How Are FICO Scores Used?

A high FICO score indicates that you have healthy card balances and a low debt-to-income ratio, which compares the amount of money you owe in monthly debt payments to your take-home pay. Your FICO score changes as the information in your consumer credit report changes.

Function

Lenders, creditors, service providers, utility companies and employers use your FICO credit score to determine your creditworthiness and to qualify you for new lines of credit. Every time a company requests your credit information, an inquiry is documented on your credit reports.

Components of a FICO Score

Several components make up your FICO score, the most important of which is your payment history, which accounts for 35 percent of your FICO score. Credit utilization makes up 30 percent, whereas length of credit history comes in third, making up only 15 percent of your FICO score. The frequency with which you open new credit lines as well as the types of credit you have open each account for 10 percent of your FICO score.

FICO Score Percentile

A FICO score of 700 to 740 is very good. A median FICO score is 723 and a good FICO score ranges between 660 and 699. An average FICO score is 687. Anything at or below 620 is considered not good to poor with 500 being the lowest.

Considerations

If you have a poor FICO score, you may qualify for secure lines of credit. Back a secure line of credit with a high value asset such as a real estate deed. If you do not have the financial standing to secure a line of credit, apply for a line of credit with a creditworthy co-applicant. Your co-signer or co-applicant assumes full responsibility for the loan if you fail to meet the terms and conditions. Choose a co-applicant with a higher FICO score -- preferably 720 or above -- to improve your chance for approval.

Purchasing Your FICO Score

As of April 2011, FICO offers a $49.95 credit report and score product. Under the terms and conditions of the product, you can monitor your three FICO scores and credit reports (FICO, Equifax and TransUnion) as well as set up daily alerts for changes in your FICO score or credit report. For $19.95, obtain a copy of your FICO score and either an Equifax or TransUnion credit report.

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How to Build a New Credit File

Building a new credit file takes time and effort. Information on your credit report cannot be erased unless the information is inaccurate which means it will take work and effort on your part to ensure every single item that is reported in your credit file from this day forward is positive and will add to building a new credit file that is positive and better than what is showing currently.

Instructions

Remove Inaccurate Entries

1

Review a copy of your credit report. You can obtain a free copy by visiting annualcreditreport.com. Circle every negative item that has incorrect information. The inaccurate information may be a date, amount, status or an account that is not yours.

2

Send the credit bureaus a letter asking that the incorrect information be corrected or removed from your credit file. Each negative item that you can remove will help your score and leave you with a cleaner credit file.

3

Look at the results of the request when you receive the report from the credit bureau. The report will show if the item was deleted, corrected or if it remains the same. File the report with your other financial records.

Pay on Time

4

Review all your outgoing expenses. This includes all bills and day-to-day living expenses. Create a budget that covers every bill that is reported to the credit bureau being paid on time. Review your credit report, if you need to see which accounts report monthly to the credit bureau.

5

List the amount of money you can apply to each credit card bill. Always pay at least the minimum but the lower you can get your credit balance, the higher your credit score will rise.

6

Make each and every payment on time from this point forward. If you can pay extra towards the balance, pay it.

Add Positive Credit

7

Review your credit report and look for the number of positive accounts you have currently reporting. It does not matter if the accounts have a negative history, if you can pay the bill in full and on time from this minute forward, you will consider this a positive account.

8

Create a list on paper and include both your positive revolving accounts and installment accounts. Revolving accounts are credit cards. Car loans and mortgages are installment loans.

9

Open a credit card account if you do not have two to three reporting. Open a secured credit card if your credit score is too low to qualify for an unsecured card.

10

Open an installment line of credit as soon as you are in a position to do so. This can be a personal loan or an automobile loan. The amount does not matter. The goal is to make the payments on time and show you are responsible in paying your debt.

11

Make every single payment you have on time. Having multiple accounts reporting positive information will boost your credit score and begin to establish a new and positive credit file.

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What Are the Benefits of Credit Scoring?

Nearly everyone who has ever taken out credit has been assigned a credit score -- a number representing an estimate of the probability an individual will pay back a loan. These credit scores are issued by credit bureaus, also called credit reporting agencies, which gather information about an individual's borrowing habits and use it to calculate his credit score. This practice of credit scoring has a number of advantages to both lenders and borrowers.

Availability

One of the main advantages of credit scores is that it makes a large amount of information about a person's lending habits available to borrowers. Prior to the formation of credit reports and credit scores, a lender could only gather a limited amount of information about prospective borrowers. Credit scores, based on credit reports, offer a succinct encapsulation of a borrower's creditworthiness that takes into account what is often dozens of pieces of information.

Transparent

With a credit score, both a borrower and a lender know what a credit reporting agency thinks of an individual. Before credit scores, a person would have a very limited idea of what kind of credit risk he represented and for what interest rates he might qualify. With credit scores, a person not only knows how lenders see him, but he has the potential to improve this score by taking out and paying back more loans.

Impartial

A credit reporting agency applies the formula used to determine an individual's credit score to each individual the same way, without exception. While the accuracy or fairness of these formulas may be up for debate, the formulas are applied equally and impartially. This means that a credit reporting agency cannot show partiality toward a particular individual for factors unrelated to his borrowing history. This prevents discrimination based on race, gender, religion, and other cultural and physiological factors.

Speed

By offering a summary of an individual's creditworthiness with a single number, credit reporting bureaus greatly increase the speed at which loans can be approved. Prior to credit scores, lenders often had to process a large amount of information in an attempt to determine the risk they would undertake in lending to the borrower. With credit scores, credit reporting agencies have already done this. Lenders will often set interest rates for borrowers instantly, depending entirely on their credit score.

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How to Repair Very Weak Credit

Poor financial decisions can take its toll on your credit score. Unfortunately, many people do not realize the financial toll that bad credit can take until they are trying to make a large or significant purchase. However, over time, with careful money management, you can repair your credit.

Instructions

1

Contact Equifax, TransUnion, and Experian for a copy of your credit report. You are allowed one free copy of your credit report per year. Also, be sure that you order all three reports and examine them carefully. Most of the time, your credit report will have at least one mistake. According to Bankrate, almost every consumer has an error on one of their credit reports.

2

Contact the credit bureaus to correct any disputes. Be sure to document any changes that should be made.

3

Reduce your debt to boost your credit. Budget your money and be sure that you consistently pay your bills on time. Bankrate recommends you reduce your debt to around 50 percent of the credit you have available.

4

Build good credit. Find a secure credit card with a low limit and begin using it. Use the card and pay the bill on time to show that you can responsibly use credit. This will begin to build a stable, good credit history. You can show stability by opening a savings account.

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Is There a Legitimate Way to Improve a Bad Credit Score?

Your credit score affects whether you get loans and how much interest you will be charged for them. If you have a good credit score, you can get loans at lower interest rates. If your credit score needs work, the bad news is that there are no quick and easy fixes. The good news is that your credit score can be improved over time. By taking steps to improve your credit history, your credit score will improve because newer information counts more heavily than past records, and most negative information falls off your credit report in seven years.

Instructions

1

Check your credit report. Federal law entitles you to a free copy of your credit report from Experian, Equifax and TransUnion, the three major credit bureaus, once every 12 months. By ordering your free copy, you can check to make sure that your credit report does not contain errors, such as credit cards that are not yours or mistakenly reported late payments or delinquent accounts.

2

Make a calendar of your due dates for bills so that you make your payments on time, even if you pay just the minimum. Your payment history accounts for 35 percent of your credit score, so building a record of making on-time payments will boost your score.

3

Pay down your revolving debts, such as credit cards. If you cannot afford to pay them down, spread them evenly over several cards, recommends Bankrate.com, because the credit scoring formula scores people who have all of their credit lines as less than 30 percent of their credit limits higher than people who only have one or two credit cards, but the balances are close to the credit limits.

4

Stop applying for new credit. Each time that you apply for new credit, an inquiry goes on your credit report, lowering your score. If you have a short credit history, your credit score will suffer more from these inquiries than if you have a longer history.

5

Keep your old cards open and current. By keeping your old cards open, you lengthen your credit history, which accounts for 10 percent of your credit score. In addition, you will have extra available credit in the event of an emergency.

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Why Are Different Credit Web Sites Giving Me Different Credit Scores?

Financial experts frequently recommend that consumers take the time to run their credit history each year to make sure information is correct, current and that identity thieves have not opened fraudulent accounts under their name or Social Security number. If you've accessed more than one credit website, you may have noticed that you've received different credit scores. This may not be cause for concern. Understanding why different credit websites are giving you different credit scores will help you decide whether it's necessary to take action.

Use

Credit scores help lenders determine the risk involved with extending credit to you. Low credit scores often indicate that you've missed payments, made late payments, exceeded your maximum balance or allowed debts to fall into collections. Conversely, high credit scores indicate that you manage credit well by keeping your debt-to-income ratio low, paying more than the minimum required and maintaining longstanding accounts with lenders. High credit scores help you obtain preferred interest rates on home loans or auto loans, and can make a positive impression with potential employers or landlords.

Scoring Models

One reason why different credit websites may be giving you different credit scores (even when you've checked them on the same day) is that the numbers were generated through different models. The FICO credit score is probably the most commonly used scoring model available, but there are other options that credit websites may use to determine your score. The three major credit bureaus, which include Equifax, Experian and TransUnion, may thus generate different credit scores. Some lenders develop their own scoring models to generate credit scores; the methods in these models may not be available to the public, according to Fox Business.

Timing

Another reason why different credit websites may give you different credit scores relates to timing. Even if you've accessed scores on the same day, credit groups may calculate your score based on updated intervals that differ from one another. Some scoring models may update your score every 90 days, while other scores may be updated any time there's new credit activity. That means that your credit score from one website may reflect current information, while a credit score from another website may reflect your financial activity from three months ago. If you've recently taken out a large loan, missed several payments or paid down a big chunk of credit card debt, that may not have been factored into your new score.

Effect

Consumer websites offering credit scores to interested customers have generated what are called "educational" credit scores; that is, these scores give you a ballpark idea of what range of scores may be generated by different lenders. Banks may view entirely different credit scores when evaluating your credit application. While credit scores generated by credit websites and other credit evaluation companies help act as a signal to you that something negative has landed on your credit report, quibbling over small differences of a few points from these "educational" credit scores may not have any affect on whether a lender approves your loan application or what interest rate you're assigned.

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Best Ways to Rebuild Credit After a Bankruptcy

Filing bankruptcy and going through the process is a stressful period that often ends with a lower credit rating. For the next ten years, any lender who reviews your credit file will take note of the bankruptcy, which may prompt them to deny your request for credit. However, even with a bankruptcy, some lenders will overlook this mishap and be willing to extend credit to you. The key is rebuilding your credit history after a bankruptcy and raising your score.

Create New Lines of Credit

A bankruptcy wipes out your debts and eliminates old credit accounts. You don't have to include all your debts in a bankruptcy; however, if you do, opening new lines of credit is crucial to rebuilding your credit history. There are several ways to accomplish this. Since your chances of getting a major unsecured credit card are slim after a bankruptcy, it's wise to consider secured credit cards. These cards require an upfront security deposit that serves as collateral. You can get these cards with no credit history or bad credit and many banks and credit unions service these accounts. Request an application from your local bank branch. In addition to secured credit cards, securing an auto loan after a bankruptcy also helps raise a low FICO score. The automobile serves as collateral and many small, private dealers offer bad credit auto loans. While you'll pay a high interest rate, the trade-off is a better credit score in the near future.

Timely Payments

Opening a new line of credit is only the first step to rebuilding credit after bankruptcy. You have to prove that you're capable of managing your debts and this entails respecting due dates and sending payments on time. Each late arrival reduces your credit score, which causes further damage after a bankruptcy. Quite the opposite, paying your bills on time each month gradually increases your score. There are ways to ensure timely arrivals. Many creditors have websites that allow debtors to submit payments online and telephone payment options are also available. Utilize these provisions to avoid late fees and a lower credit rating.

Debt Management

Overspending and carrying high credit card balances often contribute to bankruptcies. Rather than make the same mistake twice, learn how to control your spending and avoid excessive debt. Using credit is imperative to rebuilding credit, but this doesn't give you a license to overindulge or live beyond your means. Only charge what you can afford to pay off by your next due date. If you don't have the cash to pay off your credit card within a month's time, leave the item in the store and save for the purchase.

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About Free Credit Reports

Free credit reports are available to every consumer with a social security number, on an annual basis. Law requires each of the three main credit bureaus, Equifax, Experian and Transunion, to furnish each person his report once per 12-month period. You still have to pay a fee to see your credit score, but you can download your three free credit reports from any computer, free of charge.

History of

It used to be that consumers had to be denied credit to receive a free copy of their report, and then only from the bureau that furnished information leading to the denial of credit. Otherwise, people had to pay to see their own credit reports. Thanks to a federal law passed in December 2003, known as the Fair and Accurate Credit Transactions Act of 2003, that changed. Credit reporting agencies now furnish each consumer with a credit report free of charge once every 12 months, upon request of the consumer.

Benefits

Free credit reports allow consumers to check on their credit history, monitor their reports for errors and stay on top of their personal credit. Consumers can now look at their reports before applying for loans or interest reductions from lenders and have an idea of how their credit requests will fare. Credit reporting agencies benefit by the extra consumer traffic to their sites, and offer credit watch services and credit monitoring subscriptions to visitors downloading free reports.

Time Frame

Free credit reports are on a 12-month schedule. Consumers can download all three reports at one time, or stagger them throughout the year. You'll just have to wait 12 months from time of download to get another free report from the same agency.

Function

Credit reports allow potential lenders to screen borrowers based on their previous credit history, current debt load, payment history and age of credit accounts. Credit card issuers, debt collection agencies, banks and lenders report data on their customers to the credit agencies, and these pieces of information combine to form a person's personal credit report. Customers who have maintained good payment histories and shown proper management of their finances are considered a good risk by lenders, while a borrower with past judgments, bad loans and excessive debt is not.

Expert Insight

It's a good idea to check your credit report at least once a year to check for inaccuracies or potential credit theft and to review the overall picture. Be sure to check your report form all three agencies, as they may have slight differences. While most financial advisers recommend maintaining excellent credit and keeping credit cards open for the sake of your credit score, others such as Dave Ramsey advise paying off debt and closing credit cards without regard to your credit score.

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How to Write a Letter of Dispute to the Credit Bureau

Credit reports are no longer a mystery due to free annual access to your report from each of the reporting bureaus. It's possible to review the details of the information in the credit report and investigate any errors. By checking for errors and disputing them in a timely manner, you can keep your credit reports up-to-date and avoid embarrassing problems when potential creditors check your rating.

Instructions

1

Review the paper copy of the credit report and neatly mark the disputed items. Number multiple items for reference in the correspondence.

2

Prepare a formal letter to each of the three credit reporting agencies. Write the date at the top of the page. Follow with the name, complete address and ten-digit phone number of the disputing party.

3

Direct the letter to the "Dispute Investigation Department" of the specific credit bureau. Include the full address of the credit bureau. (See Resources)

4

State in the body of the letter that there is inaccurate information on the credit report. List the discrepancy with concise details of why it's inaccurate. Cite any supporting information and include it with the letter.

5

Indicate that a copy of the credit report is included and that the inaccuracies have been marked. Make copies of statements, records, payments and other communication. Maintain copies of the letters and all documentation.

6

Sign the letter with the full, legal name of the disputing party. Be sure to include aliases (maiden name, legal name change, etc.) Include the social security number below the signature.

7

Send the letter and all supporting documentation by post to Experian and Equifax. Submit the dispute online as required by TransUnion. Expect to be notified by each credit bureau within 30 days as to the final disposition of the dispute.

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How to Take a Judgment Off Your Credit File

You never want an incorrect, incomplete or expired judgment to remain on your credit file. Such reports are negative and can adversely affect your credit file and credit score. The Fair Credit Reporting Act protects consumers from incorrect reports and allows you to dispute old and incorrect judgments. In most cases, you can have eligible judgments removed from your credit file in as soon as 30 days from the date you first report the judgment to the credit bureaus.

Instructions

1

Order your free annual credit report. Annual Credit Report's website permits all consumers to order, view and print their credit reports for free. Obtain additional copies of your credit reports through the nationwide consumer credit reporting bureaus: Equifax, Experian and TransUnion. You must order all three credit reports because the same credit information may not be reported on each credit report or at the same time.

2

Find incorrect or incomplete judgments in the public record section of your credit reports. According to the Fair Credit Reporting Act, you can dispute judgments that are past your state's statute of limitations, incomplete or incorrect.

3

Issue a dispute letter requesting the removal of expired, incorrect or incomplete judgments. Cite the reason(s) for your request. For example, cite your state's statute of limitations law and highlight the report date of the judgment directly on your credit reports. The credit bureau has 30 days to investigate your claims.

4

Provide court documents, payment records and bank statements with your dispute letter. While in most cases you can submit a dispute letter electronically, you must mail or fax supporting documents related to your dispute directly to the bureaus.

5

Retain a copy of the credit bureau's determination regarding the validity of your judgment. Look for the bureaus' expected course of action, which can include removing or updating the judgment. If the bureau finds that a judgment is valid, contact the judgment creditor directly to arrange a settlement. Negotiate a lump sum payment and ask the judgment creditor to remove the judgment from your credit file upon receipt of payment.

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Fair Credit Reporting Act Guidelines

The Fair Credit Reporting Act (FCRA) was established to protect consumers from misuse of their credit reports. Because your credit information is used to make decisions, from whether or not a landlord will rent you a home, to the limit on your credit cards, the Federal Trade Commission set forth guidelines for consumer reporting agencies. As a consumer, it's vital to understand your rights to protect yourself down the road.

Information Used Against You

Under the Fair Credit Reporting Act, if your credit report is used against you, you have a right to the name, address and phone number of the agency that reported the information. Denial of an application for insurance, a job, a credit card or a rental are covered under this part of the FCRA.

File Information

Each year, you have the right to access your credit reports and credit scores through the Annual Credit Report website. You are entitled to an annual complimentary report from each of the three credit bureaus (TransUnion, Experian and Equifax). Additionally, you may request a copy of your credit report if the information on your report was used against you, you are the victim of identity theft, you are on public assistance, or you are unemployed but expect to apply for employment within 60 days.

Errors

Any errors that you detect in your credit report may be disputed by writing to the credit bureau that listed the inaccurate information. According to the Federal Trade Commission, you should make copies of any documentation you have to support your position and write a letter detailing the discrepancy. The consumer reporting agency is obligated to investigate the issue, unless your dispute is deemed "frivolous." Inaccurate information must be removed or fixed, usually within 30 days.

Negative Information

The Fair Credit Reporting Act stipulates that most negative information may not remain on a credit report for more than seven years and that bankruptcies may not appear for more than 10 years.

Limited Access

Access to your credit report is limited to those with a valid need for the information contained in your file. This means access to your file is limited to creditors, insurers, employers, landlords and businesses that have a special need for your credit information. A prospective or current employer may not access your file unless you give written consent. Additionally, you may choose to limit offers from creditors and insurance agencies based on the information in your credit report.

Violations

In the event that a credit reporting agency or a user of the credit reports does not follow the guidelines set forth by the Fair Credit Reporting Act, you may have the option to sue at the state or federal level.

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Does a Mortgage Forebearance Affect My Credit Score?

Successfully negotiating with your lender to defer or forebear payments for a few months might prevent the creditor from foreclosing on the home, but it could cause significant damage to your credit score. Even if the lender reports your account as current during the forbearance, it is the lead up to the mortgage modification that can cause the most damage.

Considerations

Whether a mortgage forbearance affects your credit score could go either way -- it all depends on what the lender reports to the credit bureaus. Some lenders may agree to a forbearance if it stops foreclosure or any other costly event for the company, but punish you by reporting payments as late or on partially paid during the forbearance, according to Liz Weston of MSN Money Central. When you need a forbearance because of a disaster, such as a hurricane or other disaster, lenders are usually much more lenient.

HAMP

The federal government's Home Affordability Program requires lenders to modify a mortgage, sometimes including a forbearance, if the borrower qualifies for the program. If you enter into this program current on your mortgage, the lender must report the account as "paid as agreed" so long as you meet the reduced payment. If you go into the modification behind on payments and do not catch up during the trial period, the lender reports the account as delinquent and under a federal government plan.

Benefits

You might have to accept damage to your credit score if a forbearance is your only way to save your home. A foreclosure, short sale or giving the deed to the bank probably hurt your score far more than forbearance and you might owe whatever is left on the mortgage if the property does not sell for the value of the loan. Also, when your score is already trashed, a few months late payments do not make as big a splash as they would if your credit was unblemished.

Tip

You must go through a mortgage provider's loss mitigation department to get a forbearance and there you can ask how forbearance will appear on your credit. However, consider other options if it looks like you won't be able to afford the home after the forbearance. Forbearance just delays the inevitable when you own a home you cannot afford. You could sell your home outright, avoid any damage to your score and try another mortgage later. Also, consider other finances you have to sell off, such as stocks and savings.

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How to Improve Credit Fast With Tradelines

Consumers can have a difficult time understanding the internal mechanics of credit reports. Many people assume that credit scores are stable and do not fluctuate unless major events such as large purchases or delinquencies occur. However, credit scores fluctuate in a major way on almost a daily basis. Knowing the secrets about how credit scores work and how to improve suffering scores with seasoned trade lines can help consumers get better terms, interest rates and qualifying ratios for any type of loan or line of credit.

Instructions

1

Order a copy of your most recent credit report by visiting any of the big three credit bureau websites like Equifax, Experian or Transunion. Ordering directly from any of the big three credit bureaus will cost a small fee and adding your credit score will also come at an additional fee. You can obtain a copy of your free credit report once per year by visiting annualcreditreport.com.

2

Evaluate your reports and scores once credit reports arrive. Make sure that all accounts are reported correctly. Items typically reported on credit histories are mortgage payments, car payments, student loan payments, major credit cards, personal loans or store cards. If inaccuracies appear, fill out a dispute form and prepare to send that in along with the documentation you will gather for seasoned trade lines.

3

Gather documentation on trade lines available to you. A trade line is typically a traditional or non-traditional source of credit. This could be an account that you are co-borrower or authorized signature holder on, such as a credit card or personal loan. Typically, parents will add children to their accounts as an authorized signer. Even utility bill payments can be added as a positive trade line to be added to a credit report.

4

Contact each creditor for each individual trade line. Request that they send in documentation to the credit bureaus on each trade line. Provide the creditor the information proving you are a user on the account, in order to validate your personal information. If the creditor does not want to do this, ask that they mail you a 12-month payment history, which you can send into the credit bureaus yourself along with any dispute forms for inaccurate information.

5

Re-order copies of all credit reports 30 days after having the requested trade lines added to your credit report. These new reports should reflect the trade lines being added to your credit history. At this point you will see a significant jump in your credit score. The increase could be as high as 75 points for a single seasoned trade line account.

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How Much Does an Inquiry Lower My Credit Score?

Whenever a person or company pulls your credit report, this is listed on the report as an inquiry. Some inquiries lower your credit score, but others do not affect it at all.

Types

The only type of credit inquiry that lowers your credit score is one generated in response to your application for credit. Credit scoring models do not factor in other inquiries, such as pre-approved offers of credit, inquiries you make on your own report and credit checks by organizations, such as employers and insurance companies.

Effects

According to FICO, one credit inquiry will reduce the average person's score by less than five points. Multiple inquiries can add up and make you look like a credit risk to potential lenders because it seems you are desperate for credit.

Time Frame

Credit scores ignore all inquiries made in the 30 days previous to the report being generated, so do not worry about the effects of previous inquiries when rate shopping. In addition, multiple inquiries made within a short time period are only treated as one inquiry. The time period is 14 or 45 days, depending on which FICO scoring model the lender uses.

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How to Raise a Credit Score of 600

Having a credit score of 600 puts you at risk of getting high interest rates on any loans you apply for. You should raise your credit score to at least 620, though anything over 700 is preferable. Once your credit score is above 700, you begin to qualify for lower interest rates and better loan agreements. You will also qualify for more credit at most financial institutions. The steps to raising your credit score are simply, but they involve discipline and diligence.

Instructions

1

Read your credit report from one of the three major credit bureaus: Equifax, TransUnion or Experian. Look for any errors or unresolved debts. Debts older than seven years should not be on your report. Call the credit bureau to remove any errors or have your attorney call for you. Contact creditors that list uncollected debts on your report. Pay them immediately or arrange a payment plan.

2

Begin to pay all your bills on time. Doing so for even one month can raise your credit score. Mail your payments or submit them online at least five business days before the due date to ensure the creditor receives your payment on time. The longer you maintain regular payments, the higher your credit score will go.

3

Pay down your credit card balances by paying more than the minimum payments each month. Do not use more than 30 percent of your available consumer credit. Never max out your credit cards. Do not shift balances from one credit card to another. Call your credit-card company to negotiate a lower interest rate so that a greater part of your payment will go toward the principle balance.

4

Keep all your credit card accounts open. Continue to use one of them sparingly, and pay off the balance in full each month. Cut up the the other cards, but don't close the accounts. Do not open new credit cards. Having old accounts in good standing increases your score by increasing your available credit.

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How Much Will It Affect My Credit by Getting a New Credit Card?

Although finance experts tell consumers that they need to use credit to build a credit rating, a new credit card almost always damages a FICO credit score in the short-term. Also, the consumer has to use the new credit responsibly or the account can ultimately become a liability. The borrower should only take out an account if he can pay it off every month.

Identification

Because a new credit card affects almost every variable in the FICO credit scoring system, nobody can give a definite number of points the consumer may lose or gain. In general, any new line of credit tends to lower a score initially in the FICO system because obtaining new credit usually correlates with a lack of finances to pay for the consumer's current budget.

Length of Credit History

A new line of credit automatically costs the new borrower points in the category of "length of credit history," worth 15 percent in the FICO scale. This category gives weight to total length of credit history and the average age of accounts. If the borrower had two accounts each with a 12-year history, a third account brings that down to an average age of four years.

Credit Utilization Ratio

A new line of credit usually improves a credit utilization ratio--percentage of credit limit available--as long as the borrower does not charge anything to the new account, such as an annual fee, in conjunction with the opening of a new account. For example, say, the borrower only has one account with a $500 balance and a $1,000 credit limit. A new account with a $1,000 limit brings the credit utilization ratio from 50 percent down to 25 percent. Utilization ratio can account for 45 points or more when the borrower has a maxed out credit card, according to Bankrate.com.

Tip

The application for a credit card drops a score by up to five points, which may not seem like a much on a scale that ranges from 300 to 850, but six or more inquiries can do as much damage as a delinquent account. The borrower can avoid the inquiry by finding someone to add him as a co-signer or authorized user on an existing account. However, the borrower then shares the payment history on the card with the primary borrower. If the borrower does not have any credit cards, a new credit card account is critical to a good score, because mix of credit counts for 10 percent in the FICO system.

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List of Credit Building Solutions

There isn't just one method to building credit. A credit history and a good score allow you to get low interest rates on financing deals, and people with an excellent history of managing credit can normally qualify for mortgages with no issues. Consider different techniques to help you build credit and keep a good credit rating.

Secured Credit Cards

Applying for your first credit account with a major brand such as Discover, Visa or American Express can end with disappointment if you receive a rejection letter. Acquiring credit is essential to building a credit history, but in the beginning, some credit card companies will not want to issue a card if you have no credit history. Rather than start with larger card companies, apply for a secured credit card and put down a security deposit toward the credit line. This deposit secures the credit card, which makes it easier to get one with no credit or bad credit. Banks and credit unions offer these accounts.

Use Another Person's Credit History

Building credit by piggybacking on another person's good credit history is a quick way to add years of credit history to your profile and a good credit rating. Discuss this option with a parent or spouse, and if they agree, they can contact their card company and add your name and Social Security number to the account. This makes you an authorized user, and the credit card company will begin updating your credit report with the account information. Piggybacking is useful as long as the account remains in good standing. Missed payments by the primary account holder or a maxed-out credit account can cause more damage than good.

No Credit Check Auto Loan

Buying your first automobile can also help you build credit and start off on the right foot. But instead of buying a car from a dealership that will take your credit history into account, go to privately owned dealerships that offer in-house financing. These dealers work with individuals who have no credit history, and financing a car with such dealers can help build credit. Plan for a higher interest rate on the car loan, and make sure the dealer reports regularly to the credit bureaus before buying the car.

Payment History

Paying credit accounts on time every month is an important tool to building good credit. Credit ratings improve with time, and every smart credit move you make helps improve your credit history. Keep your score within a good range (700+) with timely payments. Make payments before the due date to avoid negative updates to your credit profile and late fees.

Managing Debt

The ability to qualify for financing may prompt you to acquire numerous credit cards and other credit accounts. Debt can quickly pile up, and rather than view credit cards as a tool to buy whatever you want, control debt by only buying items that you need, and paying off new charges each month.

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Tips to Improve Credit Rating

Keeping a high credit rating is an ongoing effort and one credit mishap can cause your score to fall, wherein it becomes difficult for you to get a mortgage or vehicle loan. Fixing a low credit score and maintaining a rating 700 or higher is doable. Don't expect overnight success, but by employing good credit habits, you'll eventually achieve a higher rating.

Get a Free Credit Report

Make a habit of checking your personal credit history a few times each year to protect yourself from identity theft and to quickly recognize reporting problems that can lower your credit score, such as unfamiliar accounts. Annual Credit Reports provides each consumer with one free report a year. You can also obtain reports by writing the three major credit bureaus: Equifax, Experian and TransUnion.

Use Secured Credit Cards

Improving credit after a bankruptcy is imperative to bouncing back and rebuilding your credit history. Because of the bankruptcy, many lenders will not entertain your loan or credit card application. However, this doesn't mean you're incapable of acquiring financing. Banks and credit unions offer secured credit cards, which are basically credit cards that require a security deposit of about $500. Secured accounts have helped people with no credit history or bad credit build a good score.

Due Dates

Managing credit and improving your score involves organization and promptness. Creditors assign due dates to credit cards, loans and other types of credits. There are consequences to late payments, such as additional fees, a higher interest rate and a negative note on your credit score. Habitual late payments will hurt your credit score. Pay everything by the due date to improve your score and maintain a good rating.

Get Rid of Outstanding Debt

The amount of debt your carry on your credit cards can also have a negative impact on your credit score. For this reason, it's wise to keep your balances low--and, if possible, pay off your credit card balances completely at the end of each month. The more available credit you have on your credit cards, the higher your credit score.

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Does Becoming Debt Free Affect Your Credit Score?

The amount of debt you carry plays is a major factor in your credit score. Your debt shows potential lenders how well you manage the credit you have and how close to the edge you are living financially. Becoming debt free can dramatically increase your credit score, but just how much your score might soar depends on other aspects of your credit history.

Debt and Your Credit Score

Your credit score is determined by evaluating five different factors: payment history, length of credit history, types of credit, new credit and amount owed, or debt. Your debt makes up 30 percent of your credit score, so carrying a lot of debt might spell big trouble for your credit score, depending on how much of your available credit line your are using. Maxed-out credit cards and a list of personal loans can drag down your credit score significantly, even if you always make your payments.

On the other hand, paying off that debt can send your score climbing.

Score Increases

The credit bureaus won't reveal their exact formulas for calculating credit scores, so there is no way of knowing specifically how many points your score will go up when you set your debt balance to zero. Expect your score to increase, but don't expect miracles. Paying off your debt doesn't erase past credit missteps. For instance, when you pay off a delinquent account, the negative information about that account will stay on your credit report for seven years. Paying off debt is beneficial to repairing credit, but remember that debt is only part of your credit score picture.

Closing Accounts

If you are trying to improve your credit score, think twice before closing revolving credit accounts, like credit cards, when you pay off debt. When you close accounts, the overall credit available to you is reduced. Having a high level of credit that you're not actually using -- for instance, having a credit card with a high limit but a zero balance -- is ideal for credit health. If you pay off all your debt but close your accounts, you could neutralize any benefit to your score and could, in fact, end up decreasing it.

Tracking Your Score

The best way to see how your debt repayment has affected your credit score is to check the score yourself. Consumers are entitled to check their credit report with each of the three credit bureaus (Experian, TransUnion and Equifax) for free once per year by ordering their reports through annualcreditreport.com, but those free reports don't include your actual credit score. To see your score, contact one of the three credit bureaus or use their websites. There is a charge to view your score.

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Does It Affect Your Credit if the Bank Forecloses on Your Property?

Your bank reports all of your payment history and account data on your mortgage to credit bureaus, which then use this data to help calculate your credit score. When the bank forecloses on your property because you cannot pay the mortgage, the bank will report this to the credit bureaus as well. Foreclosure significantly lowers your credit score.

Initial Effects

As soon as the bank reports the foreclosure, you will see your credit score drop anywhere from 85 to 160 points, according to FICO, which computes and publishes credit scores. This in addition to the effects that the missed payments have already had on your credit score. The exact number of points your score will drop depends on what the rest of your credit file looks like. In general, the higher your score was before the foreclosure, the more it will fall. In addition, the shorter your credit history and the fewer other credit accounts you have, the more your score will fall.

Long-Term Effects

The record of the foreclosure remains on your credit report for seven years after the bank forecloses and will impact your score as long as it is on your credit report. However, the foreclosure will affect your score less as time passes. This is because your credit score weights recent data more heavily in calculations. Therefore, you will be able to bounce back from the foreclosure in as little as two years if you use credit responsibly going forward.

Other Home Losses

Foreclosure is not the only way that a homeowner can end a mortgage. Two other common situations are a short sale and deed-in-lieu of foreclosure. As long as the lender reports that you did not fully pay your mortgage, even if you initiated the process, your credit score will look the same as if you went through foreclosure. A short sale or a deed-in-lieu of foreclosure still negatively affect your credit.

Buying Again

Having a foreclosure on your credit report makes it more difficult for you to buy a home again in the future. You will need to spend at least a few years building up your credit history before you try to get another mortgage. On the heels of your foreclosure, keep paying all of your other bills on time. Pay special attention to any other installment loans you have, such as an auto loan or student loan. Now that you don't have a mortgage, these other installment loans have a stronger effect on your credit. You should also try to keep each credit card balance to no more than 30 percent of the credit limit on that card.

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How to Get a Good Loan With Bad Credit

A person is typically classified as having bad credit when their FICO score is 580 or below. This will usually place people in a sticky situation when trying to obtain a good loan, which is a loan that has favorable interest rates, terms and conditions. High interest rates and other unexpected fees are typical for poor credit borrowers, while lower interest rates and lower fees are afforded to good credit borrowers. There are a few steps you can take to help obtain the best loan possible, even with a less-than-desirable credit score.

Instructions

How to Get a Good Loan with Bad Credit

1

Obtain and review your own credit report before you go searching for a loan. This could reveal items reported to your credit file that don't belong to you (such as accounts or late payments that belong to someone else) or incorrect information that is showing on your credit (wrong employment information, a bankruptcy when you have not filed for bankruptcy, or payments reported as late when they have been made on time), which is not uncommon.

2

Fix or clear up whatever you possibly can from your credit report. You might even consider contacting an entity that can help repair your score, if possible. Disputing accounts that do not belong to you or correcting wrong information are common credit report items you can fix. You'll need to contact the credit reporting agency reporting the incorrect information online or by phone. Each credit agency (Equifax, TransUnion and Experian) has its own disputes process. Typically, disputing or correcting items requires you to supply a written description of why you're disputing the item. Supporting documentation, such as a police report you filed if you were a victim of identity theft, might also be required as part of the dispute.

3

Fill out a loan application to determine what you will qualify for with your current or revised credit. If you're applying for a mortgage, then you'll complete the loan application from the lender, bank or mortgage broker. If it's a personal loan or auto loan, then you'll need to complete the application supplied by the dealership, bank or lending institution where you're applying for the loan. Keep in mind that your available borrowing amount could be significantly limited or come with a higher interest rate than you planned.

4

Ask for assistance from a loan officer to discuss ways to increase your chance of getting a good loan. This might include reviewing your history and discussing what has been corrected, borrowing the smallest amount possible for the situation to keep the minimum payments low, or stretching the loan out over a longer period of time.

5

Discuss your credit report with the lender using your own recent copy of your credit report before they pull their own copy of it. This might help alleviate the negative effect that multiple reported credit checks can have on your report.

6

Show proof to the lender of steady income. Remember that you might not get the loan you prefer or the interest rate you'd like if you have switched jobs several times in the past few years.

7

Don't be afraid to shop around to get the best loan possible. You should not feel obligated to settle for one bad-credit loan if there is a possibility of obtaining a better one elsewhere.

8

Read and review thoroughly all of the fine print of a loan you are offered. Be sure to ask for written explanations of terms or conditions about which you are unclear.

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What Happens If You Are an Identity-Theft Victim?

Notify Credit Agencies

If you have been the victim of identity theft, immediately report the theft to all three credit-reporting agencies, including: Equifax at (888) 766-0008; Experian at www.experian.com/fraud; and Trans Union at fvad@transunion.com. The agencies do not share the information with each other, so be sure to contact all three.
The agencies will each send you a packet of information about identity-theft victim's rights. You will need to call each agency and request that your account be put on fraud alert for seven years, and you can also request a free copy of your credit report from each of them.
If you are a victim of identity theft you will have to make a lot of phone calls and do a lot of paperwork to clear your name of the fraudulent charges. It can be scary and overwhelming, but it's imperative that you take all of the necessary steps.
Make copies of all correspondence between you and the credit agencies and keep all of the documentation in one place. It is best to use certified mail so that you are reassured that your communications arrive safely.

Notify Law Enforcement and the FTC

The identify theft should also be reported to your local police department, filed as an identity-theft report and not as any other type of crime. Make sure you keep the name and phone number of the police officer assigned to your case because banks and creditors will want it as proof that you have actually been the victim of identity theft. Ask to keep a copy of the police report for your records, as well.
In addition, file a report with the Federal Trade Commission, which has an online form available at www.ftccomplaintassistant.gov/. While the FTC will not actually help you resolve the situation, it will have an official record on file that you were a victim of identity theft.

Keeping Track of Credit Report and Fraudulent Accounts

Once all the necessary groups have been notified, you will need to monitor your credit report and close all affected accounts. Banks and credit-card companies may require that you send a copy of the police report as proof. You will have to work with the banks to determine which accounts were affected.
When dealing with debt collectors seeking payment on accounts used by the identity thief you will have to prove that you have filed a police report and placed an identity-theft alert on your credit reports. Be sure to get the name and phone number of the person you are working with at the debt-collection company, document every conversation and save copies of all email and other correspondence.

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Does Checking Your Credit Report Lower Your Score?

The Fair Credit Reporting Act allows consumers to check their credit reports once every year for free, according to the Federal Trade Commission. Those copies must be obtained from annualcreditreport.com. People can purchase additional copies as frequently as they wish from TransUnion, Experian and Equifax, which are the three nationwide credit bureaus, or third-party vendors. Certain credit report inquiries are reflected in the credit score, but personal credit checks are viewed differently.

Purpose

The Federal Trade Commission recommends checking credit reports regularly for mistakes and signs of identity theft or other fraudulent activity. The credit reporting agencies do not do their own accuracy checks or audits, so consumers must catch errors on their own. Reports are constantly updated with new and changing information, so new problems can happen at any time. The Fair Credit Reporting Act lets people dispute mistakes to get them fixed or completely erased. This is especially important when preparing to fill out a mortgage application or applying for other major loans.

Type

A self-check of credit reports is classified as a "soft inquiry," the Lending Tree financial website explains. Other examples of soft inquiries include check-ups by your current creditors and pre-screening by companies that want to send promotions like pre-approved credit card offers. None of the inquiries in this category has an effect on the person's credit score.

Alternatives

There is another type of credit check, known as a "hard inquiry," according to Lending Tree. This happens when a consumer applies for a loan or credit card and the lender requests credit records to evaluate the application. Banks sometimes make a hard inquiry on a person's credit files when opening a new checking or savings account.

Effects

Although a self credit check has no effect on a person's credit score, too many hard inquires will lower it. Lending Tree warns that such inquiries can reduce it by up to five points. This may not influence the ability to open new accounts, but if the score was borderline it could cause rejections or cause a person to be offered inflated interest rates.

Considerations

Credit reports are different than credit scores. A credit score is a three-digit number calculated by a company called FICO or the credit bureaus, based on information contained in the reports. Leslie McFadden of the Bankrate.com financial site explains that the credit score gives lenders a quick idea of whether a person is likely to default on loans within the next 24 months. Consumers are not entitled to see their credit scores for free by law, although they can buy their numbers from FICO and the bureaus.

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Does it Help Your Credit Score to Have Utility Bills in Your Name?

Utilities require monthly payments, much like loans, but it is unlikely utility payments will help you build credit. On the contrary, for most people, utilities on a credit report represent a negative item. Putting utilities in your name, however, could help you prove your integrity and responsibility to some lenders.

Identification

In most states, privacy laws prevent utility companies from reporting payment information to the credit bureaus, and that includes positive payment history, according to Payments Source. In the few states that do allow reporting on utility payments, having them in your name would boost your score if you pay your bill on time. Even in the states that permit utility companies to report payment information, many utility companies do not report it, because it is an added expense and utility companies are not providers of credit.

Considerations

Putting utility bills in your name risks the possibility of the company sending the bill to a debt collector if you miss a few payments. If it goes to a collections agency, the credit bureaus probably will be notified. A debt collection on your credit report does considerable harm to your credit score. It stays on your report for seven years, but does the most damage in the first two years.

Alternative Scoring Agencies

You can report utility payments to alternative credit scoring agencies yourself. Alternative scoring agencies are not widely accepted in the lending industry in 2010, but some of the major credit bureaus incorporate data from these companies into consumer credit reports. Unlike a normal credit report, in which the lender pays to report data, the consumer pays a monthly charge to have an agency report his utility payments.

Tip

Keep past utility bills and canceled checks after making payments, because you can use them to prove your creditworthiness. If you provide canceled utility checks, the lender will consider them in his assessment. Alternatively, you can obtain a secured credit card -- which is backed by a deposit and reported to the credit bureaus -- and pay your utility bill with that. The use of a secured credit card may boost your credit score over time.

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Unsecured Credit Definition

Credit accounts involve borrowing money, but many consumers do not realize there are actually two different account types: secured and unsecured. You have unsecured credit if you are one of the 176.8 million Americans who had a credit card as of 2008, according to the Federal Reserve Bank of Boston, or if you are repaying a personal loan. Unsecured credit is beneficial in many ways, but it also carries certain risks for lenders that can make it difficult to get for some consumers.

Definition

Unsecured credit is credit that is extended to a borrower in the form of a loan or credit card without any collateral. Advanced Merchant Services, a merchant account company, explains there is no designated asset for the lender to repossess if the borrower defaults on an unsecured credit account. This makes it much different from secured loans like mortgages, which allow the lender to foreclose on the house if the buyer stops paying, or auto loans, which offer repossession as an option for the financial institution.

Examples

Credit cards such as Visa, MasterCard, American Express and Discover are perhaps the most common examples of unsecured credit. Personal loans which provide funds for an unspecified purpose also fall into this category, as do retail credit lines from department stores and gasoline credit cards.

Benefits

Unsecured credit is beneficial for consumers because they can borrow money without having property or other assets to guarantee the loan. This gives them more buying power and flexibility to use the funds. They can purchase expensive items they could not otherwise afford and pay them off over a period of months or years.

Considerations

It is more difficult to open unsecured credit accounts than to get loans secured by a house, automobile or other property or goods, because there is no collateral for the lender to seize if you do not repay the debt. You need a good or excellent credit score to qualify for most unsecured loans. You may have to pay a higher interest rate and other fees if your credit is borderline. Lenders charge this extra money to offset their increased risk in extending unsecured loans to riskier consumers.

FICO, the credit score provider, explains that unsecured credit is even harder to get in bad economic times. It reports that 51 percent of new cardholders in 2005 had FICO scores below 700. This number dropped to 38 percent in 2008.

Alternatives

Consumers with bad credit can sometimes get a secured credit card by depositing money in a bank account to act as collateral. The account is usually converted to an unsecured account within a year or two if the account holder builds up an excellent repayment history.

Warning

Creditors may be able to garnish your wages or put a lien on your property to satisfy unpaid credit cards and other unsecured accounts. This requires court action and a judgment in favor of the creditor. You may be taken to court if your state allows garnishments and liens and the creditor believes you have enough assets to make the action worthwhile.

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Checking Account & Credit History

You could bounce checks all over town and it might not affect your credit, even if it is a crime. However, checking accounts often affect your credit history, mostly depending on what the bank decides to do with overdrawn accounts. In general, you should use checking accounts responsibly, because they may be important to getting a loan even if they do not affect your credit history.

Identification

Banking accounts can hurt your credit when the financial institution requires a hard inquiry into your credit history before approving the account. Alternatively, some banks do not perform credit checks unless the borrower asks for overdraft protection, a small loan that acts as a buffer for slight overages. A delinquent balance could appear on a credit report as a judgment or collection account if you write a bad check and the bank sues you or sells off the debt to a collector.

Considerations

Lenders always consider more than just the data on your credit report for their lending decisions. Some creditors, for example, also run a consumer report on applicants through the banking industry's version of the credit bureaus, called ChexSystem. Writing bad checks will likely appear on a ChexSystem report because most banks report to it. Banks that run a banking history tend to run a report on new borrowers more often than experienced customers.

Benefits

A ChexSystem report does not only detract from your ability to gain credit. When a borrower has no credit history with the major credit reporting bureaus, they might use a clean ChexSystem report as a sign that the borrower can be trusted with a credit card. Some credit cards for new borrowers, such as a secured account, require a checking or savings account to store a safety deposit.

Tip

Always review your credit reports from all three bureaus just in case the bank made an unauthorized inquiry into your credit. Banks sometimes qualify you for a credit card when you open a account and may run your report after including a consent form among the many pages of their application form. You can avoid the credit check for overdraft protection by linking other accounts with the bank to the checking line.

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How to Remove From a Credit Report Bounced Checks Added to a Bankruptcy

When you declare bankruptcy, every account included in the bankruptcy, including those related to bad checks, appears on your credit report -- in this way, filing bankruptcy won't make your credit report any better. Information related to bankruptcies can appear for seven to 10 years, depending on which type of bankruptcy you file. You cannot completely eliminate this information during this period, but you can change how it appears on the report so that the credit report appears more favorable.

Instructions

1

Visit the Annual Credit Report website. This website is a collective site approved by the Federal Trade Commission for getting copies of your credit report from each of the three major credit bureaus: Experian, Equifax and TransUnion. Request and print free reports from each company, per your entitlement under law.

2

Review each of your reports. Locate the bad checks on each report.

3

Make copies of the formal discharge notice you received during your bankruptcy case, as well as any other court paperwork that clearly shows the bounced checks passed through bankruptcy court.

4

Write letters to each of the credit bureaus. Identify yourself and the items in question clearly with your Social Security number, current address and the delinquency amount. Enclose and refer to the copies of your bankruptcy documents and ask that the status of the bounced check be updated to "discharged in bankruptcy" or "included in bankruptcy" and "zero balance."

5

Send your letters certified mail to each of the credit reporting agencies. Allow 30 days for a response.

6

Check your credit report if the credit reporting agency agrees to remove the bounced checks from your report. If the credit reporting agency does not remove the items as agreed, follow up.

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How Can I Get My Credit Score Up From 426?

A credit score in the low-400s is quite low, especially considering that credit scores range from 300 to 850. A score of 426 can be financially crippling; even if able to obtain financing, one would be subject to the highest of interest rates. Financial overload, unemployment, medical bills--all of these things can ruin a credit score. Nevertheless, a low credit score is not permanent. With hard work and discipline, it's plausible for someone with an extremely low credit score to turn the tables.

Instructions

1

Request your free annual copy of your credit report =from each agency. Simply knowing your score isn't enough, you'll need to take a look at each trade line and determine what you can do to improve your situation. All consumers are entitled to a free credit report once every 12 months (See Resources).

2

Review your credit report line by line. Each item on the report is labeled with the creditor's name; the last reported balance, high credit, past due amount and number of late payments is also shown. Circle any accounts that look incorrect or unfamiliar to you.

3

Dispute the items that may be inaccurate. Mistakes do happen; if a negative account is hurting your credit bureau, disputing it may help you remove it. You can file a dispute online with all three credit bureaus. See Resources to begin filing your dispute. Have your credit report copy handy--you'll need the report number.

4

Contact creditors that you have default or past due accounts with. The telephone number for each creditor is listed on your credit report. Try to settle the old debt, or work out a payment plan, if possible.

5

Pay down your active balances. A large portion of your credit score is derived from your balance-to-limit ratio. For example, a higher score will result from a credit card with a zero balance and a $1,000 limit, versus a credit card with an $800 balance and a $1,000 limit. The lower your balances are in proportion to your limits, the higher your score will be.

6

Attempt to acquire new credit. Although this will be difficult with a credit score in the low-400s, it is possible. Be careful not to go overboard. Opening up too many new accounts can further reduce your score. With a low credit score, you may have to consider a secured credit card, which requires an initial deposit--but almost guarantees approval. Keeping the balance low, preferably at zero, will improve your score over time and help you establish new positive credit.

7

Pay your bills on time. One of the most important factors in improving your score is making timely payments--month after month. This will take time, but eventually, it will raise your credit score.

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How Does Applying for Credit Affect Your Credit Score?

Inquiries

Applying for credit--whether a loan or a credit, or some other form of credit--does not itself affect your credit score. However, the application leads to official "inquiries," which can affect a credit score depending on quantity and frequency. There are generally two types of credit inquiries: soft and hard. Soft inquiries are not initiated by you, and do not affect your score at all. These are simply inquiries made by outside businesses that are looking to sell a product or service to people, usually credit-oriented. If your credit score meets certain criteria, then they mail you information, like a credit card or some other "pre-approved" offer.

Voluntary Inquiries

When you order a credit score report, all these soft inquiries appear on it, but lenders will usually only see the voluntary or "hard" inquiries, which interest them much more. When you apply for some type of credit, most lenders will began by making an inquiry into your credit situation. This shows them your credit history and how dependable you are at making payments, along with how well you can make payments based on your income. This inquiry stays on your credit report permanently, and is one of the things lenders look for when they conduct their own inquiries.

Now, not even these inquiries can lower your credit score, depending on what your financial situation looks like. If your credit history is strong and you have a clear ability to pay off debt, then inquiries will not drop your score. On the other hand, if you have little credit history and not many credit accounts, then inquiries will carry more weight and will probably drop your score by a few points.

Perception

However, a more subtle change is also at work. Inquiries generally stay on a credit report for two years, while those made in the last year affect the score. However, lenders will see the full two years worth of inquiries, and this will tell them many things about your credit history. For instance, if a lender sees several inquiries on your report in quick succession but no new accounts, they will know that you tried to apply for credit from other institutions and were either refused, or decided to try someone else with better rates. This will make the lender uneasy, and may cause him to make a worse offer or decline to give you credit. This may occur despite your credit score, since this history of inquiries can act as a "silent" story of your credit history.

Fortunately, most credit score calculations group like credit inquiries together within a period of time, so if you are shopping around for a good auto loan report, only one primary inquiry for an auto loan will appear on your credit score.

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