, wherein it becomes difficult to acquire financing.

Causes

There is no one cause of bad credit, and people who have a low credit score can likely point to various contributing factors. Oftentimes, bad credit results from lack of knowledge. Some people don't know how to use credit wisely. They acquire a credit card or other line of credit, but fall short when it comes to paying these accounts on time or keeping their debts manageable. Habitual late payments and exceeding the limit on credit cards will lower credit scores, and once a debtor loses those points, it takes time to rebuild and repair the damage.

Rejections

A major consequence of bad credit is the inability to get financing for a vehicle or mortgage loan. Creditors and lenders place a lot of emphasis on credit scores. Because they don't know applicants personally, credit scores and credit reports are the only information they have to determine if a person is worthy of credit. A low score or pattern of bad credit behavior often results in a loan or credit denial.

Interest Rate

Even if a person is fortunate to find a lender or creditor to accept his credit application with bad credit, the interest rate or finance fees on the line of credit will be expensive. And because interest rates affect monthly payments, a high rate can affect a person's ability to afford a certain type of car or home. A high interest rate is the price a person pays for having a poor credit rating.

Improving Bad Credit

On a more positive note, bad credit isn't permanent, and many people have successfully recovered from a poor credit rating. The key is changing the way you manage credit and educating yourself about smart credit habits. For starters, pay bills on time every month to help increase your credit score. Next, pay down debt and keep balances below 30 percent of the credit limit to slowly improve a low score. Use other techniques, such as checking credit reports for outdated/wrong information and limiting credit applications, to also help fix a bad credit score.

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How Long Does it Take to Repair Your Credit After Repossession?

If you fail to make timely payments on an item such as a car, your creditor can repossess, or take back, the car without first going to court. The repossession's impact on your credit score is both negative and lasting.

Time Frame

A repossession remains on your credit for seven years. After the repossession comes off your credit report following this time period, your score should improve, depending on whether you have made timely payments on other debts.

Additional Effects

As a result of the repossession, the creditor may sue you for a "deficiency judgement,, to collect the difference between what you owed and how much the creditor received from selling the car. In addition, you may have to repay auction fees and towing fees, among other costs. This may place additional financial strain upon you, leading to you becoming late or delinquent on other payments. These other late and delinquent payments will also negatively affect your credit.

Voluntary Versus Involuntary Misconceptions

Voluntarily turning over your vehicle to the creditor and having the creditor repossesses the property have the same effect on your credit. Either scenario will show on your credit as a repossession, and will be equally bad.

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Laws on Reporting to Credit Bureaus

The Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA) govern the credit reporting industry in the United States, according to the Federal Trade Commission. These federal laws enable companies to report on-time payments and late or unpaid accounts. They also protect consumers from unfair credit reporting practices due to a dispute with a merchant or identity theft.

Applicable Time Frames

Incidents in which someone failed to pay their bills on time, or didn't pay then at all, can show legally on credit reports for seven years from the date of the missed payment, warns the Experian credit bureau. The seven-year period also applies to people who partially repaid their bills under a credit-counseling program or Chapter 13 bankruptcy. But some types of credit problems are legally reportable for 10 years, including Chapter 7 bankruptcy, tax liens and unpaid lawsuits. On-time payments to an open account, such as a credit card, report indefinitely as positive credit history. Once you close the account, the on-time payments will help your credit rating for at least 10 years from the closure.

Credit Report Privacy

The FCRA and the FDCPA prohibit people or companies from viewing your credit report without a "permissible purpose," notes the Federal Trade Commission. If you did not fill out an application for a job, home or loan, or do not have an existing account with a company, and someone pulls your credit report anyway, you can sue the company for each violation against your privacy. You also cannot legally view a family member's credit report without his consent.

Disputing Inaccurate Information

Creditors cannot willfully report false information to your reports, nor can credit bureaus like Equifax, Experian and TransUnion legally keep provably false data on your files, according to the FCRA. But you must first assert your rights over the telephone or in writing. The credit bureau or creditor to whom you complained has 30 days to complete an investigation into your request. If they cannot prove the accuracy of the reported information, they must remove it. If they allege the information is correct and you have evidence disputing that assessment, you can sue the agency in your local small claims court.

Other Types of Information

The FCRA enables other types of data to show on your credit report. Usually, your current and past addresses, current and previous employers, spouse's name, and your telephone number will appear on your report along with your full name, date of birth and Social Security Number. Every time a company views your credit report, this fact shows on your file for two years from that date.

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Does Co-Signing on a Loan Benefit the Cosigner's Credit

If someone cosigns a loan and it goes into default, lenders ask the cosigner to help repay it as much as 75 percent of the time, according to the Federal Trade Commission. Although cosigning is often seen as a negative because it means the other party was too risky to obtain a loan themselves, the cosigner and primary account holder can raise their credit scores with a good payment history.

Benefits

When you cosign on a loan, you share credit history with another party. If the loan has had a good history, you will instantly receive that positive information on your credit report. Any future timely payments will also apply to all cosigners on a loan.

Considerations

While you will share positive information, you also increase your debt obligations. If you want to apply for another loan, lenders will look at your income and compare that to your debt burdens. Even if you have a perfect credit history, if your debt payments exceed 35 percent of your income you could have a hard time getting a loan.

Risk

Like good information, negative items appear on the credit reports of all cosigners. Once you cosign on a loan, removing your name from the account is nearly impossible. The other party on the account would need to refinance the loan -- swapping the loan with a loan that has more favorable terms -- or in case of a credit card, open a new account and transfer the balance.

Tip

You should review any loan application before signing on it and determine if you can pay it off if the other party defaults on his payments. If the cosigner does default, it may be better for your credit to pay off the rest of the loan than deal with late payments and collections agencies.

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The Quickest Way to Bring Up My Credit Score

People planning to apply for a new line of credit such as an auto loan or a mortgage may want to increase their credit scores before getting the loan. Lenders base interest rates for loans on an individual's credit score, a number between 300 and 850 that helps the lender assess how risky it is to lend money to that person. Bringing up your credit score qualifies you for lower interest rates because lenders see you as more likely to pay back your debts on time. The fastest way to raise your credit score is to eliminate negative information on your credit report.

Instructions

1

Obtain a copy of your credit report from each of the three major credit reporting agencies, TransUnion, Experian and Equifax. If you have not already obtained your free credit reports this year, get them through the Annual Credit Report website (see Resources) for free.

2

Read the credit reports and make sure all of the accounts listed belong to you. If you find any accounts you did not open, mail a letter to the credit report bureau that listed the faulty information on your report and ask that the account be removed from your report.

3

Check the listed credit limits for your revolving lines of credit such as credit cards and home equity loans. If any credit limit is shown to be lower than your actual credit limit, send a copy of your credit card account statement with the correct credit limit to the credit bureaus along with a letter asking them to fix the errors.

4

Contact collection agencies for any accounts listed in your credit report as in collection. Pay off the accounts in full and ask them to report to the credit bureaus that the accounts have been paid.

5

Write to any lenders for which a late payment appears on your credit report and ask for a "goodwill adjustment". If you are a longtime customer and have made all of your payments on time since the late payment, they may contact the credit bureaus and ask that the late payment be removed from your reports.

6

Pay off as much of your credit card balances as possible, especially if you are using over 30 percent of your available credit on a card. Much of your credit score is based on the ratios of debt to credit limits, so paying down balances can increase your credit score quickly.

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What Can Drop Your Credit Score Down 60 Points in Less Than a Year?

Sixty points could be enough to cost you thousands of dollars on a loan and you might lose these points with just one negative item. You can ding your credit in far less than a year, maybe even in just one month. With time, you can reverse the effect of something causing 60 points of damage.

Considerations

The Fair Isaac Corporation (FICO) credit scoring algorithm can be very temperamental, so you cannot precisely predict the number of points any negative item can cost. In some cases, a negative can improve a credit score. The Fair Isaac Corporation keeps its scoring formula under a tight seal, which means the best you can do is estimate how variables will change your score. Also, negative items have a reduced impact on already low scores, so a seriously negative item on one person's report may have an insignificant effect on another credit profile.

Maxing out a Credit Card

The amount of debt you owe makes up 30 percent of your score, but within this variable is credit utilization, or how much of a credit line you use. Maxing out just one card can result in a loss of up to 45 points. This can easily happen when you have a low-limit credit card and rack up everyday purchases without paying off the balance in full each month.

Late Payments

A 30-day late payment rarely does less than 60 points of damage to the average score of 680, according to Bankrate. Higher scores lose even more points. If the borrower cannot pay for 90 days, the damage then goes up to at least 70 points and as much as 85 on that same credit profile.

Debt Settlement

You can negotiate with a lender to pay less than what you originally borrowed in less than a year. The creditor, however, will likely report your the account as a debt settlement. This does between 45 and 65 points of damage on an average score and more than double that on a very high score.

Considerations

It takes far longer to recover from a negative incident than to cause the damage. If you have an average to above-average score and see a 60-point drop, there is little you can do, unless it a maxed out card and you just need to pay off the balance. Fortunately, negative items become much less important after two years, and some lenders do not even look at items older than this.

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How Liens Affect Your Credit

Liens are often thought of as terrible for credit scores, but some types of liens have no effect on a credit score. Whether a lien affects your credit score depends on why you have a lien on your property. Even if you have a lien that affects your score, such as a tax lien, you might be able to get it off your record.

Types

The liens that affect your credit occur with an unpaid debt to the government, such as a lien due to outstanding property tax or federal tax. A mechanics lien, which usually occurs in conjunction with home improvement repairs, affects the title to your home but not your credit, according to Credit Score Quick. If you cannot or refuse to pay for your home improvement repairs, the contractor can use the mechanics lien to secure a judgment, which will affect your score.

Effect

Credit reports are unique, so you cannot calculate exactly how much damage a tax lien could do to your score. Similar negative items, such as a short sale or foreclosure, cost between 85 and 160 points, according to CNN. The better your score, the more room a lien has to drop it, whereas already bad scores take the smallest hit.

Time Frame

Tax liens are considered the most serious offense on a credit report and stay on it for 15 years if left unpaid. For comparison, bankruptcies stay up to 10 years and all other negative items impact your report for seven years. Private liens that appear on a report stick for seven to 10 years.

Tip

You might be able to negotiate with the lender to remove the lien if you pay the debt in full. Alternatively, disputing the lien several months after successful repayment may work in case of a tax lien, because the IRS often does not even bother replying to credit agency inquiries once you settle your debt, according to Carreon and Associates.

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Does Account Protection Affect a Credit Rating?

Whether it's protection against identity fraud, or a buffer in case you go over your spending limit, account protection can save you from hefty fees and the headache of clearing your name. Some forms of account protection can potentially save your credit rating, while a few may cost you points if they involve a credit check.

Considerations

Account protection can only affect your credit rating if it comes with a loan or a credit check. The most common type of protection that could affect your credit rating is overdraft protection. Banks usually perform a credit check when you request this protection, because the provider has to authorize a small loan that must be paid back in case you spend more than you have in your account.

Security Features That Won't Cause Harm

Credit monitoring does not affect your credit rating even though a third-party pulls your report, because the credit rating agencies consider this type of service a personal pull. Security for your credit card account, such as adding a photo ID to a card or monitoring your purchases online, does not affect your credit. Temporary purchase numbers, which are one-time-use cards for a purchase, are linked to your account, so they are not a new revolving loan nor reported to the credit agencies.

Potential Benefit

Some forms of account protection may guard against actions that could harm your score or creditworthiness. Overdrafting on a bank account, for instance, could result in the bank sending the outstanding balance to a collection agency or noting a negative item on your banking history report. Identity thieves can destroy your credit score by taking out loans in your name and letting them default. It takes the average victim 14 months to find out about identity theft -- plenty of time to ruin your name, according to the New York State Consumer Protection Board.

Tip

Just to be sure, always ask your creditor if account protection requires a credit check or how it will show up on a credit report. On overdraft protection, you can forgo the credit check by linking other accounts. This way, when you go over your balance on one account, the bank takes funds from another.

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How Long Does an Account Delinquency Affect Your Credit Score?

Whenever you fail to make a payment on one of your credit accounts, this is considered to be a delinquency, even if the payment was as little as 30 days late. The creditor will report the delinquency to the credit bureaus and it will appear on your credit report and damage your credit score.

Time Frame

Most account delinquencies can appear on your credit report for no more than seven years from the date of the delinquency. In the case of an account sent to a collection agency, this date is when it was charged off and sent to the agency, usually after 180 days without a payment to the creditor. The negative account affects your score even if you have since paid it off.

Exceptions

A few types of major delinquencies stay on your credit report for longer than seven years. If you file Chapter 7, 11 or 12 bankruptcy, this will remain on the public record section of your credit report for 10 years after you file. Chapter 13 bankruptcy only stays on your report for seven years. If you had a tax lien that you still have not paid, this could affect your credit score for up to 15 years.

Rebuilding Credit

You can rebuild your credit score even while the delinquency is still on your credit report. This is because the effect of delinquencies lessens over time. In addition, as you add more positive information to your credit report, it makes your credit file larger and lessens the proportion of your credit history that is negative, which helps your score. For example, if you have a late payment listed on your credit report, follow up by making on-time payments on that account and other accounts to lessen its impact.

Removing Delinquencies

There is nothing you can do to remove an accurate delinquency from your credit report until at least seven years have elapsed. If seven years have passed since a delinquency, or 10 in the case of bankruptcy or 15 for a tax lien, it should automatically drop off your credit report. Get a free copy of your credit report from each credit bureau through the Annual Credit Report website to confirm that the delinquency was removed. If it was not, initiate a dispute with each bureau by following the instructions listed on each report.

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How a Spouse's Death Affects My Credit

The death of a spouse can cause emotional and financial distress to the spouse left behind. During the course of a marriage, the financial lives of the spouses are often intertwined. A spouse's passing can rock the financial foundation of a family, especially if the death is unexpected. Your credit score impacts several areas of your life, including obtaining a job, so it's a good idea to understand how your spouse's death can affect your credit.

Credit Scores

The information contained within your credit report determines your FICO credit score, which ranges from 300 to 850. A FICO score has five distinct factors, according to myFICO. How well you pay your bills accounts for 35 percent of the score.The next 30 percent measures the amount of debt you have. Fifteen percent reflects the length of your credit history. Ten percent is the amount of new debt you've applied for, and the final 10 percent reflects the mix of credit types on your credit report.

Joint Credit Accounts

A joint account with a spouse will appear on your spouse's credit report and yours. Joint account holders are equally responsible for the payment of the account. If you have a joint account with your spouse and your spouse dies, you alone are then required to satisfy that debt. If you are unable to make the payments or make the payments late, the creditors will report that payment history to the credit bureaus and it will lower your credit score. Payment history is the largest factor in the calculation of your credit score. The degree to which the score drops will vary from person to person and depends on the other items contained in your report.

Community Property States

In a community property state, spouses are equally liable for debt accumulated during the marriage even if the debt is in the name of one party. If your spouse passes away with unpaid debts in his or her name, creditors may expect you to pay those debts. Creditors can sue you for that debt, especially if you have assets. If a judgment is received against you, it will appear on your credit report as a public record and remain there for up to seven years. According to myFICO, public records are a derogatory item to have on a credit report and it will also lower your FICO score.

Lack of Credit

It is not unusual for an income-earning spouse to have credit in his or her name while a non-working or stay-at-home spouse does not. If you are an authorized user on your spouse's accounts, those accounts will appear on your credit report. Thirty percent of your score reflects how much debt you have in relation to how much available credit you have. This is called credit utilization. If your spouse's accounts are closed subsequent to his or her death but they still have a balance, it will lower your score since it reduces your available credit while the debt itself remains. To protect your credit, pay the balance off before the accounts are closed and open a new credit account in your name. The good news is that positive credit history remains on your credit report for up to 10 years, even if the account is closed.

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How to Settle With a Creditor Without Going to Court

Appearing before a judge because your credit card bill got out of control isn't the best option for your financial health. If you deal with creditors outside the judicial system, the outcome usually will be much more satisfactory for both your mental health and your credit record. The sooner you talk to a creditor and reach an agreement, the sooner the problem will be out of reach of the court. Make sure to get documentation of any promises a creditor makes to you.

Instructions

1

Contact the creditor to whom you owe money as soon as you realize there's a chance of the creditor may file a suit against you.

2

Explain that you want to honor your debt.

3

Ask what kind of payment plan the creditor can offer you. Consider the offer, and decide whether you can afford it. If you can't, offer an alternative plan.

4

Request that the creditor remove the negative entry from your credit report. Ask the creditor to fax you a letter stating that it will remove a specific, named debt from your report in return for a payment of a certain amount of money. Ask that a signature of a person employed by the collection agency appear on the fax.

5

Send the payment or payments as requested. Ask for a letter stating that the payment is complete when the debt has been satisfied.

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Will Checking My Credit Lower My Score?

If you are getting ready to apply for a new loan or credit card, one way to find out where you stand is to check your credit report. You can check your own credit report or credit score without hurting your score at all. In fact, checking your credit can help you identify errors that you can correct to boost your credit score.

Credit Check Effects

When you check your credit report or credit score, you run a credit inquiry on yourself. Credit inquiries are listed on your credit report in two major categories. Soft inquiries, which include checking your own credit, are not visible to lenders and do not affect your credit score. Other types of soft inquiries include those for pre-approved credit cards or insurance offers, those by companies with which you already hold an account and those by employers. Soft inquiries will never lower your credit score.

How to Check Credit

Check your own credit by getting a free credit report through the Annual Credit Report website. All consumers are eligible to obtain one free credit report per year from each credit bureau. You can also check your credit directly through a credit bureau. Visit the Experian, Equifax or TransUnion website to purchase a credit report or credit score. None of these methods of checking your own credit will lower your score at all.

Benefits of Checking Credit

Checking your credit can sometimes allow you to raise your credit score. For example, you might notice that one of your credit cards displays an artificially low credit limit that makes it look like you have maxed out the card and are very close to your limit. If you call your credit card company and ask for a correction on your credit limit, this can reduce the percentage of your credit that you are using and thus increase your score.

Warning

Some types of credit checks can lower your credit score. These are typically referred to as hard inquiries and generally refer to those initiated in response to your application for credit. Therefore, if you visit a lender to apply for a mortgage, the lender will run a credit check that adds a hard inquiry to your credit report. This inquiry can lower your credit score, usually by five points or less.

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What Damages Your Credit Score?

Your credit score is your passport to buying a new car or a new house, as well as many other things. For most people, this is enough incentive to do their best to maintain a good score. For many, a good credit score also signifies pride and honor. It's part of their reputation, so they will work hard to protect it. As the old saying goes, knowledge is power, and knowing what might cause your credit score to take a tumble is no different.

Credit Checks

When businesses have recently inquired about your credit, your score go may go down, but not too much. Multiple recent inquiries will impact your score the most. Recent inquiries combined with new accounts amount to about 10 percent of your score. Exceptions to this include banks and businesses that look at your score without your permission so that they can make a pre-approved offer to you. These inquiries do not lower your score. Also, if you are shopping for a mortgage or car loan, as long as you complete all inquiries within one month's time, multiple inquiries only count as one inquiry, which has little impact on your score.

Longevity

Together, the length of your credit history and whether you have new credit accounts for 25 percent of your score. The length of your credit history refers to the length of time you have used credit. The more longevity you have, the better. This weighs in at 15 percent of your score. The other 10 percent comes from whether you have recently opened new accounts. The newer the accounts, the lower the score. So together, if you have not used credit for very long and you have new accounts, your score will be lower than that of someone who has used credit for a long time and has no or few new lines of credit.

Closing Accounts

The number of accounts you have and the amount of money you owe as a percentage of the amount of money you're allowed to borrow affects your credit score. In fact, it accounts for 30 percent of your score. The higher your debt compared to the amount of credit you have available, the lower your score. FICO's algorithm gives you a good score for using credit, but not if you use too much of it. Closing accounts, then, can actually lower your score, because you have less credit available to you but still owe just as much, which negatively alters your percentage.

Late Payments

Regular on-time payments will never hurt your score. Late payments will. Your payment history is the most heavily weighed category on your credit score. It accounts for 35 percent of your score and includes anything 30 days late or later, whether a creditor settled with you for less money than you owed, collection accounts, how long it has been since you were late on payments, the number of delinquent accounts and the number of non-delinquent accounts. The more accounts you've been late on, especially recently, and the number of them, the lower your score will fall.

Major Issues

Foreclosures, bankruptcies, liens and judgments all have a serious negative impact on your credit score. It will fall markedly as a result of any of these major issues. And while most credit records disappear from your report after seven years, a bankruptcy remains on your record for 10 years. Surprisingly, in spite of the written record that follows errant consumers for seven to 10 years, many people manage to significantly raise their scores after one of these events in about two years.

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