Saturday, November 4, 2006

What Is Credit Protection?

When you apply for a loan, a credit card and certain kinds of services, lenders and vendors check your credit report. Having a low credit score may disqualify you for credit products and result in you paying higher rates for various services. Credit protection involves keeping your credit score high and taking measures to prevent certain events from negatively impacting your score.

Credit Scores

    When you fall more than 30 days behind on loan payments, creditors report your delinquency to the credit bureaus. This causes your credit score to drop. Other events that negatively impact your credit score include filing for bankruptcy or going through a foreclosure. If a fraudster commits identity theft and runs up debt under your name, it also causes your score to fall. A creditor giving the credit bureaus inaccurate information about your payment history can cause your score to drop as well.

Credit Protection Laws

    Federal and state credit-protection laws exist to ensure fair treatment for consumers regardless of information on their credit reports. The 1969 Consumer Credit Protection Act has strict rules on how companies can gather and share information about your credit history. Under federal credit protection laws, you have the right to a free credit report from each of the major credit bureaus every year. The 1970 Fair Credit Reporting Act requires credit bureaus to correct any errors on your credit report promptly that may have harmed your credit score. Other credit protection laws, such as the 2009 Credit CARD Act, limit the ability of creditors to charge punitive rates when you fall behind on payments with other lenders.

Credit Protection Insurance

    Homeowners often fall behind on their mortgage payments because of a job loss or an accident that prevents them from working for a time. You can cover yourself against a loss of income by taking out credit protection insurance whenever you take out a loan. You pay for the insurance either upfront or on a monthly basis. If you lose your income source, the insurer covers your loan payments for a specified number of years. This enables you to both avoid foreclosure and prevent a reduction in your credit score.

Credit Protection Monitoring

    Creditors make monthly reports to credit bureaus. Although you are entitled to a free credit report from each bureau, you only get a free report once a year. This means if you become a victim of fraud, it may go unnoticed for months. However, various companies offer credit protection monitoring services. This involves the firm checking your credit report monthly and telling you of any changes on your report. This means you can spot fraud and mistakes faster and prevent your score from dropping.

0 comments:

Post a Comment