July 2006 ~ Personal Finance and Money Management

Monday, July 31, 2006

Do Missed Lease Payments Show Up on My Credit Report?

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Some underhanded car dealers tell consumers that leases do not show up on a credit report -- like rent or utilities -- but this is false. Missing lease payments can hurt you just like missing any other installment loan. If you have a lot of debt, leasing does not improve your chances of getting a lower interest rate.

Actually leasing property or goods affects your credit, because the lender reports it to the credit rating agencies like it would any other loan, according to Lease Guide. Rent on your apartment does not count, even though you have a leasing agreement. If you miss a payment on your car lease, it will show up on your credit report. Missed rent payments will just show up on a rental history.

Miss enough payments on any lease, even an apartment, and it will show up on your credit report when the lessor sends the account to a collections agency or gets a judgment against you, according to Experian. Technically, you can report any contract, but some creditors or lessors, especially apartment landlords, utility companies and cell phone providers, do not meet the reporting requirements of the major credit bureaus.

Negative information, such as a missed lease payment, stays on your credit report for seven years, according to Experian. You should inform your lender of any hardship and ask to work out a payment plan acceptable to both of you. Missing lease payments or ignoring them will just make it harder to lease or obtain credit in the future.

As of 2010, a few credit reporting agencies use nontraditional payments to calculate your credit score. Even if your missed payments do not show up on your consumer credit report, they could show up on these alternative reports and prevent you from obtaining utilities or an apartment.

Will My Credit Score Improve With Balances Paid Off?

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Equifax, Experian and TransUnion are the three major credit reporting bureaus in the United States. Each bureau uses the Fair Isaac Corporation consumer credit scoring method, better known as FICO for calculating their scores. Outstanding balances on loans and credit cards account for a large portion of your FICO score. As you pay off these balances, you credit score likely improves, because it reduces the amount of debt you have outstanding.

Your payment history makes up 35 percent of your credit score, and the amount of debt you owe is 30 percent. The length of time you have had credit accounts for 15 percent of your credit score. Different types of credit, and how much new credit you have, each account for 10 percent, making up the remaining 20 percent of your score. Making your payments on time, and keeping your outstanding balances on your credit accounts low, affects your credit score the most.

When the balances on your credit cards get closer to your credit limit, it increases your minimum monthly payment and tends to decrease your credit score. As you pay those balances down and eventually pay them off, it improves your credit score. Opinions on how much of your available credit you should use varies, but most experts say your credit balances should not be more than 30 to 35 percent of your credit limit.

When it comes to credit scores, paying off collection accounts does not automatically increase your score. When creditors sell your account to collection agencies, they do what they call a charge-off. When this happens, your account balance with the original creditor is zero because your balance transfers to the collection agency. Your balance with the original creditor is a bigger factor in your credit score than your balance with the collection agency. Paying off outstanding debts is a good ethical decision, but it may not do anything to improve your credit score.

When lenders assess your creditworthiness, they examine your debt-to-income ratio along with your credit score. A debt-to-income ratio is a measure of your income as compared to your debt obligations. A low debt-income-ratio is generally better than a high one. When the outstanding balances on credit cards and other revolving lines of credit are high, it increases your debt-to-income ratio, and signifies an increase in your risk of defaulting on new lines of credit. Paying off your outstanding balances not only increases your score, but also lowers your debt-to-income ratio.

Steps to Remove a Bankruptcy

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A bankruptcy on your credit report may disqualify you from some loans and will almost certainly increase the interest rates at which lenders provide financing to you. Because of this, removing old bankruptcies from your credit report is a major part of repairing your credit following a bankruptcy. The Fair Credit Reporting Act requires credit reporting agencies to provide accurate information on your credit report and to delete legally removable information and inaccuracies from your record.

If a report of a bankruptcy erroneously appears on your credit history, you may petition the credit reporting agency to remove the erroneous information from your file. Unless the credit reporting agency deems your request to be frivolous, it must investigate the claim within 30 days. In this case, the agency will contact the jurisdiction that reported your bankruptcy and check its records. If possible, obtain copies of court records in your state that show you haven't filed bankruptcy and mail the credit agency of copy of those records to aid the investigation.

If you recently declared bankruptcy, you must complete a waiting period before you may expunge the bankruptcy from your record. Accurate information can't be prematurely deleted from your report, no matter how adversely it has an impact on your credit rating. You must wait 10 years following a Chapter 7 bankruptcy before the credit reporting agencies may remove it from your credit history. If you filed a Chapter 13 bankruptcy, you must wait seven years before you may remove it from your record.

Once you emerge from the period in which bankruptcies can't be removed from your credit history, you may petition the credit reporting agency to remove the bankruptcy from your record by contacting the agency in writing. Provide copies of your original bankruptcy discharge, listing the date of discharge, along with a request to purge the listing from your record, sent via certified mail to the credit reporting agency, as the FCRA requires all notifications sent in writing. If the agency agrees to strike the bankruptcy from your credit history, you will receive a free copy of your updated credit history.

It may take 30 days after the decision to remove the bankruptcy from your published credit history. If you communicate with an agency over the phone or by email, keep detailed records of the date, time, name of the customer service representative with whom you spoke and a summary of your conversation. These records will further strengthen your claim should the credit reporting agency deny your request, and you choose to seek civil action.

If the credit reporting agency won't strike an outdated bankruptcy from your record, you may need to take the agency to civil court to force it to remove the entry. The FCRA requires that credit agencies be able to verify all information on your record, and it may take the decision of a judge for it to acknowledge a long-ago discharge.

How Fast Can Your Credit Score Go Up After Paying a Collection?

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Sometimes, paying off your debt obligations from years ago can hurt your credit score. How fast your credit score goes up depends on the reporting from the original lender; it is also possible that you won't improve your score at all. Most of time, paying off old debts helps you even if it does not impact your credit score.

Paying off a collections account will not improve your score, according to Fair Isaac Corporation -- creators of the credit scoring formula used by most lenders -- spokesman Craig Watts. You will improve your score if you pay a written-off debt when the original creditor reports a zero balance on your account. How much paying off the original creditor helps your score relies heavily on the rest of your credit report, but your score can see an increase of several dozen points.

The credit scoring agencies tweaked their formula during the first decade of the new millennium to prevent paying off a collection from hurting your score. In years past, paying a collections account renewed the delinquency date of the debt. The FICO score model gives less weight to collections accounts as time passes, so paying the debt is ethically right, but a poor decision for your credit score.

Paying off a collections account is more important for showing good character than improving your credit, according to Bills.com. Lenders consider more than just your score when extending credit; they look at how committed you are to paying off debt. Some lenders may not approve a loan application until all collections are paid.

Each state puts a time limit on how long a creditor can attempt to collect a debt. Once the statute of limitations passes, you can refuse responsibility to the debt if sued, according to MSN Money Central. Paying off the debt or doing something to claim the debt, such as contacting the collections agency about it, could reset the statute of limitations on the debt. Also, settling an account with the creditor for less than you owe is worse for your credit than refusing to pay, because settling an account could make the date on the debt more recent.

How to Get a Free Credit Report Once a Year

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If you apply for credit and are turned down you have the option of requesting a credit report. Unfortunately each time you apply for credit, it goes on your credit report as an inquiry. For this reason it is probably best not to apply if you are unsure of your credit rating. However, Congress has made it possible through a special mandate for individuals to request a free credit report annually. This information is invaluable in discussing interest and mortgage rates, or when attempting to receive a loan. Take advantage of this free information courtesy of the United States government.

Instructions

There are three major credit reporting agencies. These are Equifax, Experian and Trans Union. When a creditor runs a background check, they will go to one of these agencies.You can obtain a free credit report from all three of these companies.

Go to www.annualcreditreport.com to request a copy of your credit report online. Once you get to the site, you select your state from the drop down menu and then click "Get Report." Fill out all of the necessary information, such as name, address, and social security number. They will ask for word verification. Type it exactly as it looks. It is case sensitve.Pick all three sites and then click to continue. It will tell you to go to one of the sites to request their specific report. Find the area on their page that says "annual credit report," and click on that. You will be asked some questions to verify your identity and then you can view your report. Take down the report number for later viewing and bookmark the site. Once you have finished with that site there will be a "Return to AnnualCreditReport.com. You click on that to return to the site and request another agencies report.

Another way of obtaining your reports is to call, 1-877-322-8228 to ask for a copy of all three credit reports by phone. You will be required to give some basic information in order to verify your identity. The call should take less than five minutes and the report

Negotiating Credit Reports With Collections

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Credit card companies and other lenders often charge off accounts after six months of nonpayment, according to Bankrate columnist Steve Bucci. This does not stop collection efforts, and the debt may be sold to a collection agency. The charge-off is a serious blemish on your credit report that brings down your score. A collection agency's priority is to get your money, so you can often use that as leverage to negotiate for a changed credit report entry.

Instructions

Review your budget to see how much you can offer to settle your bill with the collection agency. Debt is sold for less than its face value, so the collector can accept a lower offer and still make a profit.

Call the collection agency and offer a settlement that is lower than what you can actually afford to pay, Bankrate recommends. The agency might accept your offer, or it might insist on a higher amount. Leave yourself some negotiating room. Tape the conversation if possible so you have proof of any agreements, advises Gerri Detweiler, author of "The Ultimate Credit Handbook." State law may require you to tell the agent you are taping the call.

Tell the agent you want your credit report entry changed once you agree on a settlement amount. Ask for the item to be removed or changed to "paid as agreed status." If the collector will not agree, ask for a "paid in full" designation, which is more positive than "paid in settlement."

Ask for a written agreement that outlines the settlement terms, including the credit report changes, before you make your payment. Collection agencies often pressure you to make immediate payment, warns WI consumer protection attorney Mary Fons, but this removes all your leverage. You need written proof so you can force the agency to follow through with its side of the bargain.

Check your credit reports after paying your settlement to ensure the collection agency changed the entry. The Federal Trade Commission explains that you are legally entitled to one free credit report every year from TransUnion, Experian and Equifax if you place your order with annualcreditreport.com. Dispute the item with the credit bureaus and include a copy of your agreement, if it has not been changed.

How Often Is Credit Score Adjusted?

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Credit scores are technically adjusted any time you are engaged in a credit-related activity that impacts factors in your credit score. However, many of the reporting indicators from lenders and other businesses that report on your borrowing activity are not reported immediately. Thus, your actual score may remain constant for a several days, weeks or even months in certain instances.

A large number of specific borrowing activities impact your credit history. Essentially, any time you use a credit account, make payment on a credit account, are late for payment, apply for new credit or otherwise engage in credit-related activity, you can positively or negatively affect you score. To simply things, the FICO scoring model, which is the basis for credit score computations from all three major credit reporting bureaus, offers five broad scoring categories -- credit history, length of credit, amounts used, new credit and types of credit.

In his article, "How often do credit scores change?," CreditShout founder Kevin Fleming explains that your credit score can change on a daily basis. However, many score-related activities are not reported for 30 to 60 days. It is very possible that you could apply for a new credit card or use a card and have the activity updated almost immediately. If you check your credit score through one of the reporting bureaus -- Equifax, Experian or TransUnion -- you could find that your score changes one day to the next.

Fleming also points out that the broader and deeper your credit history, the less affect new activity has on your score. For instance, someone just starting out with credit will typically get a bigger score boost from just a few on-time payments. However, if you have years of credit history and a relatively good score, it takes longer for regular, positive activity to help your score continue to rise.

As noted, some activities have delayed reporting time frames, which means they do not impact your score immediately. Mortgage lenders sometimes do not report you as late on a payment until a few weeks after the common two week payment grace period. Other creditors often do not report late payments for a few weeks. The Credit Karma Blog provides an example in which a gas credit card application resulted in a six point score drop in one day from the credit inquiry. However, the increased credit limit reduces the debt utilization ratio, a good thing, but change often takes weeks to positively impact your score.

Do Credit Bureaus Use a Debt to Income Ratio?

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Credit reporting agencies gather information relating to your credit accounts and debt management and use that information to compile your credit report. Credit bureaus do not use debt-to-income ratios. Debt-to-income ratios are tools used by lenders when underwriting loans and are not part of a credit report. However, your lender uses your credit report to help calculate your debt to income ratio.

Lenders use debt-to-income calculations to determine how much money you can reasonably afford to borrow. DTI ratios work on the premise that at least 50 percent of your gross income goes towards taxes and day-to-day expenses such as food and utilities. Generally, you cannot take on more debt if your current monthly debt payments amount to more than 40 or 50 percent of your gross income. If you took on debt payments in excess of this amount, you might have problems paying your bills and could default on your loan.

Most creditors regularly report your credit account activity to the credit bureaus. Creditors provide credit bureaus with information that shows how much you currently owe and how much you are required to pay towards each debt on a monthly basis. By simply adding together all of the monthly payments on your credit report, your lender can calculate your total monthly debt payment. Lenders ask you to provide evidence of your monthly income, such as your most recent pay stubs, and then calculate your debt-to-income ratio by dividing your total debt into your gross monthly income.

Any reports given to the credit bureaus by your creditors must contain accurate information. Legally, your creditors are not actually required to make reports to the credit bureaus, and because it costs money to file reports, some lenders do not report to the bureaus at all. Consequently, your lender uses information on your credit report in conjunction with information that you must provide about any debts you have that are not showing up on your credit report. Lenders can only accurately calculate your DTI ratio if you provide this information.

Credit bureaus do not use debt-to-income ratios because credit bureaus are not concerned with your cash flow. However, the Credit CARD Act of 2009 states that credit card issuers must attempt to verify your DTI ratio before issuing you with a credit card. Previously, credit card companies did not have to calculate your DTI. In order to help card issuers comply with this act, some credit bureaus now offer DTI reports on consumers. The reports are based on estimates of the consumer's income rather than actual facts, but these estimates comply with the provisions of the law. Therefore, while credit bureaus still do not use DTI ratios, some of the bureaus now produce DTI ratio reports.

How to Report Clients to Credit Bureaus

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The three main credit bureaus, TransUnion, Equifax and Experian, handle all consumer data in the United States. Major lenders and credit card companies have contracts with these agencies. Each month, creditors send in updated consumer information on all accounts. The credit bureaus prohibit individuals from submitting trade line requests and updates. However, there's one way to report someone to the credit bureau: a judgment.

Instructions

Determine how late the account in question is. In general, to file a legal judgment against a credit client, you'll need to document at least 90 days during which no payments were made. Make sure you review the account(s) in question very carefully for missed payments.

Hire an attorney to help with the suit. The first step in the process is to sue the borrower. This generates a summons for the debtor to appear in court. If he shows up for court, you'll need to lay out your argument, and convince the judge that the account is, in fact, delinquent and collectible.

Make sure the judge files a judgment. This is placed upon the debtor's credit report. Before the judgment is filed on the report, the debtor usually has a window of time to pay the final outstanding sum. If this amount isn't paid on time, the judgment is sent to the bureaus.

Research credit collection companies. Most of these companies service large clients who provide them with a large number of accounts upon which to collect. It's best to begin a search at the National Association of Retail Collection Attorneys (click on the link in the Resource section).

Review offers from collection attorneys. Make sure to get at least two to three offers. Be aware that you'll likely not receive the total amount outstanding from a collection firm--collection agencies make money by collecting more than they paid for the debt.

Choose a collection attorney, and sell the debt. Sixty days after you sell the account, if the debt is still outstanding, the collection agency places a judgment on the debtor's credit report.

What Is a Credit Score & What Is the Maximum?

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Credit scores are a reflection of your consumer debt. They are very important beyond personal finance and can affect other areas such as job searches and insurance rates. Being vigilant about an accurate credit score leads to many benefits.

A credit score, according to www.consumersunion.org, is defined as "a three-digit number based on a borrower's bill-paying history and debt profile and statistical information about other borrowers that lenders use to determine the likelihood of certain credit behaviors."

Credit scores can range between 300 and 850. The higher your score, the better. According to www.consumersunion.org, the scores of average consumers fall within the 600s and 700s.

There are three major credit bureaus that banks rely on to check your credit score: Equifax, Experian and TransUnion.

The U.S. government has set up a website, www.annualcreditreport.com, where each of the three major bureaus must provide a free credit report to you once every year. By staggering each report by four months, you can receive three updates every year on your credit score.

According to www.consumersunion.org, the major factors that can influence your credit score include: "previous payment behavior, how much you owe, how long you have held outstanding credit, whether there are a lot of inquiries in your file from prospective lenders, the type of credit you use, and how much credit is available to you."

What Credit Information Can an Employer Check?

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Many employers require credit checks in addition to background reports before hiring or promoting an employee. Employers use the information to determine a person's responsibility and trustworthiness. Information on your credit report can affect current and future job offers.

An employer credit report will show your Social Security number, employment history, current and prior addresses, and financial information such as loans, liens, bankruptcies and payment history.

To protect you financially, account numbers are omitted from an employer credit check. Additionally, your marital status and date of birth are hidden.

Under U.S. Federal Bankruptcy laws, you cannot be fired from a job or discriminated against due to a bankruptcy on your credit report.

Previous employment credit checks won't show up for current or future employers and will only be visible when you check your own credit report. Additionally, your credit score is not affected by these "soft inquiries."

An employer cannot check your credit without written permission from you. If you are denied a job, or your job is adversely affected due to information on your credit report, the employer must give you the reason and supply a copy of the report.

Does Filing Unemployment Hurt My Credit Score

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Over 36 million people depend on jobless benefits, such as food stamps, which are available to everyone from the chronically poor to the newly unemployed. Filing for unemployment compensation seems like it would take a toll on your credit rating because it is a sign of fiscally hard times, but it does not affect your credit score.

As of 2010, filing for unemployment compensation does not show up on your credit report with the major bureaus and has no affect on your credit whatsoever, according to the Experian credit bureau website. Credit reports only reflect hard financial data, such as bankruptcy, court judgments and tax liens.

Although changing jobs does not factor into a FICO score calculation, lenders can see a change in jobs, according to SolveYourProblem.com. If you frequently change jobs and have long lulls in the employment line, it appears that you have an unstable employment history. Creditors might hesitate to lend to you if you look like someone always on the move.

Unemployment can affect you indirectly, because unemployment benefits pay you less than the wage at your previous job, according to the Department of Labor. A reduction in income could make it hard for you to pay your bills. If you are late on your installment payments, this reflects negatively on your credit score.

State unemployment benefits lasts only 26 weeks. You receive an extra 13 weeks during times of financial duress in the U.S. economy. If you anticipate a long period of unemployment, contact your creditors. Creditors may lower your payments or defer your bills until you find gainful employment.

How To Fix Bad Credit History

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Bad credit involves having a credit score in the low 600s or lower. Bankruptcies, foreclosure and other credit problems can bring on bad credit. However, there are effective methods to fix a bad credit history and help raise a bad credit score. Recognizing the causes of your bad credit is key to improving your score.

Instructions

Stop using credit cards, and pay down your debt. Put your credit cards in a safe place, and then use your extra income to pay more than your minimum payment until you pay off the balance.

Use online services to pay your bills on time. Payment history plays a big role in credit scoring, and paying creditors on time can help fix a bad credit history. Mail your payments early to avoid late charges, or use online payment systems for faster arrival.

Understand the danger of excessive credit inquiries. Applying for credit card offers can damage your personal credit score. Walk away from in-store charge account offers and shred preapproved credit card offers.

Pay delinquent accounts. Regardless of the age of delinquent accounts, make arrangements with your creditors to pay off these debts. Talk with your creditor, and ask the company to erase the collection account from your report after you've paid the balance.

Does PayPal Count Towards Your Credit Score?

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Many people receive and send money online through the use of Internet bank accounts. While some people will use accounts linked to offline banks, others will use accounts that exist only on the Internet. One of the most popular Internet financial services providers is PayPal. Millions of people use PayPal as a sort of online checking account into which they can deposit money and make payments. Using PayPal will not generally affect their credit scores.

PayPal accounts resemble checking accounts in that people can deposit money into them and then withdraw the money when needed. Although people do not write checks to their PayPal account, they can get PayPal debit cards. PayPal does not lend its customers money. These accounts are not lines of credit and do not allow people to take out loans. Therefore, they will not be listed on a person's credit report.

A credit report is a dossier of information that a credit reporting bureau uses to describe a person's credit history. When a person takes out or pays back a loan, this transaction appears on the credit report. Other kinds of financial accounts, such as checking accounts, savings accounts and Internet accounts, such as PayPal, are not on credit reports. Any item not included on a credit report will not affect a person's score.

A credit score depends on the items listed on a person's credit report. The score relies on a formula into which these items are entered. A PayPal account will not be on a person's credit report and will therefore not affect his credit. However, a lender may wish to know a prospective borrower's financial assets, including his online accounts, when he is determining if the borrower qualifies for a loan.

The only way that a PayPal account could influence a person's credit score would be if the person overdrew on the account and left a negative balance. While the person would have a chance to pay the account, if he failed to do so in a timely fashion, then PayPal might well report the debt to a credit reporting bureau, which would lead to a drop in the person's score.

How Much Will Paying Off a Defaulted Student Loan Help My Credit Score?

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Lenders and creditors report your credit data to the credit bureaus. The credit information on your report determines your FICO credit score. How well you manage your credit accounts impacts how high or low this score will be. If you have a defaulted student loan, paying that loan will help your credit score.

There are five factors that determine how high your FICO score will be. The score ranges from 300 to 850, according to FICO. Ten percent of your score is determined by the variety of credit types found on your report, another 10 percent is the amount of new credit you've applied for recently, 15 percent is the length of your credit history, 30 percent is the amount of debt that you have and the largest factor is your overall payment history, which accounts for 35 percent.

Payment history will have the largest impact on your score. Late payments damage your score. According to MSN Money, one 30-day late payment will drop your FICO score from 60 to 110 points. By the time your student loan reaches the default status, that level of delinquency has already imparted serious damage to your score. Paying off the loan can help your score if the account has not reached a charge-off status, which is when the lender writes it off as a loss. Once an account is charged-off, it cannot be rehabilitated or brought to a positive status. If it is charged-off, payment on the account will not alter the payment history on that account and that history will continue to negatively impact your score for seven years.

The second largest factor in your score's calculation is the amount of debt that you have. If your loan still shows an unpaid balance, paying it off may help to raise your score. According to FICO, paying down balances on installment debts, such as student loans, improves your score. Generally, the less debt you have, the higher your score. How much the score rises will depend upon the other items present on your credit report.

If you pay the student loan balance in full, the lender will report the debt as paid. If you settle the debt and pay less than the amount owed, the lender will report the debt as paid-settled. According to Experian, settling an account can have a negative impact on your credit and credit score. In addition, future lenders may view a settled account on your report negatively, since you didn't pay all of what you owed.

What Is an I9 on a Credit Report?

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Credit reports contain codes to give lenders a quick review of the status of your account. If you have I9 on any account, it will cause you serious problems. At this point, there is little you can do about the negative item or reduce its impact. Some lenders, however, may negotiate with you to remove this status.

Accounts only acquire the I9 status when a lender reports an installment loan account as noncollectable, according to finance expert Suze Orman. Usually, the lender declares the debt a charge-off -- an accounting technique to put the debt in the losses column and make it tax deductible. This is the worst status for a debt because it means the lender believes the borrower cannot or refuses to pay the debt back. The letter stands for the type of loan. Delinquent revolving loans, for example, appear as R9.

Lenders can report your debt in I9 status to the credit rating agencies as a charge-off any time you fall behind on your payment. Most lenders, however, wait at least 180 days before giving on collecting it. After the charge-off, the creditor may sell your debt at a discount to a collections agency, send it to an internal collections department or sue you.

A debt collector or lender will probably pursue any I9 account worth more than $2,000 after a charge-off, according to CardReport.com. They can take legal action until the statute of limitations expires on the debt -- the SOL generally starts four or five years after the lender reports your account delinquent. A judgment might order a wage garnishment, garnishment on your bank account and possibly even retirement savings.

It is possible to remove an I9 from your credit report if you and the creditor agree that the lender will report the status as inaccurate to the ratings agencies. In the return, the creditor will want a full payment or possibly a portion of the debt you owe. You may need a lawyer who specializes in debt management to guarantee the creditor will remove the negative. Also, never negotiate with a collections agency because it does not have the power to remove I9 from your report.

Self-Help to Repair a Credit Report

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Despite what the ads claim, there are no quick fixes for a credit score. Many companies offer services such as negotiating with creditors, budget help and credit repair. Many of these companies charge fees for these services. Indebted consumers are capable of performing these same services without the help of outside companies. You can save money and repair your credit with diligence and patience.

The first step in repairing credit is to know your score. The credit score, or FICO score, is a compilation of scores from the three main credit agencies: TransUnion, Experian and Equifax. The three digit score ranges in value from 300 to 850. Higher scores translate into better credit worthiness. Consumers wishing to build their credit scores should first obtain a copy of their credit report. Every consumer is eligible to receive one free report a year from each of the credit agencies. There are also many online companies that provide credit reports for a nominal fee to those who wish to review the reports more frequently.

Consumers should review the report carefully for errors. Errors could hurt your overall score, so it is best to be thorough. If errors exist on the report, you should make a copy and highlight the error. Prepare a letter explaining the error and a request for removal. The credit agency has thirty days to respond to communications. If no response is received, then the errors should be deleted from the report. This is according to Section 611d of the Fair Credit Report Act. Bankruptcies stay on a credit report for 10 years from the filing date. If you find items after this time period, a letter should be sent to the credit bureau requesting an update. This same criteria applies to delinquencies, garnishments and repossessions, which have a time span of seven years to remain on a credit report.

Time is the best ally for rebuilding credit, since payment history is a major component of the credit score. If you have late payments on your credit report, you must be diligent about paying on time in the future, so that the late payment will be overcome by the good history that you are building. If you are in a position to do so, pay down high debt because the amount of credit that you have available is also an important component. If you have many credit cards, and they are all maxed out, then the available credit will be low. Many consumers make the mistake of closing accounts in an effort to rebuild credit. This does not work because the debt is still there and now the available credit is reduced, so it has the opposite effect.

After achieving a healthy score, it is important to keep up good credit habits. Be careful about applying for new credit too often, because credit applications create a credit "inquiry" that remains on your credit report for up to two years. Inquiries triggered by credit applications lower your score slightly, so it is best to only open credit accounts as needed. Pulling your own credit report has no effect on the score. It is also important to pay all bills on time, not just credit cards. Landlords, utility companies and insurance companies also report to the credit agencies, so any late payments will lower your score. Check your credit report regularly to ensure that information is being reported accurately.

Will Paying Off a Repossession Raise My Credit Score?

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When a person falls behind on payments made toward a loan issued for the purchase of a particular object, such as a car, the lender may choose to repossess the object for which the loan was issued. Repossession badly damages a person's credit score, although some repairs can be made by paying off the loan after the repossession.

Credit scores are calculated using a number of different factors. According to the Fair Isaac Corporation, the originators of the modern credit score, the bulk of a person's credit score is based on two factors: the person's previous credit history--namely the timeliness of her payments on loans--and the amounts currently owed. In addition, the length of the person's credit history, the amount of recently open credit accounts and the number of recent credit checks also affects the score.

A repossession generally occurs after two or more payments have been missed on a loan used to purchase the object placed under repossession. When a payment is missed, the lender will generally report the missed payments to a credit reporting agency. The more missed payments and the larger the person's outstanding debt, the more harm will be done to the person's credit score. The repossession itself will also be noted and will remain on a person's report for seven years.

According to Experian, one of the leading credit rating companies, repaying off a loan will not eliminate the damage done to a person's credit history. The repossession will still remain on a person's report. However, the score will improve by a small amount because the total outstanding balance that the person owes will decrease. The less a person owes--and the less he is delinquent on--the higher his score.

Occasionally, people who have had objects repossessed find themselves faced with the choice of repaying the loan in full or accepting a settlement offer by the lender. According to Bankrate, a person with an otherwise healthy credit rating may want to forgo the settlement offer to and pay the debt in full, as this will be communicated to lenders on the report. However, if the rest of the person's credit history is blotched, the full payment will make little difference, leaving her better off paying the settlement and saving the money on a full repayment.

Before getting to the point where the lender is attempting to repossess your object, attempt to negotiate an alternative payment plan. If that fails and repossession is imminent, voluntarily surrender the object: Some credit rating companies look more favorably on a voluntary repossession than an involuntary one.

How to Get a Free FICO Credit Report

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You have probably seen the television commercials or web advertisements for companies offering "free" FICO credit reports. While some of these sites do offer some version of a free credit report, almost all try to bill you for additional services or sign you up for recurring monthly charges. Under the Fair and Accurate Credit Transactions Act, however, you are guaranteed a free credit report from one of the three national credit-reporting agencies. By following a few easy steps, you can gain access to your credit report quickly and easily.

Instructions

Visit AnnualCreditReport.com, the only authorized source of free credit reports from the United States government. You are allowed one report from each of the major credit reporting companies -- Equifax, Experian and TransUnion -- every 12 months. You can choose to view the ratings from all three agencies at once, but it is recommended that you choose one at a time and space them out over the year so that you can monitor your score throughout the year. Follow the instructions at AnnualCreditReport.com to view your credit reports. Once your identity is verified, you will be able to view your report immediately.

You can also request a copy of your credit score by phone. Call (877) 322-8228 and follow the instructions to verify your identity. Your report will be processed within 15 days. Delivery can take two to three weeks.

To request your credit report by mail, you can visit https://www.annualcreditreport.com/cra/requestformfinal.pdf and download the credit report request form. After printing and completing the form, mail the request to:

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

Your report will be processed within 15 days. Delivery can take two to three weeks.

Look for your credit score number. Your FICO credit score number will be between 300 and 850. Your score is calculated based on a number of factors, including money owed to creditors, credit history, payment history, number of accounts, number of report inquiries and types of credit used. Check to ensure the information used to determine your score is accurate. The higher your score, the more money you will likely be capable of borrowing and the lower your interest rates will be. A score of at least 700 is best.

Report inaccuracies. If you see a problem on your credit report, you can report it to the company that supplied the report online, by phone or by mail. You will probably need to supply information and documents that prove the information is incorrect. The law requires an agency to investigate your complaint, in most cases within 30 days, reply in writing and supply you with a new credit report if anything was changed.

Credit History Advice

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In many ways, life in the United States revolves around credit; more specifically, your credit history. Good credit can help you qualify for excellent interest rates on mortgages and auto loans, and bad credit can keep you from qualifying for these loans at all. Learn how to improve your credit history, also known as your credit report.

Collection accounts, charge-offs and judgments negatively affect your credit no matter what. While getting these items removed is nearly impossible (most bad accounts take 7 years to come off), settling the accounts can improve your overall credit report and show lenders that you are trying to correct your mistakes.
Contact creditors you have had problems with in the past, and offer to settle the old debt. Regardless of what you have seen in advertisements, "pennies on the dollar" resolutions are highly unlikely. Nevertheless, most creditors will settle your account and consider it satisfied if you work out a payment arrangement with them. The initial payment default will still appear on your credit history, but the account will be marked satisfied, improving your chances of acquiring new credit.

Review your credit report every 90 days to check for inaccuracies. With the complexity of the credit system, it is possible for creditors to place inaccurate information on your credit history. Checking it every 90 days will minimize the negative effect of any inaccuracies and give you an opportunity to correct it before it is too late.

If you find an inaccurate item on your credit history, dispute it. Dispute the account with the lender and the credit bureau agency. By law, a lender has 30 days to provide proof of an item before it is removed from your report.

Many people make the mistake of closing a revolving credit account (usually a credit card) that they no longer use. Unless you have an annual fee, keeping an account open will not cost you any money. A zero balance accrues no interest and increases your available credit, which raises your score. A closed account reduces your available credit and can lower your credit score.

How Long Do Judgments Stay on Credit Reports?

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A credit report is a vital piece of a consumer's ability to get new credit or loans. Having a judgment appear on a report can be devastating, especially because the item can remain for many years.

A judgment is a court ordered result of a lawsuit. When a creditor sues a debtor to recover unpaid funds, a judgment in favor of the creditor means the court has ordered the debtor to pay up.

A judgment can remain on a consumer's credit report for up to seven years, according to the Fair Credit Reporting Act. Though erroneous information can be removed, judgments cannot be removed before the seven years expires.

If a judgment is wrongfully listed on a credit report, consumers do have a way to modify it. Erroneous entries can be removed after a consumer contacts the credit reporting bureau and provides evidence to prove that the item is a mistake.

Creditors victorious in a judgment have a limited amount of time in which they can collect the money. Each state determines its own time limits (referred to as the statute of limitations), which vary between three and 20 years.

A credit score will be hurt by a judgment. While the damage can be significant, consumers can begin rebuilding their credit score soon after simply by engaging in responsible credit behavior.

If an Insurance Company Pays Off My Car Due to an Accident, Will My Credit Score Decrease or Increase?

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Many factors go into how credit scores are calculated, so whether a score will increase or decrease after a car loan is paid off due to an accident depends on individual circumstances and the status of the loan. Consumers should become aware of this information in advance to avoid any surprises when they apply for new credit to replace the car.

The size of the original loan and its current balance have a direct effect on whether a credit score will increase or remain the same. If the original loan amount was for $20,000 and the balance at the time of the accident was $1,000, paying off the loan will have a negligible impact. If, however, the balance was $16,000, paying off that amount can increase a credit score significantly by reducing the consumer's total debt.

If a consumer takes out a car loan in August and has an accident in October that causes enough damage for the insurance company to pay off the loan, that will have little impact on a credit score as the loan was outstanding for only a matter of months. On a loan with steady payments over a number of years, a payoff under that circumstance will cause the credit score to increase as it shows a responsible payment history.

A loan payoff will generally have a positive impact on a consumer's credit score, regardless of the circumstances. If, however, one's credit history is checkered with multiple delinquent accounts over time, the payoff of a single loan will typically have a negligible impact. Conversely, for those with a good credit history and not many other outstanding loans, the payoff of one of them can have a direct positive impact.

Life is filled with experiences that can at first seem harmful yet have long-term benefits. After a major accident that the driver can walk from, his attitude toward life may shift to more responsible behavior, which includes working hard and doing everything necessary to keep current with bills and debts. In just a matter of months, a credit score can begin to increase under these circumstances, beginning with the payoff of the car loan and extending to all other creditors.

Does Cosigning a Child's Student Loan Impact Credit Scores?

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To subsidize college expenses, many students borrow money from the federal government or private banks. Although parents are not obligated to help subsidize the costs of their children's post-secondary education, they may voluntarily become cosigners on their children's behalf. Cosigning a child's loan can have negative implications on credit scores. Parents who cosign their children's student loans are responsible for repayment if their children default.

Students applying for student loans may find they will not qualify for private or federal loans because of their credit scores. Some lenders may also consider a student as a credit risk because of a lack of credit history. In such cases, and especially in an economic environment where lending policies are strict, a lender may require that an aspiring student have a cosigner for a student loan. Usually, the cosigner is a parent. Under the legal doctrine of joint and several liability, a lender has a legal right to demand repayment from a student, his cosigner or both upon default.

According to the Federal Trade Commission, the federal agency responsible for enforcing consumer protection laws, cosigners are responsible for repaying up to 75 percent of the loans they cosign. In most jurisdictions, lenders do not have to seek repayment for their loans from a primary borrower before attempting to collect from a cosigner. Some private lenders, including Sallie Mae student loan lenders, allow students or their cosigners to request a release of liability after 24 months of consecutive and timely monthly payments.

As a parent who cosigns a child's student loan, you should ensure that you will be able to repay the loan plus any other applicable costs before you agree to become a cosigner. A lender can require you to repay not only the entire principal loan amount, but interest, attorney's fees, and debt collection fees if your child defaults on his loan agreement.

The mere fact of cosigning alone -- without any default -- can impact your credit score. The cosigning obligation appears as a pending obligation and affects your debt-to-income ratio. You may not be able to borrow money, receive credit cards, or become eligible for home loans until you or your child repays the original student loan debt. If your child defaults on his student loan, your credit score will almost certainly decrease if you or your child fails to repay the original student loan debt.

How to Improve Corporate Credit

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Maintaining good corporate credit may be even more important than maintaining good personal credit. While most individuals only borrow hundreds or a few thousand dollars, corporations may need to borrow tens of thousands of dollars at a time for business expenses. This means that the rate you get on loans has a significant impact on your company's bottom line. If your business does not have strong credit, there are steps you can take to improve it.

Instructions

Check your company's credit report. You can request a copy of your report from credit-reporting bureaus such as Experian and Equifax.

Report any incorrect information on your credit report. For instance, if a credit card is listed as being closed by the card company, and it was actually closed at your request, notify the credit bureau of this discrepancy. Request that current (positive) supplier information take precedence over outdated information.

Contact any vendors who are not reporting on-time payments and request that they report these payments to the credit bureaus.

Bring all accounts current and pay down as many debts as you can. A good debt-to-credit ratio is less than 30 percent.

Opt for secured loans rather than unsecured.

Step-by-Step Instructions for Building Corporate Credit

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Corporations and businesses often use credit to finance items such as electronics and company cars. Without business or corporate credit, you'll have to use your personal credit rating to qualify for loans and lines of credit. Building business credit helps separate your business credit file from your personal file. Like building personal credit, it takes time to build a solid credit profile for a business.

Instructions

Work on your personal credit rating. Initially, you may have to cosign loans in your corporation's name to help build a corporate credit file. Keep your personal credit score in good shape by paying bills on time and keeping your debts to a minimum.

Request a tax identification number for your business. Business tax ID numbers give your business its own identity. Request an identification number by contacting the Internal Revenue Service by telephone or request a tax ID online by visiting IRS.gov.

Incorporate your business. Choose a C corporation, S corporation or a limited liability corporation (LLC) to incorporate your business. The filing fees for incorporating a business are between $100 and $800, and you can save money by incorporating online. Use companies such as Nolo.com or LegalZoom.com

Open a bank account in your business' name. Visit a local bank branch and open a business checking or savings account.

Apply for a credit card in the name of your business. Ask your bank about secured business credit cards. Requiring a security deposit between $500 and $1,000, secured cards can help your corporation establish a credit score.

Look into small business loans. Speak with a loan officer at your bank branch and inquire about the requirements for a business loan. Apply for a small $500 loan (using your personal credit file to cosign or collateral if necessary), and then repay the loan within a few months to add positive remarks to your corporate credit file.

Reasons for No Credit History

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Credit history plays a major role in one's ability to make major purchases. Poor credit results in difficulty qualifying for affordable rates on mortgages or automobile loans, but no credit history can cause the same problems. there are several reasons why a person can lack a credit history.

Since credit agreements are legally binding, most states require that anyone applying for credit be of the legal age to enter into contracts - usually 18 years old. People younger than the legal age requirement will not have credit history because they are not old enough to apply for credit.

Although a checking account is not a line of credit, establishing bank accounts adds to credit history. Someone who never uses banks or any other form of credit will not have any credit history. This could be a person who always pays with cash.

A person who never applies for or uses credit will not have a credit history, and people who apply for credit under another person's name will not have a credit history under their own name. This could occur when a married couple enters all credit agreements in only one spouse's name, or it could happen in fraudulent circumstances.

The most significant effect of having no credit history is difficulty in obtaining credit when it is needed. When no credit history exists, credit grantors have no record to gauge the applicant's risk or ability to repay debt. Although no credit history means no negative information, no history is more similar to bad credit than it is to good credit.

Once credit history is built, it will include information on all applications for credit, outstanding debt and available credit lines. The easiest way to begin adding history to your credit file is by opening a checking account. From there, you can begin to apply for additional credit and build an extensive history.

Can I Build a Credit History With a Rush Card?

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Using a Rush card could reduce overspending, eliminate most fees, such as overdrafts, and most importantly, build credit. However, the credit you build with a Rush prepaid credit card may not help you acquire a loan, because the company that issues Rush cards reports to an alternative credit reporting agency. If you want the best chance at a loan, you should have an account with a lender that reports to a major bureau.

Rush credit cards are prepaid accounts, which means you must load money onto your account before spending. Unlike most prepaid cards, the Rush card reports to an alternative credit reporting agency called PRBC -- formerly known as Pay Rent, Build Credit. An alternative credit reporting agency lists accounts not reported by the national credit bureaus, such as prepaid accounts or accounts with a lender that does not subscribe to the national credit bureau's reporting services.

In 2011 alternative credit agencies have a dubious benefit to borrowers because lenders do not traditionally accept alternative scores. Most lenders use reports from Experian, Equifax or TransUnion and usually all three. Thus, while a borrower can use an alternative credit score to gain credit, he has far less options than someone with an account that reports to at least one of the three major bureaus.

If you cannot qualify for a loan or account that reports to the major credit bureaus, an alternative score might be better than nothing. Also, alternative scores have an excellent predictive value, so they might become important in the future. Some credit scoring agencies, such as the Fair Isaac Corporation, have credit scoring models that include data from alternative agencies such as PRBC.

While no creditor can guarantee approval, borrowers almost always have the option of a secured credit card account to build credit with the major bureaus. Secured accounts require a security deposit, so lenders rarely have a reason to reject an application for one, even from people with a recent bankruptcy. Apply for one from a national bank because small lenders may charge excessive fees, suggests Bankrate.com.

How to Get a Repo Off Your Credit Report

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When your vehicle is repossessed by a lender, it's bad enough that you no longer have your transportation. The repo shows up on your credit report, where it lowers your credit score and hurts your ability to get other loans and credit cards. It may even get in the way of buying insurance or being hired. However, there are some ways you may be able to get the repo off your credit report.

Instructions

Negotiate removal terms with the lender. Often a bank or finance company will agree to remove the repo from your credit report if you agree to a settlement of the loan. You may even be able to settle for less than the total amount due. Get the lender to agree to make the account as "paid as agreed" or to remove it completely.

Get a copy of your credit report from the three major bureaus and make sure the repo information is being reported correctly. You're entitled to one free copy of your report annually from TransUnion, Equifax and Experian. If the lender won't negotiate its removal or if you can't afford to make a settlement, you can get the repo removed if the credit bureaus can't verify the information with the lender. Finding something that may be amiss gives you grounds to file a dispute.

File the dispute with each of the three credit bureaus. They have online forms on which you can provide the relevant information. They can take up to 60 days to verify the information with the lender. If the lender doesn't confirm it as correct, it must be removed from your credit report.

After 60 days, check your credit reports again to see if the repo has been removed. If the lender didn't respond to the credit bureau inquiries or wasn't able to confirm the accuracy of the information, it should be gone.

Check your credit reports annually to ensure the repo doesn't reappear once it has been removed. If you find it on any of your credit reports again, file another dispute with the credit bureaus.

Do Credit Card Declines Affect Your Credit Report?

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Having a credit card application declined can not only be disappointing, but also might cause fear that the decline will make it even more difficult for you to get credit in the future. The declined credit card application will slightly affect your credit report, but not any more than an approved application would.

Credit card companies do not notify the credit bureaus when they decline a credit card application. Therefore, your credit report will not state that you have had a declined application. Credit card companies and lenders you apply to in the future will have no idea that you have been declined by other lenders.

Every time a creditor checks your credit report it generates a credit inquiry. Your credit report lists all of the creditors who have checked your credit recently in response to your application. Therefore, your declined credit card application will generate an inquiry that slightly reduces your score. However, the inquiry occurs before the credit decision is made, so it does not affect your score any more than it would have if you had been approved.

A credit inquiry usually reduces your score by five points or less. If you have a long credit history and many accounts, one inquiry might not affect your score at all. On the other hand, if you are new to credit and do not have much in your credit report, the inquiry will take off closer to five points, or maybe even a few more. Inquiries will not significantly affect your credit unless you have many inquiries during a very short time. Therefore it is best to space out credit applications.

After you have been declined for a credit card due to your credit score being too low, the lender must send you a notice telling you how to get a free copy of your credit report. Check the report for accuracy and make sure there is no incorrect information that is decreasing your score. You will then want to either wait at least a few months while you improve your score or choose a less-selective credit card company. If you have some cash on hand, you can apply for a secured credit card, which requires a deposit instead of credit history.

How to Fix Errors on a Credit Report

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Identity theft is one of the fastest-growing crimes around the globe. Millions suffer the indignity of ID theft each year and as a result must fix the inevitable consequences on their credit report. But it's not always ID theft that causes errors on a credit report. Sometimes it's just one simple error that needs to be corrected. The credit bureaus that manage your credit report aren't as interested in your troubles as you might think. It's best to be armed with a little info before taking them on to correct an error.

Instructions

Get copies of your credit report from all three credit bureaus. The three credit bureaus are Equifax, Experian and TransUnion. They do not share information, so you need to see a report from all three companies to know if there is an error on one that is not reported on another. Also, correcting an error on one company's report will not correct it on the other two. If the same error appears on all three reports you need to contact each company separately to correct it. See the Resources section below for links to these three companies, as well as where to get a free copy of your credit report.

Report errors with the credit bureaus by contacting them directly, in writing by certified mail, email and phone calls. Provide the documentation to correct the error. If no documentation is at hand you can still put a note on your report. This won't correct the error but it will document that you challenged the error and would be viewable by potential lenders.

If you suspect identity theft, put a freeze on your credit report. Putting a freeze on your credit means you won't be able to use credit yourself, but it also means no one else will be able to use credit under your name. To freeze your credit contact the bureaus directly.

If the credit bureaus don't respond to your error-correction request within 30 days, file a complaint with the Federal Trade Commission. The FTC is in place to protect consumers. It won't be your advocate but it will help you and provide info for credit-related problems. The website is listed in the Resources section below.

Tax Credits on House Repairs

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Being a homeowner comes with a to-do list. Eventually all homes will need repairs, some minor and some major. Typically, home repairs do not qualify for a tax deduction the year you make them, but you can receive a deduction for buying certain materials or taking out a loan. Even if your repair does not qualify for a deduction this year, it may when you sell your house.

Simple home repairs, such as repairing a broken storm gutter or repainting the interior do not generally qualify for a deduction. If you make repairs that improve your home, such as replacing the roof, the cost will reduce your tax liability when you sell the house. You can add capital improvements to the tax basis of your house. When you sell your house, you can deduct your tax basis from the selling price to determine your profit.

If you take out a home improvement loan to make repairs that qualify as capital improvements, you can deduct the cost of paying the interest on your taxes. For example, if you take out a home improvement loan to replace the roof on your house, you can deduct the interest you paid toward the loan for that tax year. You cannot use this deduction if you only make minor repairs to your home. The repairs must improve the value of your house.

If you take out a home equity loan or line of credit to make repairs, you can deduct the cost of paying the interest. You can use a home equity loan to make any repairs, small or large. For example, if you open a home equity line of credit and use the money to repaint your house, update your old flooring or repair broken appliances, you can deduct the cost of paying interest on the loan.

Certain Energy Star-qualified appliances and construction materials qualify for a tax credit. You can receive a credit for purchasing energy-efficient installation materials, skylights, windows and doors. You can also receive a credit for purchasing certain appliances, such as central air-conditioning units, water heaters and heat pumps. The amount of tax credit you can receive depends on the type of materials and appliances you purchase.

FICO Scoring Method

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The Fair Isaac Corporation, also known as FICO, began in 1956 and is a leader in providing credit scores to lenders. FICO credit scores range from 300 to 850 and represent the risk to lenders that you will pay your debt on time and in full---the higher the score, the lower the risk. Credit scoring companies like FICO use only the information found in your credit report to determine your score. The exact formula is complex and variable, but FICO provides guidance on general categories and how much weight they carry toward your overall score.

Your payment history has the most influence on your credit score, comprising 35 percent of your total. Late payments, delinquencies and collection actions negatively affect your credit score, and the more recent they are, the more weight they carry. To keep a high score in this area, FICO recommends you pay your bills on time, or if you are delinquent, get caught up as soon as possible and stay curent.

FICO scores rely heavily on the amount of debt you carry, allotting 30 percent of your score to this category. A key aspect of this area of your FICO score is your credit utilization, the percent of debt you carry compared to your available credit. Keep your balance on an individual card, and your total debt-to-limit ratio, below 50 percent to maintain the highest rating in this area.

Your credit history length looks not only at your longest-held account, but also at your average account age. Opening a number of new accounts in a short timeframe will lower your average account age and could decrease your credit score. Fifteen percent of your FICO credit score depends on your length of credit history.

New credit makes up 10 percent of your FICO score, and includes not only new cards but recent inquiries on your credit report. Lenders make hard inquiries when you request a loan or credit card, which can be a sign that you are looking to obtain more credit than you can manage. FICO allows a short window of time for rate-shopping, for example if you are looking for a mortgage; inquiries within this window count as one inquiry and do not have a cumulative negative effect on your credit score. Soft inquiries for pre-screened credit offers and your requests for your own credit report will not affect your credit score.

The final 10 percent of your credit score consists of the types of accounts you have or have had. A mix of credit types shows that you can manage different types of accounts, both revolving credit in which the payment changes monthly and the loan is open-ended, and installment loans with a fixed payment for a specified length of time. FICO advises you not to open accounts simply to obtain a mix of credit types, as this will likely not have any affect on your credit score.

Does Paying Down My Installment Credit Help My Credit Score?

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Your credit score affects whether you are approved for new credit accounts and what interest rates you pay, so having the highest score possible is important, especially if you plan to apply for credit soon. You have several ways to improve your credit score, one of which is paying down the balances on your existing debts.

Most of your debts fall into two major categories: installment credit and revolving credit. With installment credit, you borrow a large sum all at once and pay it back over a set period of time. Your monthly payments are usually fixed unless they adjust periodically with a variable interest rate. With revolving credit, you have a credit line from which you can borrow money whenever you want up to the credit limit your lender sets. You usually have to pay a specific percent of your balance every month. Your credit score handles these two types of accounts differently.

Approximately 30 percent of your credit score factors in the amounts you owe on all of the accounts that appear on your credit report. This part of your score looks at how many accounts you have with balances, the total amount you owe, the proportion of your installment loans that you still owe and the proportion of your credit limits that you owe on revolving accounts.

Reducing the amount you owe on installment loans will help your credit score some because it not only reduces your overall debt but also decreases the proportion of the amount you borrowed that you still owe. If you have lots of small installment loans, paying off some of these can also reduce the number of accounts you have with balances, which will also improve your credit score.

The percentage of your revolving credit that you are using affects your credit score significantly more than the balances on your installment loans do. Therefore, if you have credit cards with balances, put your extra money toward paying down those balances first. Generally, reducing your credit card balance by $100 will help your score more than reducing your installment loan balance by $100. Liz Weston of MSN Money recommends reducing balances on revolving credit accounts to 30 percent of their limit, or, even better, to 10 percent of their limit so that you can start working on paying down installment loans.

Quick Ways to Improve Credit Rating

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Quickly improving your credit rating could help you qualify for loans at lower interest rates, potentially saving you thousands of dollars in finance charges. Microsoft Money reported on its website in 2010 that more than 30 million people in the U.S. had credit scores below 620 -- the so-called cutoff for good credit and competitive rates on loans. For the best interest rates, you should increase your score to at least 740, Microsoft says.

Removing negative entries from your credit report could result in an immediate boost in your credit score. The Fair Credit Reporting Act gives you the right to dispute any information on your credit report that is inaccurate or outdated. Microsoft Money says you should regularly review your credit report for accounts that are not yours; accounts that are reporting as late when you have always paid on time; and any negative information that is more than seven years old. You can have inaccurate or outdated information removed from your credit report by writing letters to the nationwide credit bureaus. Federal law requires them to remove the inaccurate or outdated information within 30 days after being contacted by you.

Opening a new MasterCard or Visa credit card account -- and maintaining a flawless payment record -- could also boost your credit score, according to Microsoft Money. The site says a good track record with a major credit card can improve your score faster than through the use of a gas station or department store card.

Making on-time payments on all of your accounts is a must, according to the credit website BCS Alliance. The site says the quickest way to get back on track or to start improving your score is to simply pay your bills on time. Being late on just one of your credit cards or loan accounts could cause your scores to drop.

Paying down your balances could also help improve your credit score. Equifax, one of the leading credit bureaus, says maxing out your credit cards is a mistake -- even if you are making the minimum payments on time. To quickly raise your credit score, pay down your balances as much as possible. Equifax reported on its site in 2010 that on average, people in the U.S. with revolving credit accounts were using only 22 percent of their credit lines.

What Is the Median Between the Three Credit Reporting Bureaus?

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Although people often refer to your credit score in the singular, you actually have three -- one from each of the major credit rating companies. Since the "Big Three" do not coordinate with each other, you will have a different score with each. Lenders usually account for this differential by taking the median of the three to determine your credit score.

In math, the median of any set of numbers is the exact middle. In the set of (1,2,4), for example, "2" is the median. When calculating the median of a customer's three credit scores, however, lenders take the middle of the three scores. Scores of 700, 720 and 750, for instance, would give a median result of 720. Some lenders use the relatively new VantageScore, which is standard across all three major bureaus so there is no need to take a median or average score.

Although most lenders take the median of your three scores, some will average them out, according to Business Week. Some may not even look at your score from all three agencies, but check two or even just one. Also, some lenders opt for an alternative credit score. The Payment Reporting Builds Credit calculation factors in payments not used by the standard credit model, such as rent and utilities. Some lenders may even use a specialty credit scoring dedicated to a niche market, such as mortgages or car loans.

Typically you won't see more than a 10- or 20-point difference between your credit scores. If one lender has missing information or a mistake on your record, you could have a difference of 100 points or more between your highest and lowest score. A 50-point swing could cost you thousands over the life of large loan paid over several decades. Thus, you want the highest possible score from each agency when applying for a mortgage, but other factors will affect your approval and rate. Your monthly debt service to income ratio, for instance, can trump even the highest of scores. Usually, when debt to income exceeds 35 percent, lenders do not believe you can handle an increased debt load.

You can pull your credit report from each bureau for free once each year -- but this does not entitle you to see your score for free. To obtain a median close to what your lender sees, you will have to purchase a score from each bureau. You could avoid paying for your score by using a score estimator.

If your report contains negative information, review it for accuracy and then try to mediate problem areas. Start paying bills on time and pay down as much debt as possible; credit card debt is usually the best to tackle first if you have excess income.

Can Closing a Credit Card Hurt Your Credit Score if You Have Stellar Credit?

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Financial experts like Dayana Yochim of The Motley Fool tell consumers not to cancel credit cards because it will hurt their credit rating, but closing a credit card account might have no effect on your credit rating -- at least in the short-term -- if you already have stellar credit. However, there is no need to close to your account if you can manage credit well.

Nobody knows exactly how anything effects the credit scoring formula developed by the Fair Isaac Co., because it is a trade-secret, but the best case scenario is that it has a nil impact on your credit rating. The most damaging effect closing a credit card can have on your credit report is raising your credit utilization ratio -- the portion of your credit limit you use. If you have a FICO rating of 780 or higher, closing an account and shifting the balance to a new card and maxing out its limit can damage your rating by 45 points or more.

Closing a credit card probably won't effect your length of credit history, worth 15 percent of your FICO rating, for several years. When you close an account, it stays on your credit report for at least 10 years if it is positive, so you won't lower the average age of your accounts. However, once the account falls off your report you will lose the history on it, so it could raise or lower the average age of your accounts depending on how long you had the account.

If you have an excellent credit rating and do not carry a balance on the card, your score likely won't take a hit after closing an account. Canceling the card might be a good idea if it has a high interest rate or you feel tempted to use the card and carry a balance. Having more than seven credit cards on credit report is negative, but you need a few cards for every installment loan, such as a mortgage or auto loan, for a good variety of credit, according to Yochim.

If you still decide to close the account, pay off the balance first. Missed payments hurt your credit score even after you request the lender deactivate the card. Also, ask the lender to list the account as closed at the request of the user. Although the reason for the account closing does not affect your rating, an account closed by the lender looks worse in case of a manual review of your credit history.

Does Disputing Your Credit Report Work?

11:21 PM No comments

Responsible borrowers may have bad credit as a result of mistakes by lenders or credit reporting agencies. Consumers sometimes view the credit agencies as all-powerful corporations that control their credit scores, but the agencies are bound by law to investigate your dispute and correct any error. Proving that an error has been made, however, is not always a simple task.

The federal Fair Credit Reporting Act (FCRA) has provisions giving consumers the right to dispute false information in their credit report. The major credit rating agencies -- Equifax, Experian and TransUnion -- have 30 days to investigate each claim. If they cannot verify the accuracy of the negative item, they must delete it from the report.

The majority of the thousands of disputes that pass through the credit rating agencies go through an electronic dispute resolution system called "e-OSCAR," according to Smart Money. This system essentially tells the lender to review the disputed item. The lender then sends in new data, if necessary. Some disputes, such as those requiring considerable documentation, usually require a human to investigate the claim.

Disputing legitimate negative items on a credit report rarely works and is not an ethical way to fix your credit. Some unscrupulous credit repair companies suggest that their customers dispute all negative items en masse, hoping the credit agency won't be able to verify the items within the 30-day limit. If you dispute several legitimate negative items at once, the credit agency can disregard the action as frivolous and not investigate the claim.

You can obtain a free credit report from AnnualCreditReport.com once each year and review it for mistakes. You can dispute the error through each agency's online dispute resolution form, but it may be more effective to send a certified letter with copies of evidence supporting your claim, such as canceled checks, according to MSNBC. You should document any interaction with the credit reporting agencies, in case you need to file a lawsuit to clear your name.

How Much Does a Late Utility Bill Hurt a Credit Score?

4:40 PM No comments

A late payment on a utility bill should not hurt your credit score at all -- unless your account becomes several months past due and the utility company assigns it to a debt collection agency. The myFICO website says the collection agency may list the bad debt on your credit report, and that could cause your score to drop.

A utility bill is a "non-credit obligation," according to myFICO and that's why it usually has no impact on your credit score. Maintenance work performed on your car for a fee is another example of a non-credit obligation.

MyFICO says your credit score is affected only by the information included in your credit report. Non-credit obligations to your electric company, cell phone carrier or other utility usually are not tracked by the credit reporting agencies. MyFICO says these accounts won't have any impact on your credit as long as you pay them as agreed. Paying as agreed does mean paying on time, but it's unlikely that your account will be assigned to a collection agency if you're just a few days late.

Some people make the mistake of skipping out on their utility bills altogether -- a big mistake, myFICO says. An example could include a graduating college student who moves out of an apartment and simply ignores the final bill from the electric and telephone companies. MyFICO says people fail to realize that these relatively small bills can cause big trouble down the road,.

People who skip out on utility bills could be stunned to later find them all listed on their credit reports as collection accounts. Collection items are accounts that were written off by the creditor -- in this case the utility company -- and then sold or assigned to a debt collector. MyFICO says collection items are very damaging to your credit score. Several factors are used to calculate your credit score, and your payment history comprises 35 percent of your score, according to myFICO. Collection items are included in your payment history and are considered a very negative entry on your report.

Avoid credit problems with your utility bills by paying on time -- including any final bills if you discontinue service.

How do I Raise a Plus Score Below 500?

2:04 PM No comments

Experian uses a PLUS score to inform creditors regarding the risk involved with a potential borrower. The PLUS score rates the creditworthiness of the borrower based on factors, such as outstanding credit, credit history and payments. Also, the borrower's new credit and type of credit is figured into the equation. A PLUS score below 500 is considered risky; therefore, raising it increases your chances of receiving credit from lenders using the Scorex PLUS.

Instructions

Pay monthly credit card bills and loans on time. Since 35 percent of your PLUS credit score is based on payments, set-up payments on an auto-pay program to avoid being late. Also, pay more than the minimum balance due each month.

Limit your spending when using credit cards. Avoid using more than 25 percent of the available credit. This contributes to a lower PLUS score.

Open a credit account and be patient before applying for any other type of loan or credit card. Your credit history, which includes how long your accounts have been open, affects your PLUS score, since it shows your score performance over multiple time frames, according to Experian.

Avoid getting new lines of credit before major purchases. New credit lowers your score, making it difficult to get it over 500.

Apply for credit only if you know you can repay it. Since collection accounts negatively affect your PLUS score, do not allow your payments to be late.

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