2007 ~ Personal Finance and Money Management

Monday, December 31, 2007

Can a Cancellation of Debt Improve My Credit?

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Cancellation of debt is often listed as a charge off on your credit report. Charged-off accounts are negative entries and will not improve your credit rating. In addition, creditors that forgive or cancel your debt typically close the credit account. In account closures, the total available credit, as well as the total outstanding debt factors of your credit rating will be affected.

A creditor will charge-off or cancel debt when you are unable to repay the loan. Typically, the cancelled debt account has been a negative entry on your credit report for up to six months and affecting the crucial payment history section of your credit rating. When the debt is cancelled, the outstanding debt factor of your credit rating is further affected. Many creditors will issue a 1099-C for the amount of the cancelled debt plus any accrued interest. Consumers must report the amount in box 2 of Internal Revenue Service Form 1099-C as income for the tax year that the debt was cancelled. Under certain circumstances, such as specific farm loans, insolvency and bankruptcy, consumers may be exempt from taxes on the cancelled debt.

Thirty-five percent of your overall credit rating is calculated from your payment history. Thirty percent of the overall rating is derived from your outstanding debt. A debt cancellation negatively affects these calculations. By federal law, the negative account entry created by a debt cancellation or charge-off may be listed on your credit report for seven years. Potential lenders view the debt cancellation as irresponsible credit maintenance.

Outstanding debt is the amount of debt that you owe relative to the amount of your available credit. For example, if your total outstanding debt is $5,000 and your available credit is $15,000, you have a credit-to-debt ratio of 33 percent. When a creditor cancels your debt, the outstanding debt balance is reduced and so is the available credit. If your available credit was high and the cancelled debt was low, your outstanding debt ratio increases, which will not improve your credit rating.

In lieu of cancelling the debt, negotiate with the creditor to list the account as settled and remove it completely from your credit report. A settled account is still negative as far as your credit rating is concerned. If the account listing is removed from the report entirely it can improve your credit rating. To negotiate a settlement as opposed to a debt cancellation, you may need to pay a certain amount against the balance of the account. Considering the fact that cancelled debt can increase your tax burden, the settlement payment could potentially be less than the taxes owed.

Will Reaffirming a Mortgage Hurt My Credit Score?

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If you have a mortgage when you file for bankruptcy, you might have to reaffirm it to keep your home. Reaffirming your mortgage creates a new loan agreement. You must make payments each month. Reaffirming your mortgage can help rebuild your credit if you make payments on time; however, if you have continued financial trouble you may lose your home.

Filing for bankruptcy harms your credit score regardless of whether you reaffirm your mortgage. Bankruptcy remains on your credit report for seven years to 10 years, depending on the type of bankruptcy, and may cause your credit score to drop significantly. However, you can improve your credit score significantly within two2 years of filing for bankruptcy by practicing good financial habits. You do not necessarily need to reaffirm your mortgage to accomplish this.

If you reaffirm your mortgage, your lender can take collection action against you, including foreclosing on the property, if you are unable to make your payments after filing bankruptcy. If your financial situation does not improve and you are therefore unable to make payments, you risk losing your home. Late payments and foreclosure proceedings also have a significantly negative effect on your credit score.

If you pay your mortgage on time each month after reaffirming, it can help boost your credit score, especially if you have had your mortgage for a significant period of time. However, if you are declaring bankruptcy, you likely are facing severe financial problems such as loss of income. Thus, you might not be able to make your mortgage payments. If you decline to reaffirm your mortgage, you can walk away from your home and start over once your bankruptcy is approved rather than continue to worry about making payments on time.

When you file for bankruptcy, you can either reaffirm your mortgage, surrender your property or pay off your mortgage. If you reaffirm your mortgage, you will have to continue making payments after your bankruptcy is cleared, while you do not have to continue making payments if you surrender, or give back, your property. If you have the money to repay your mortgage in full, you can keep your home without having to reaffirm the mortgage.

Does Having a Co-Signer Hurt Your Credit?

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Having a co-signer may mean acquiring credit you wouldn't otherwise qualify for --- or causing damaging to your credit for years to come. Just having someone else on your loan doesn't damage your credit rating, but allowing someone to share an account is dangerous unless you have complete faith in the person to use the account responsibly.

Opening a joint account has no effect on your credit rating. An application for credit lowers your credit score a few points, but this happens even if you apply for a loan on your own. Having a co-signer may help your credit, because it means you have a higher chance of receiving approval for an account, probably at a lower rate than if you applied by yourself.

When you allow someone to co-sign on your account, you give them full access to it, which might lead to damage to your credit. If you open a credit card account with someone, for instance, and the co-signer maxes out the credit limit, your score may see a drop of up to 45 points and possibly more. Further damage occurs if you and the co-signer can't meet the monthly payment on the account.

If you have a close relationship with your co-signer, you may damage that, too, should a dispute arise over the account, such as who owes the bill. Also, if you can't qualify for a loan on your own, you probably can't afford the loan. When you and the co-signer apply for future loans, the balance on the account increases both of your debt-to-income, or DTI, ratios. The higher the DTI, the greater of a risk you are to a lender.

Before co-signing a loan, explain the legal consequences of co-signing to the other party. You may craft a separate agreement between you and the co-signer or lender regarding payment on the account. For instance, you may limit your liability to the balance and not any fees and penalties. If the loan involves real property, you should have your name on the title.

What Is a Good Credit to Debt Ratio?

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Debt is a common problem for Americans, who frequently carry balances on credits cards and have car loans and mortgages. While the overall amount of debt an individual carries is important, lenders closely watch an individual's credit-to-debt ratio, which is a significant factor in calculating the credit score.

The credit-to-debt ratio indicates the amount of used debt compared to the total amount of credit an individual can use. For example, an individual with total outstanding debt of $2,400 and available credit of $7,500 has a credit-to-debt ratio of 32 percent.

Lenders often look at this figure to determine how well an individual manages debt. While no single standard exists for this ratio, having a credit-to-debt ratio of less than 50 percent may be more positive for individuals.

Another important calculation is the income-to-debt ratio. This formula compares outstanding debt to the individual's gross income. For example, annual income of $19,500 and debt of $2,400 is a ratio of 12 percent. This can help make the credit-to-debt ratio look better if an individual has a high income.

Credit Ratings and a Negative Credit History

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A credit rating, also called a credit or FICO score, is a three-digit number that organizations use to determine a person's creditworthiness. This number, which can range from 300 (extremely bad) to 850 (perfect), can determine whether you can receive credit such as auto loans, mortgages or credit cards, and can even impact your chances of getting hired for a job. Having a negative credit history will lower your credit score.

The credit scoring algorithm uses several factors about a person's credit history to determine their credit ratings, including length of credit history, payment history, types of accounts and new credit. A person with a lengthy credit history, a diverse mix of credit types, including revolving credit, loans and credit card and a timely payment history will have a good credit score, while someone with a short credit history or a record of late payments, delinquent debt and high credit card balances will have a poor credit score.

Negative credit items, such as late payments, charged-off accounts and debt collections will typically remain on a person's credit record for seven years (although some may drop off earlier), regardless of whether or not the individual pays off the debts. Home foreclosures and judgments remain on someone's credit report for seven years while bankruptcies typically mar a person's credit history for 10 years. Although these accounts remain on a person's record for years, their effects on her credit score lessen over time.

People with low credit scores can find obtaining any kind of credit a daunting task. Credit card companies, mortgage lenders, bank loan departments and auto loan firms all frequently deny credit to individuals with low credit scores. Cable and cellular phone companies often run credit checks on new customers, and may decline service to people without satisfactory credit histories. Additionally, having a poor FICO score can lessen a person's chance of obtaining a job or a rental dwelling, as employers and rental agencies frequently run credit checks.

Having a good credit score is crucial to an individual's financial success. A person with bad credit can improve his FICO score by obtaining a secured credit card that reports to the major credit bureaus every month and using it to make small purchases, paying off the balance once per month, says MSN Money, a personal finance advisory website. Another way a person can fix his credit score is by paying down balances on existing credit cards.

How Does a Company Determine Your Credit Score?

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Your credit score is determined not so much by a company but what a company sends to credit reporting agencies about your credit practices. There are three credit reporting companies that will use information about you; Experian, Transunion, and Equifax. Each one of these uses a system devised by the Fair Isaac Corporation (or FICO, as you probably know it). The system takes into consideration five elements when determining your credit score.

One of the most important things considered in determining your credit score is how well you pay your bills. This is called your payment history and makes up about 35 percent of your credit score. Everything from your cell phone bill, loans, utility bills, mortgages, and revolving credit is looked at in factoring in your payment history.

10 percent, one of the smallest portions of your credit score, focuses on what kinds of credit you hold. If you hold only a vehicle payment, that is likely not enough. In order for the credit reporting companies to see all of your credit practices, a variety of credit is needed. Mortgage, rent, utilities, and revolving credit are all gathered to create your credit score. Credit reporting companies also look at how active those accounts are.

How long you've had a credit history makes up 15 percent of your credit score. Credit reporting companies don't only look at the activity but they also take into account when an account was opened, whether or not it is still open or has been closed and the activity that went on or is currently taking place. A short credit history may receive a lower score than someone who has a longer history.

Factoring in how much outstanding credit you have makes up 30 percent of your credit score. The reporting companies look at balances still open on your credit history, what is owed on those balances and whether or not it is a secured account or unsecured. Being able to maintain a low balances on all accounts and having a low debt to income ratio can yield you a higher credit score.

The remaining 10 percent of your credit score is achieved by accounting for the new credit you may have. Rapidly opening new lines of credit be it revolving credit, loans, or incurring new monthly payments can lower your credit score. Pace yourself when opening new lines of credit. Credit reporting companies and lenders may consider you a risk if numerous accounts are opened and rapidly approach their max.

Fastest Ways to Raise Credit Scores

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Your credit score, also known as your FICO score, is determined by a formula developed by the Fair Isaac Corporation. Thirty-five percent of your score is comprised of your payment history; 30 percent is determined by the amount you owe; 15 percent is determined by the average age of your credit accounts; 10 percent is determined by the number of inquiries; the final 10 percent is determined by the different types of credit you use. While raising your credit score can take time and dedication, there are several ways to raise your credit score quickly.

The fastest way to raise your credit score is to capitalize, if possible, on the good credit of others. If you have a family member or friend whose credit card has been open for a long time and has a history of on-time payments and/or a high limit with a low balance, you can ask to be listed as an authorized signer. Authorized signers get the full benefit of the credit history associated with the credit card. When this account shows up on your credit report, it can increase your average age of credit (15 percent of your score), help your payment history (35 percent of your score) and decrease your debt-to-credit ratio (30 percent of your score).

Thirty percent of your score is determined by how much you owe. When you are given a loan or credit card, you are offered a maximum amount to borrow. If you borrow the maximum amount, then your debt-to-credit ratio is high and your credit score is lowered as a result. If you distribute debt across several credit cards and/or pay down your debts so you owe less than the amount of money available to you, this will raise your credit score. In other words, charging $50 to each of two credit cards is better for your credit score than charging $100 to one card only. You can distribute debt using balance transfers, although there is usually a fee associated with this, and you should never open new cards to do so since that lowers the average age of credit and counts as an inquiry.

Even a single payment that is 30 days late can lower your credit score significantly, since payment history makes up 35 percent of your credit score. If you are a current customer of a creditor, have a good relationship, and have made no late payments recently, you may wish to call the creditor and ask if they would be willing to remove any late payments from your record. Some creditors do this as a one-time courtesy to customers that usually pay on time but have a single late payment.

Will Getting an Auto Loan Improve My Credit Score?

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Your FICO credit score is a number between 300 and 850 that helps lenders decide how risky it is to lend you money. Everything that is reported to credit bureaus, including auto loans, can improve or worsen your credit score, depending on how you handle it.

Immediate effects of the auto loan will include small penalties on your credit score for the credit inquiry and the new credit account, and a small increase in your credit score for more types of credit. Your credit score can improve over time if you make all your payments for the auto loan on time.

Shop for an auto loan during a short time frame to reduce the immediate penalty on your credit score for credit inquiries. If your inquiries are within 14 or 45 days of each other, depending on the FICO scoring model the lender uses, they will be counted as just one inquiry.

If your lender has a system in place for setting up automatic payments on your auto loan, arrange to have your monthly payment automatically deducted from your checking account. Missing a payment on your auto loan can hurt your credit score.

How to Gain 200 Points Fast on Your FICO Score

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Building a good credit score takes careful action, time and persistence. But, that doesn't mean you can't raise your score fast before you need to qualify for a personal loan, mortgage or job. There are several ways to quickly get negative marks on your credit report removed, make yourself look like a more dependable borrower or both, all within a month.

Instructions

Order a credit report from each of the three major credit bureaus (Equifax, Experian and Transunion) to get a clear and accurate picture of what's effecting your score. Check the report closely for any false information or errors that are bumping your score down. Any late payments, charge-offs, collections, incorrect credit limits and accounts still listed as unpaid could hurt your score tremendously, so fix them as soon as possible.

Call your creditors and ask them to erase the last late payment on your credit history. If the payment was made late by 30 days or less, and your history with that lender has been favorable for a while, they are likely take it off your record.

Pay as much of your balance as you can. The balance of your account is reported each month by your creditor to the credit bureaus. If you pay 20 days before your actual due date, then your payment is subtracted from the total balance before it is reported. Especially if you are paying 50 percent or more of the total balance, this will significantly raise your score within a month.

Use an old credit card that has no balance. If you haven't used one of your credit cards for six months or more, it's likely the company is reporting the card as inactive. This means your length of credit, limit and record via that card aren't factored into your score. Just using the card again and paying off the total balance early can raise your score quickly.

Does an Incident With the Collections Agency Go on Your Credit

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Collections agencies can go after any outstanding debt, even one less than $100, and report to the credit bureaus. Avoid a collections account if possible because they can destroy even the best of credit scores. It is possible to remove a collections account from your record but not by dealing with any debt collector.

If a creditor refers your account to a collections agency it will often appear on your credit report because the credit bureaus actively search public databases for notification of a collections account. Unless you already have bad credit with multiple collections accounts, an account reported in collections will probably lower your credit rating by 100 points or more.

Debt collectors are not just for credit cards. Anybody you owe money to can send the bill to a collections agency. Even minor infractions, such as fines from forgetting to return a library book or a parking ticket can be reported. Small items like these could cost you thousands when you apply for large loans, such as a mortgage or auto loan.

Outstanding accounts will affect your credit for seven years, even if you pay them off. The status of a collections account, whether open or paid, has no affect on your credit score. The date a collections account falls off a record depends on when the creditor reports it as delinquent, not when you took the loan or received the fine.

You might be able to remove a collection account from your report before the seven-year time limit by negotiating repayment. Only the original creditor, however, has the authority to do this. Consider offering to pay the debt to the original creditor if he disputes the account with the credit bureaus. Make sure to get in writing that the account will be reported as "paid as agreed" to force the company's hand before settling the debt.

Before paying any debt, review your state's laws on debt collection. You do not have to pay a debt after a certain number of years, usually four to six. Paying an old collections account, while ethically right, will reaffirm the debt and restart the clock on the account.

Can Being on a Title for a Foreclosed Home Affect My Credit?

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If your name is not on the mortgage, but you are on the title or deed, your credit is not affected. The credit reporting bureaus only receive credit information on the original borrower. Even though you are not responsible for the mortgage, a foreclosure affects you too. If the bank takes back possession of the property, you lose interest in the home as well.

During the mortgage application process, the bank only recognizes the borrower or the person who signed the loan documents as being responsible for the mortgage. Therefore, if you were not part of the mortgage application process as a co-borrower, you have no financial responsibility to pay the mortgage.

Getting a mortgage generates a credit reporting event for the borrower. However, because you are not named as a co-borrower on the mortgage, this does not affect your credit report or credit score. Thus, a foreclosure shows up on the borrower's credit report and not on yours.

Even if the deed names you as having an interest in the property, you are not obligated to make the mortgage payments. However, a quitclaim deed transfers interest in the property to another party. As the grantor, the borrower must have the deed notarized and filed with county recorder's office. In many cases, a quitclaim deed requires refinancing the property into your name as the remaining owner on the property, making you responsible to pay the mortgage.

If you live in one of the nine community property states, whether you signed loan documents or not, a quitclaim deed relinquishes your ownership rights to the property and your responsibility for the mortgage.

Even though you are under no financial obligation to make mortgage payments, you are at the mercy of the borrower. If the borrower defaults, the lender has the right to pursue a foreclosure option to recover its losses. Not only does the borrower lose his interest in the property, but you do as well. If a "power of sale" clause exists in the mortgage or deed of trust, the borrower essentially gives the bank permission to sell the home to avoid a judicial foreclosure process.

How to Find Out What a FICO Credit Score Is

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A FICO score is a credit rating that was created by Fair Isaac Corp., a company that specializes in "decision management." The FICO score is comprised of five variables: types of credit used, new credit, length of credit history, payment history and amounts owed. Your FICO score is an important number because it can influence such things as whether you can open a bank account, get a mortgage and purchase a new car.

Instructions

Navigate to a credit reporting company website. There are three companies that provide access to your FICO score: myFICO.com, TransUnion and Equifax. TransUnion and Equifax provide credit monitoring services for which you must sign up at a monthly fee, but if you wish only to check your FICO credit score, you can do so through myFICO.com, which is a website run by Fair Isaac Corp.

Choose the credit reports you wish to receive. You can choose the TransUnion FICO report, the Equifax FICO report, or both through the myFICO.com Web page. Each report costs $15.95. TransUnion and Equifax give you access to credit reports from Equifax, TransUnion and Experian, as well as your FICO score.

Create an account. Regardless of the service that you choose, you must create a personal account through the Web page. You must supply your name, address, Social Security number, date of birth, e-mail address and gender.

Submit payment information and complete the transaction. Once you have created a personal account, you must submit your payment information to complete the transaction. You will receive your FICO score after you complete the transaction.

How to Request Credit Scores

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Your credit score dictates how easy or difficult it will be for you to obtain credit. Perhaps even more important, your score can also affect the interest rate you will pay to lenders and credit card companies. The lower your credit score, the more interest you will likely pay and the harder it will be to get credit. Although the three main credit-reporting agencies are required by law to supply a free copy of your credit report every 12 months upon request, they can charge you a fee to see your score.

Instructions

Visit www.annualcreditreport.com. The three credit-reporting agencies---Experian, Equifax and TransUnion---set up this website for consumers to order their free annual credit report. You can use it for purchasing credit scores. You can also visit the three agencies' websites separately to purchase your credit score (see Resources).

Provide your name, current mailing address, Social Security number and date of birth. You'll also need to give your previous address if you have lived at your current residence for less than two years.

Select one or more of the three credit-reporting agencies. You'll be redirected to the agency's site to answer further security questions and see offers to purchase your credit score.

Pay the fee to see your credit score.

How to Get a FICO Score From Equifax

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Consumers are entitled to a free copy of their credit report every 12 months; however, the credit bureau does not provide the FICO score (credit score). If you want to view your FICO score from Equifax, your best option is to deal with Equifax directly, rather than a third-party provider. The Equifax product you'll need is called "Score Power," which includes your Equifax FICO score and report; the standalone FICO score is unavailable unless you are ordering your free annual report.

Instructions

Visit the Equifax website (listed in "Resources"), and click on "View All Products." Scroll down to the bottom of the page and select "Score Power."

Click on "Buy Now" to order your FICO score from Equifax. Enter your name, address, telephone number and email address. Click "Continue" when you are finished.

Enter your social security number and date of birth. Choose an online username and set up a password that is six to 20 characters. Click "Continue" when you are finished.

Enter your payment information. You must pay for the report with a valid credit or debit card. Enter the card number and the expiration date. Click "Continue" to process your order. Wait for the order to process.

Click on "View My Product" to view your Equifax FICO score. The Score Power option also includes your credit report; you can scroll down and click "Credit Report" to view it.

Does Credit Card Limit Increase Affect Your Credit Score?

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Typically, a credit card limit increase will have positive effects on your credit score. Higher limits reduce your debt utilization ratio, which is important in credit score computing. You have to weigh these benefits against the potential risks of increasing your debt considerable if you do not manage it well.

Credit card limits are initially determined based on your credit rating at the time of application, your current debt, and factors common to that credit card provider. Over time, limits are increased, either at the discretion of the provider, or at the request of the card holder. Some providers periodically raise limits to encourage you to use their cards. Once you have a proven reputation with a card provider, you can send a letter asking for an increase.

Your individual credit score is assigned by three separate reporting bureaus --- Equifax, Experian and TransUnion. Each agency has its own scoring system, but they are all modified from the FICO scoring model, which originated from the Fair Isaac Corp. Debt utilization is a main factor in the scoring model. According to MyFICO, "amounts owed" accounts for 30 percent of your score. Length of credit history and payment factors make up around 50 percent. New credit accounts and types of accounts contribute 10 percent each.

Debt utilization is the percentage of your available loan limits that are currently in use. For instance, if you have $50,000 in available credit line and credit card limits, and only $5,000 in use, you have a 10 percent debt utilization. This is very good. Typically, a utilization below 30 percent is perceived as good by lenders. Lenders assume that, if you are not using much of your available loan limits, you are a responsible borrower, and not one desperately seeking new credit when you are already overwhelmed.

Some consumers looking to repair damaged credit or build a higher credit score do not wait for credit card providers to take action. Often, if you maintain consistent payments and establish good history for at least six months, you can ask for a credit limit increase. Typically $500 to $1,000 is a reasonable limit increase to request. Know your spending habits, though. If you are concerned about your ability to avoid overspending, you might not want to gain access to more borrowing potential, even if it boosts your score a few points.

How to Report an Incorrect Account on Your Credit Report

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Removing erroneous information from your credit report is a critical step in maintaining your financial integrity. Luckily, disputing errors is usually a straightforward process that can help restore your credit rating. Whether you choose to dispute incorrect items online or through the mail, credit bureaus are ready to handle your disputes by performing investigations and correcting your credit report in a timely manner if information is incorrect.

Instructions

Obtain your current credit report. The easiest way to do this is by going to annualcreditreport.com. The federal government has contracted with this site so that consumers may receive one free credit report from each of the three credit bureaus--Equifax, TransUnion and Experian--each year. The site is secure, but if you're concerned about privacy, you may have your social security number blocked from the report that appears on the computer screen. You may also request a copy of the report be mailed to you rather than viewing it on a computer.

If you've been denied credit or are on welfare, you are eligible to receive an additional free credit report, according to the Federal Trade Commission (FTC).

If you've already received your report this year, you may pay to receive another one. The cost is usually between $10 and $16 per report. You will likely have to pay extra if you want your credit score.

You may also obtain your report by calling the credit bureau directly. You will be able to pay for the report with a credit card over the phone.

Contact information for the credit bureaus:

Equifax
P.O. Box 740256
Atlanta, GA 30374
(800) 865-1111
www.equifax.com

TransUnion
P.O. Box 2000
Springfield, PA 19022
(800) 888-4213
www.transunion.com

Experian
P.O. Box 2014
Allen, TX 75013
(888) 397-3742
www.experian.com

Note any errors on your report. Scour your report for information such as incorrect balances, accounts that are current but are reported as delinquent and unfamiliar items that you feel may be the result of identity theft or fraud. Anything that raises a red flag in your mind should be noted.

File a dispute claim online if you found errors. When viewing your report online, you will be able to choose to dispute erroneous information by using a simple application on the website. You will be able to select the accounts in question and provide a reason you think they are incorrect. The system will generate one dispute for all items in question and notify you by email when the investigations are complete.

Contact the credit bureaus in the mail by submitting a detailed letter and, if you can, proof that there's an error. The FTC recommends submitting a letter directly to the credit bureau(s) because you will be able to provide critical documentation to prove that information is erroneous. Information such as credit card statements, letters from creditors or bills from debt collectors can be used to correct information.

The dispute letter should contain your name, contact information and all the information that is incorrect on your report. Include the creditor's name, amount in question, applicable account numbers, reason the item is incorrect and what the correct information should be.

If you feel your identity has been compromised, request that the credit bureau put a note on your account stating that you may be a victim of fraud. This "fraud alert" will halt applications for credit cards or other forms of credit unless you have authorized them.

Wait 30 to 45 days for the credit bureau to complete the investigation and update your credit report. Disputes filed online will be handled within 45 days. Mailed disputes will be completed within 30 days of the receipt of the dispute letter.

How to Increase a Credit Score Using the Piggyback Method

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The "piggyback" method of increasing credit scores is a useful tool to know about for someone needing to build credit and increase scores. This happens when someone adds you as a signer or authorized user on their credit card account (you wouldn't actually have use of the account). When the account is reported on your credit report, the card owner's entire payment history of that particular account shows up on your credit report, and is reflected in the scores. If the card owner has a long history of low balances and timely payments, the authorized user's scores will be increased.

Instructions

A college student may not have had time to establish very much credit. Just after graduation, he discovered that a good credit history or particular score was needed to rent his first apartment. His only account had a year of history, and he was taking good care of it, but it wasn't enough. He might talk with his dad (or other person with a great credit history who is willing to help) to discuss what he needed, and ask to be added to one or more of Dad's credit card accounts.

Find out the date that the user/signer was added to the card owner's accounts. This is assuming Dad has agreed to add the authorized user/signer to his accounts, had called his creditors and followed their directions for adding a signer/user.

Count 45 days from the date Dad added the user/signer to his account. Request new credit reports with scores from all three bureaus: Equifax, TransUnion and Experian.

View new additions to credit reports and scores. If not enough time has lapsed since being added, wait another 30 days. Request new, updated credit reports. Some card companies are not as diligent as others in reporting accounts per agreement with the bureaus.

Continue to take great care of the existing account, paying early to maintain a great credit history. With the added accounts, the scores should be boosted sufficiently.

How to Get Credit Wiped Clean

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It's possible to wipe your credit rating clean rapidly without breaking the law or hiring a specialist. You can pay your creditors to delete charged-off credit cards, delinquent accounts, unpaid bills and any other negative entry from your credit rating. If you have spare cash, you can repair your credit instantly without going through the laborious process of waiting for negative entries to drop off of your credit report and using secured credit cards to build your credit score back up slowly.

Instructions

Read your credit reports from the three major credit bureaus (TransUnion, Equifax and Experian). Find the negative entries that you would like removed. Make note of the creditors and their contact information. The only negative item that you can't remove from your credit report is a bankruptcy, but anything else is open to negotiation.

Contact the creditor by mail or over the phone and request a "pay for delete" on the entry. If the amount owed is under $500, you can increase your chances of success by offering the full amount in return for a deletion. If the amount is larger, start by offering 10 percent; move up from there if you're denied. Make sure that you request that the deletion occur within 10 to 30 days of the company receiving your payment.

Await a reply from the creditor. Once you receive its agreement, send payment promptly as agreed. You can use a check or even a money order if you don't want your creditors finding out where you keep your bank accounts.

Monitor your credit report to ensure that the creditor follows through with your agreement. In most cases, it will follow through promptly, but it usually takes 30 days or more for your credit report to update.

Improve your credit score by paying bills and making loan payments on time. A credit report clean of negative entries will improve your chances of being approved for affordable loans and credit cards, but a good credit history is necessary for building your score over the long term.

How to Get a Loan in the USA With a Low FICO Score

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When lenders determine if a loan applicant is creditworthy and willing to comply with the terms and conditions of a loan agreement, they usually evaluate your credit reports. If the reports show a history of late or missed payments, you'll need to explore a variety of loan options and pursue the one that offers the greatest chance of being approved for credit.

Instructions

Obtain a copy of your credit report and credit score through one of the three major credit reporting bureaus -- Experian, Equifax or TransUnion.

Itemize your tax returns for the previous two years, along with paycheck stubs and checking and savings account statements. Order from the oldest to most recent and request originals from the Internal Revenue Service or your employer if any documents are missing or in poor condition.

Apply for a secured loan if you have an asset to back the full loan amount. Secure your loan with collateral such as an auto loan title or a real property deed.

Find a cosigner or coapplicant if you do not have collateral. Apply with a creditworthy applicant who has a high credit score and favorable payment history. The lower the coapplicant's delinquency rate, the higher your chance for approval.

Review the terms and conditions of the loan with your lender. Ask when your first payment is due and the length of time you have to repay the loan. Inquire about interest fees and early repayment penalties. Sign and date the loan with your cosigner.

Ways Your Credit Score Takes a Hit

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The Fair Isaac Corporation is the company that created FICO, a commonly used credit score. The exact mathematical formula that calculates the three-digit number used in the score is a closely held secret. Although there is no way to know exactly how much something affects your credit score, it is possible to know what general criteria will make your credit score drop.

Every time a creditor looks at your credit file to determine if it wants to grant you credit, an entry is made in your credit report. If you have too many people looking into your credit report, your credit score will drop. The reason that you are less creditworthy because of these inquiries is that the potential creditor may think that you have been trying to obtain too much new credit and this could be a sign of financial problems.

One of the biggest things that can make your credit score drop is late payments. If you are paying one or more of your payments late, you have financial trouble. This is particularly true if you are late on multiple payments, as the credit score may view one payment past due as an oversight on your part. The more recent the late payments are, the more impact they will have on your score. Also, 60- and 90-day late payments will make your score drop more than 30-day late payments.

If your balances on credit cards are too high in relationship to the available credit, the result will be a drop in your credit score. You should try to have balances on your credit cards that are no higher than 35 percent of your available credit. If you have a credit card with a $2,000 limit, you should carry a balance no higher than $700 to optimize your score. The credit card company usually reports statement-ending balances, but some cards may report your highest balance at any time during the month. If you are in doubt about how your credit card reports balances, check with your credit card company.

Many local and state governments are turning over unpaid fines for anything from parking tickets to overdue library books to collection agencies for collections. The $20 parking ticket or the $5 overdue library book fine can be a big problem when it goes to collections. If the collection agency lists the unpaid fine on your credit report as a collection account, you may see your credit score drop more than 100 points. Always pay you fines on time, and if you receive notice from a collector about a fine, take care of it as soon as possible, either by paying it or disputing it if the fine is not yours.

How to Remove Chapter 13 From Credit Report

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Bankruptcy can cause long-lasting damage to your credit score. Many lenders will see this as a red flag, and refuse any loan requests. Thanks to the Fair Credit Reporting Act, you have the right to challenge any information that you believe to be inaccurate. They must investigate and remove anything they find to be false. Using this strategy, you should be able to expedite the removal of a Chapter 13 bankruptcy from your credit history as long as it has passed the necessary seven years.

Instructions

View your credit report online at AnnualCreditReport.com. You can view all three major credit reports for free once a year (Equifax, Experian and TransUnion). This will confirm if the bankruptcy is in fact present on your credit history.

Send a registered letter to each of the three credit bureaus requesting the removal of the bankruptcy. Include copies of legal documents proving that enough time has passed and the information should be removed. They have to respond to the request within 30 days unless it is considered frivolous. If the information is correct, you should have little problem getting them to correct it.

Ask for a list of anyone who has received your report in the last six months. You can request that a copy of the dispute be included in your credit report, or can have a corrected report sent to anyone in the last two years who have received your report for anything job related.

View your credit reports again. Most of the time the information will be corrected without much hassle, but sometimes it can reappear on your account. Viewing your reports after a change has been requested does not use up your free yearly report option, so be sure to verify the changes have taken place.

About Credit Reports & Scores

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If you do not know how credit reports and scores work you are not alone. Most Americans do not understand the credit scoring system, according to a Frontline report from the Public Broadcasting Service. Your credit rating can determine whether you get a mortgage and possibly even a job, so it is helpful to understand how it works. The first step to maintaining or building good credit is to obtain a copy of your report.

Credit reports are a collection of data reported by your lenders. The credit rating agencies, however, do not own the scoring system preferred by many lenders: the FICO model. The FICO credit score formula is not made public, so you cannot pinpoint the exact effect of any specific financial activity on your score. The three-digit score, which ranges from 300 to 850, rates how likely you are to default on a loan. For example, according to the Carreon and Associates website, the odds are 2.25-to-1 that a consumer with a score of 585 will miss a payment.

Technically, the credit agencies can report any account as long as the creditor making the report subscribes to the reporting service. But the subscription is too expensive for small-time providers, such as apartment complex landlords. Utilities companies report to the bureaus in some states, but most states do not allow them to share private customer data. Also, creditors are not obliged to report to all three major bureaus, so you should ask lenders which bureaus they report to.

The Fair and Accurate Credit Transactions Act (FACTA) requires the credit reporting agencies to allow everyone to obtain a copy of his credit reports once a year for free. As of 2011, AnnualCreditReport.com is the only website that can provide you with a free annual report. Your credit report, however, does not include the FICO score. You might see offers for a free credit score, but it typically comes with a catch, such as requiring you to try out one of the agency's other services.

Three agencies -- Equifax, Experian and TransUnion -- perform most of the consumer credit reporting in the U.S. They have licensing agreements with the Fair Isaac Corporation (FICO) to develop proprietary scoring models based on the FICO standard. Equifax calls its score a Beacon, Experian has a Experian/Fair Isaac Risk Model score and TransUnion has the Empirica. In 2006, to try to win business from FICO, the three major credit reporting agencies introduced VantageScore. The agencies also sell "educational" scores based on models they developed themselves.

Does Getting Audited by IRS Affect Your Credit?

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A letter from the Internal Revenue Service that informs you of an upcoming audit is not something most consumers want to receive. Owing money to the IRS is never a good thing. The agency has extensive collection powers and can seize your assets without a court order. If you're facing an audit by the IRS, it's prudent to understand how such an audit could impact your credit.

Your credit score is based upon your credit report. The information in your report is reported to the bureaus by creditors. The Internal Revenue Service does not extend credit to consumers. An audit by the IRS is an assessment by the agency to ensure you've paid all of the federal taxes that you owe. The IRS auditor will look over your financial records and ask you questions based upon those records, but the IRS does not report the audit, nor information discussed during it, to credit bureaus. The results of an audit, though, could ultimately have an impact on your credit, depending on whether you have a debt to the IRS, and if so, how you handle it.

If an IRS audit determines that you owe the federal government more money, the agency will require you to pay that amount. The IRS allows you to set up payment arrangements for past-due tax obligations. The agency also accepts what is known as an Offer in Compromise, which allows you to pay less than the total amount of your tax bill if you meet certain conditions, such as experiencing a financial hardship. Approval for an OIC isn't automatic. You will have to apply to the IRS and find out if the offer is accepted.

Although the IRS does not extend credit to consumers, if you fail to pay a tax obligation, or to make arrangements with the IRS for payment of the debt, the agency can place a federal tax lien against you. A tax lien will appear on your credit report as a public record. Public records are derogatory items to have on a credit report and will lower your FICO credit score. How much it lowers the score depends upon the other items in the credit report.

If you have an outstanding tax bill, or if you're facing an audit by the IRS, the agency has a division that may be able to offer you assistance. The Taxpayer Advocate Service is an independent organization within the IRS that assists consumers with tax problems. Their services are free and they have various offices set up around the country. The organization assists both consumers and businesses in handling their IRS tax problems, and may have information on tax solutions that you didn't know were available to you.

How Long it Takes to Improve a Credit Score

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Credit score problems are common, with 30 million Americans struggling with low scores, as of 2010, according to.Liz Pulliam Weston of MSN Money. However, credit records are constantly updated based on a person's recent financial activity, so scores improve as a person regains financial control. Certain actions raise the credit score more rapidly than other steps a consumer takes.

Every consumer who uses credit has three-digit credit scores compiled by companies like FICO, Experian, Equifax and TransUnion. FICO originated the credit score concept, and the other three companies are credit bureaus that provide financial reports on consumers to lenders when the consumer applies for credit. Scores are calculated based on data in each consumer's credit reports. Higher scores make it easier to get credit and help a person qualify for lower interest rates. Low scores interfere with the ability to get financing and subject borrowers to high subprime interest rates.

Credit scores are based on certain types of information. For example, FICO bases 35 percent of its score on a person's payment history for loans, credit cards and other accounts; 30 percent on amounts owed on all accounts; 15 percent on the length of time the person has used credit; 10 percent on the different types of accounts used, such as revolving lines and installment loans; and 10 percent on the number of recently opened accounts.

Some actions improve a credit score quickly, while others take time. FICO states that timely payments raise the score. There is initial improvement, and the score continues to benefit as long as the person maintains a good record. Lower credit card balances raise the score, too. A person who can pay down the amounts quickly gets a fast benefit, but it takes time for some cardholders to bring down high debts. This still improves the score, but it takes many months. Weston recommends keeping balances below 30 percent of the available credit limit to maintain the progress.

One way to quickly improve a credit score is to eliminate inaccurate negative items from the credit report. The Federal Trade Commission explains that consumers can check their reports for free every year through annualcreditreport.com. Harmful mistakes can be reported to the bureaus through their online dispute forms. They must investigate within 30 days and purge unverified data from the file, which brings up the score once the information is gone. Negative information that is accurate does not have to be eliminated.

Credit score improvement can quickly be undone by a few mistakes, FICO warns. For example, a consumer who is making prompt payments and maintaining modest balances can drop the score just by missing a few due dates or suddenly opening several new accounts.

Tips for Fixing Your Credit on Your Own

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A good credit history allows you to get mortgages and auto loans at lower rates. Credit repair companies make promises to help improve your score, but these companies often charge fees for their services, and instead of improving your credit, they simply teach you how to manage your credit better. Rather than use a professional service, consider ways to fix your credit on your own.

Carrying a low balance on your credit cards or paying off your balances completely with each statement can significantly improve your credit score. The amount you owe creditors plays a huge role in credit scoring, as this single factor makes up 30 percent of your FICO credit score. Getting rid of balances and keeping credit card balances below 30 percent of your credit limit looks good from a lender's or creditor's standpoint and helps you qualify for loans.

Forgetting a payment will likely end in a late fee from your creditor, and if you're more than 30 days behind on a bill, creditors report the delinquency to the credit bureaus. Negative information of this sort can trigger a drop in your credit score and rejected credit applications. Because payment history makes up 35 percent of a credit score, sending payments by the due date helps fix your credit rating. To avoid late-arriving payments, consider paying online early using online payment systems, or mailing a payment immediately when you receive a statement.

Checking your own credit profile does not lower your score. In fact, this move is recommended by the Federal Reserve to help you fix your credit rating. Low ratings caused by creditor mistakes, identity theft and outdated information contained in your credit report can stop loan and credit card approvals. Get your free report once a year from annualcreditreport.com. You are entitled to one free copy of your report each year from all three major credit bureaus.

A bankruptcy seriously hurts your FICO credit rating. Fixing credit on your own calls for rebuilding your credit history and raising your personal credit score. Ways to repair the effects of a bankruptcy discharge include getting a secured credit card from your bank and paying the security deposit -- around $500 -- to secure the line of credit. Another option involves applying for a credit card for people with bad credit or getting a subprime auto loan. Managing these accounts -- by making timely payments and keeping debts low -- will help you fix your credit score.

Does it Hurt Your Credit to Have Multiple Savings Accounts Open?

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Credit ratings can seem mysterious and arbitrary; many people wonder what factors contributed to the three-digit number that plays such an important role in financial determinations. Yet credit ratings are anything but arbitrary; they're carefully calculated figures based on a number of factors in your financial history. If you're applying for a home loan, auto loan or new apartment, it's worth taking a look at your credit to see where there's room for improvement. Having multiple savings accounts open rarely hurts your credit, but it's possible that they're affecting credit in other ways.

Lenders, landlords and potential employers take a look at your credit to evaluate the financial risk they're taking on in doing business with you. High credit scores indicate that consumers have low income-to-debt ratios, make more than the required minimum payment on credit card balances or loans, or have long, positive relationships with creditors. Low credit scores may indicate that consumers have missed payments, high debt loads compared with income, or have balances that have been turned over to collections. Good credit often translates to preferred interest rates on loans and higher balance limits.

Checking and savings accounts can help consumers with little credit begin to establish credit history, demonstrating a basic understanding of the fundamentals in personal finance to landlords and potential employers. Checking accounts with a positive balance show that you've mastered the concept of cash flow, spending no more than what's available and using checks or online banking to pay bills. Savings accounts demonstrate that you're taking the future into consideration by putting away money to meet financial goals or obligations.

While holding open checking and savings accounts with positive balances helps show financial stability to individuals running a background check, they don't necessarily help or hurt your credit. Checking accounts can sometimes run the risk of hurting credit because consumers who spend more than their available balance may be turned over to collections for bounced checks or overdraft protection mini-loans from the bank that aren't repaid within a specific time frame. Additionally, banks may run credit checks on new customers seeking a checking account to determine the risk of offering that overdraft protection. Multiple credit checks can wind up hurting credit over time since it may appear as if a consumer is scrambling to amass credit availability. If savings accounts aren't linked to debit cards or personal checks, it would be less likely that banks would run a credit check on potential customers.

While it won't directly hurt your credit to have multiple savings accounts open, taking a look at your big-picture finances can help address this topic more deeply. If you have thousands of dollars socked away in multiple savings accounts, but also have thousands of dollars in credit card debt rapidly accumulating interest, the latter could potentially hurt your credit. Depending on your situation, it may help your credit to use some of those savings to pay down credit card debt, lowering your overall debt-to-income ratio and perhaps helping your credit.

How Often Can a Collection Agency Pull My Credit Report?

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When a company or individual pulls your credit report, a record of the inquiry appears on your credit profile. Some entities and individuals, such as an employer or landlord, must obtain your permission before pulling your credit report. However, other entities, such as credit card companies or debt collection agencies, can legally access your report without prior consent.

Under the Fair Credit Reporting Act, companies and individuals must have a permissible purpose for viewing your credit report. That is, you must initiate a credit-based business transaction with the company, or it must have a current credit-based account in your name. This law also applies to collection agencies. A collection agency that owns a debt in your name has permissible purpose to pull your credit report. There are no limits on how often companies with permissible purpose can pull your credit report.

All credit inquires are not equal in how they are reflected on your credit report. Some inquiries can damage your credit score, while others do not. Soft inquiries, which result from background checks, pre-approved credit offers and current credit or financial accounts in your name have no effect on your credit report. Hard pulls, which result from applying for a loan or new credit accounts, can lower your credit score up to five points, according to LendingTree. Collection agencies usually make hard pulls on your credit report, which is perfectly legal under the Fair Credit Reporting Act. Even though a single hard pull lowers your credit score a few points, multiple hard pulls can be detrimental to your credit score.

If a debt collection agency makes an erroneous hard inquiry on your credit, you have the right to file a complaint under the Federal Credit Reporting Act. The collection agency must either provide proof that you own the debt or remove the hard inquiry from your credit report. If the debt collection agency fails to remove erroneous inquiries, you also have the right to sue the collection agency within one year of the violation in federal or state court. According to the U.S. Federal Trade Commission, the judge can order the collection agency to pay up to $1,000 in damages, in addition to your attorney fees and court costs, if you win your case.

Although hard inquiries from debt collection agencys damage your credit score, they lower your score for only a short period of time. Unlike other types of debt collection information, which stays on your credit history for a minimum of seven years, hard pulls appear on your credit history for a maximum of two years. Additionally, the scoring model most lenders use factors hard inquires into your actual credit score during the first year only, according to Bankrate.com.

Is Six Months a Reasonable Time to Improve Your Credit Score?

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It can take years to build up a good credit profile, but a few missed payments could destroy all that positive information. If you work at the most important areas of the FICO score formula, it might be possible to return to a good credit score within six months. Some people might improve their score instantly.

Reviewing your credit report for errors is the the fastest way to improve your credit score. Eighty percent of reports contain some kind of false information. If you dispute an item and the credit bureaus uphold your claim, your score will improve immediately. How much improvement you see from correcting an error depends on its seriousness. Removing a collections account that belongs to someone else could raise your score up by 100 points or more, but removing an unauthorized inquiry will have almost no impact on your score.

If you have no errors on your report, you can still improve your credit score in six months. In this short period, you can only alleviate minor items dragging down your score, such as a few late payments or the existence of too much debt. Serious problems, such as bankruptcy or foreclosure, take much longer before you can become creditworthy again.

Several factors in the FICO score formula are dependent on time, such as the average length of credit history and the length of time since the last negative item, and they usually cannot be altered in six months. If you already have minimal debt and a good payment history, you probably have excellent credit, so not much improvement can be achieved.

Generally, you can influence your credit score most by paying your bills on time during the next six months, paying down as much of your debt as possible and waiting to make any large purchases on credit. Strive to use less than 10 percent of your credit line, although less than 35 percent is still acceptable. You can ask your credit card issuer for a limit increase to lower your debt-to-credit ratio without having to pay down any debt. If you have any dormant accounts, consider making a small purchase with them rather canceling the card.

Maximum Credit Rating

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A perfect consumer credit rating is so rare that even some credit rating agency executives, such as Maxine Sweet of Experian, have never seen one. Not only is a perfect credit rating practically impossible, it serves little benefit. Getting close to the perfect score gives you just as much opportunity.

The FICO score model, used since the 1970s, has a maximum rating of 850, according to the Government Services Administration. A new credit scoring model developed by the credit rating bureaus during the first decade of the new millennium -- called VantageScore -- has a maximum score of 990.

Nobody knows the FICO score calculation except for a few high-level executives in the credit rating industry, so there is no specific route to get the perfect score. To get an 850, you could never miss a payment and only use credit sparingly. Also, most people with a credit score over 800 have a credit history going back several decades.

Even if you did have an 850, you would have the same loan approval rate and interest rate as someone within 100 points, according to MSN Money Central. Once you get above 770 on the FICO range lenders lump everyone into the same tier of scores. In practice, scores above 825 are the most you can get.

Another step in achieving a perfect score would involve getting credit without a creditor pulling your file -- hard inquiries ding your score a few points, according to Mint.com. Consider adding yourself to someone's existing account. You can often get a credit limit increase just by asking. Make sure you pay your bills on time and do not use more than 25 to 35 percent of your available credit.

Purpose of Credit Bureaus

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A credit bureau, or credit reporting agency, provides the first introduction between you and potential lenders, insurance agencies, employers and landlords. The primary purpose of the credit bureau is to provide insight into your character and your creditworthiness. The credit bureau accumulates this information from companies that you have---current or prior---credit relationships with. In addition to your credit history, a credit bureau will also provide any information from government agencies and other public records (i.e. collections, bankruptcy, convictions).

Every consumer has a credit report. You can think of your credit report as your financial fingerprint because it is distinctly yours and it originates the minute you use credit. The information that a credit bureau acquires from your credit relationships will serve as the foundation of your credit report. However, your credit report does not just stop at financial information; it will also contain all of your past dwellings and employers. (See Resources.)

There are three major credit reporting agencies used, TransUnion, Experian and Equifax. When your credit report is pulled by someone who needs to determine how creditworthy you are, he will consider all of the information in the report, but the credit decision will weigh heavily on your FICO score.

Your FICO score is a three-digit number that may range from 350-850. The higher your FICO score, the lower your credit risk; vice versa for a low score. A FICO score is a credit rating system create by the Fair Isaac Corporation. All three of the major credit bureaus use a credit ranking system created by FICO. However, each agency calls it a different name. For example, Equifax uses the Beacon Score; TransUnion uses Empirica, and Experian uses the FICO system called the Fair Isaac Risk Model.

In 2006, the three major credit reporting agencies created their own credit rating system called "Vantage Score." The agencies felt there was a need for a more unified scoring system because a consumer may have a different FICO score for each credit reporting agency, which can result in a consumer being unfairly denied credit or being extended credit he doesn't deserve. However, the FICO is still the most widely used.

There are five major categories that impact your FICO score. Your payment history is the biggest, which accounts for 35 percent. Thirty percent of your score is derived from your utilization, or credit-to-debt ratio. Basically, it is the amount of credit still available to you. For example, if you have a credit card with a $500 limit, but you have only $250 of available credit, your utilization would be 50 percent. The third category, 15 percent, is your credit history---the longer you've had credit, the better this category will be. The last two categories account for 10 percent each; they are any new credit and credit inquiries.

How to Improve My Horrible Credit History

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A horrible credit rating can trigger higher insurance premiums, and if applying for a loan, having a low rating often ends in a denial. Improving a horrible rating is doable. However, you shouldn't expect overnight success. You didn't acquire bad credit in one day and you can't repair bad credit in one day. But by adopting new habits and changing the way you manage debt, you can improve your credit history.

Instructions

Aim to pay bills early. Procrastination or waiting to pay your bills increases the risk of forgetting to pay on time. Pay credit card statements and other bills early to ensure an on-time arrival and to avoid late fees.

Lower your debt on credit cards. Stop using credit cards and pay more than your minimum each month to help bring down your debt. The amount you owe affects credit scoring, and owing a huge balance on credit cards can lower your score.

Get rid of collection accounts. Creditors will report collection accounts to the credit bureaus and this entry can stay on your report for seven years. Plan to pay off this debt and ask your creditors to delete the collection account after they receive payment.

Check report for signs of identity theft. Someone can steal your personal information and open an account in your name. Order your credit report yearly and check the report thoroughly for signs of fraudulent activity.

Refrain from opening new credit files. Every credit application submitted takes points off your credit score. Only apply for new credit accounts when necessary.

How Can an Individual Earn a Good Credit Score?

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Your credit score is based upon the information contained within your credit report, including both positive and negative account data. Lenders and credit issuers report this data to the credit bureaus. It's important to learn what factors influence a credit score and what steps you can take to have a good one.

A FICO score ranges from 300 to 850 and the higher the score, the better. Your FICO credit score is comprised of five distinct variables, according to MyFico. When calculating the score, 35 percent of it represents how well you pay your bills, 30 percent is based on the amount of debt that you have, 15 percent reflects the length of your credit history, 10 percent reflects the mix of credit present on your report and the last 10 percent considiers the amount of new credit you've applied for recently.

Your FICO credit score can affect many areas of your life. Lenders check your credit score prior to approving a loan or other extension of credit, such as a credit card. Your score can impact not only whether you're approved but also the interest rate you'll pay for that credit. The lower your score, the higher the interest rate you'll receive and the more money the credit will cost you over time. In addition, an employer may check your credit before hiring you and some insurers check it before issuing a policy.

According to MyFico, making on-time payments regularly and keeping your debts low will increase your FICO score over time. Those two variables account for the bulk of your score. Also, limit new credit. A good credit mix, say of loans and credit cards, accounts for 10 percent of your score and so does new credit, but FICO warns consumers not to apply for new credit in an attempt to increase the score; it could prove counterproductive. Each new credit account shortens the average length of your credit history and this can lower your score. Only apply for new credit if needed. Also, closing old accounts can shorten the length of your credit history and this may lower your score too.

According to Bankrate.com, another step you can take to improve your score is to ensure that your credit report is accurate. Credit errors can lower your score. Under the Fair Credit Reporting Act, you have the right to dispute inaccuracies on your report. The bureau has up to 30 days to investigate your dispute and make corrections. As an addendum to the FCRA, Congress passed the Fair and Accurate Credit Transactions Act that gives you the right to receive one free credit report each year from each of the three bureaus: Equifax, Experian and TransUnion. Order the reports at the site established under FACTA: annualcreditreport.com.

Beware of companies that promise to repair your credit and improve your score because, according to the Federal Trade Commission, this can be a scam. Under the FCRA, bureaus are not required to remove accurate negative data that's within the applicable statue of limitations. Also, watch out for sites that offer free credit reports or scores. Some of these sites ask for your credit card information and require you to sign up for a trial of credit monitoring that will continue to charge your card after the trial period. The Federal Trade Commission sued Experian in 2005 for deceptive advertising over its website, freecreditreport.com. Experian settled the case and agreed to compensate consumers charged for its credit monitoring product.

How to Get Credit When No One Approves You

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If you have a bad credit score or little to no credit history, getting credit can prove challenging. If every credit card company has turned you down, you must first improve your credit score or establish credit history before applying again. There are ways in which you can get credit, and if you're diligent about making payments on time, you'll likely qualify for larger lines of credit in the future.

Instructions

Get a bank account. Although opening a bank account won't improve your credit score, you'll need one to apply for a line of credit. You can try asking your bank for a credit card after you've opened your account.

Apply for a gas card or a department store card. Getting a gas card or a department store card is typically much easier than getting other types of credit cards. Make sure the credit company reports to a credit bureau so there's record of your credit and good-standing.

Apply for a secured or "pre-paid" credit card. Pre-paid credit cards use money you've deposited into a savings account, much like a debit card. Not all pre-paid credit cards build credit or improve your credit score, so make sure the one you choose reports to a credit bureau.

Apply for a "bad credit" credit card. There are credit card options for people with low credit scores; some credit card companies have specific cards for people with little credit history or a poor credit score. If you qualify, always make your payments on time, as this will build your credit.

Credit Score Recovery

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Your credit score can impact your life in ways that seem to have nothing to do with your finances, from your ability to rent a home to getting a job. If your credit score is suffering from the effects of a bad economy, or just poor money management, get on the road to recovery by improving your score.

Before you can begin to improve your credit score, it's imperative to find out just what's on your credit report, which determines your score. Be prepared to dispute erroneous entries.

"Keeping your credit report a true reflection of you is--like it or not--your job," writes Bankrate's Dani M. Arthur. "Get ready to clean and polish. Carefully look for errors [such as] outdated and incomplete information and inaccurate account histories. You'll want to make a thorough list of items you dispute and the reasons why."

The best way to re-establish your credit is to pay your bills, and pay them on time.

"Mailing a payment a few days late normally won't hurt your score, although you may incur late fees and trigger higher interest rates. The big hurt comes when you miss a payment cycle entirely," say's MSN Money's Liz Pulliam Weston.

Pay bills on time, every time. If you are experiencing financial difficulty, and are having trouble making your payments, Arthur recommends that you "call your creditors and negotiate to keep your accounts current and from being reported as delinquent or 'bad debt.' You can ask for reduced monthly payments or even change due dates to balance out your monthly bills."

The bottom line is, nothing improves your credit score as much as establishing that you pay your bills.

Recovering your credit score means demonstrating to creditors that you are serious about getting back on the right track financially. That means refraining from seeking new credit.

Arthur explains, "credit bureaus look at how many new accounts you've opened, and the number of 'inquiries' for new accounts that are listed. A sudden flurry of 'inquiries' results in a lower [credit] score because many times consumers anticipating money problems increase their credit lines."

Using the credit you have wisely is another way to improve your credit score. If you have--and use--several credit cards, then you must examine how you use them.

"Using 100 percent of your limit on any credit card puts you at risk of over-limit fees. It also takes a bite out of your credit score," says Weston.

Pay down credit card balances and refrain from mounting new credit card debt, and you'll see the difference both in your wallet and in your credit score.

Rebuilding your credit score will not happen over night. Weston's recommendations to "pay your bills on time, all the time, and reduce your credit utilization" as two of the top ways to improve your credit score are excellent strategies, but will take time. Expect to spend at least a year working toward establishing good credit again to see a significant increase in your credit score.

Does Paying Collections Improve Credit Scores?

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No, paying collections does not improve your credit score, at least not in the short term. The term collection, as used in this context, basically refers to unpaid debts that have been sent to professional debt collectors by your creditors. Such debts appear on your credit report as "collections" and are seen as a bad reflection on your creditworthiness, whether you repay them or not.

There are two ways that your debt can end up in collections:

Your creditor may send your debt to a collections company to collect the debt for them. In this case, your creditor receives the money you pay and then pays the collections company a percentage for its efforts.

Your creditor may also simply write the debt off and sell it to a third-party debt buyer for pennies on the dollar. This third-party now owns the debt and collects the money. In this case, your original lender never receives the money that you pay to this collections company.

Whatever way the debt ended up with the collections firm, the occurrence of such "collections" on your credit report is bound to injure your credit score considerably, and you could find yourself increasingly being denied credit or being treated as a "high-risk" debtor. The latter will subject you to higher fees and interest rates.

Legally speaking, you have the opportunity to dispute the collections on your credit report if the debt is not yours or if it is not being reported correctly. If it is your debt and is being reported correctly, you may want to ask the original lender to consider pulling the debt from the collector with the agreement that you will pay the full balance and they will mark your account "closed by credit borrower."

If your debt has already been sold to a third-party debt buyer, you may want to offer to pay a portion of the total balance (they will still make a profit) in exchange for taking their collection account off your credit report. The older your debt is, the more success you will have with this method.

How Many Times Can You Check Your Credit Before a Report Is Adversely Affected?

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Certain credit checks are among the many things that adversely affect your credit report. A large number of inquiries can damage your credit score as much as late payments or maxed-out credit lines. Some inquiries do not affect your credit rating at all, however, and your credit score is not significantly affected unless you generate an excessive number of credit checks by submitting many applications for credit.

Checking your own credit generates a "soft" inquiry on your credit report, which is not seen by current and potential creditors and does not affect your credit score. You may review your own Equifax, TransUnion and Experian reports as many times as you wish without any negative effects. You can receive one free copy of your credit report every 12 months from each bureau through AnnualCreditReport.com, as mandated under the Fair and Accurate Credit Transactions Act. You can purchase additional copies of your credit report directly from the bureaus or through third-parties or credit monitoring services. You also get free credit reports if you suspect fraud and alert the bureaus. All of these count as harmless soft entries.

You generate a "hard" credit check every time you fill out and submit a loan application and the lender pulls one or more of your credit reports. Each of these inquiries brings your credit score down slightly, with the exact effect depending on the number of credit checks and other factors. Your first credit check might not hurt you at all if you have a strong credit rating, or it might only your drop score by less than five points, according to MyFICO. Additional checks have a cumulative effect, especially if you have six or more within a short time, which marks you as a high bankruptcy risk.

Consolidated credit checks for a certain type of loan, all made within 30 days, do not have the same adverse effect as numerous unrelated inquiries. Credit scoring formulas take rate shopping into consideration. If you fill out several applications for the same account type, such as a student loan, mortgage or car financing, MyFICO explains that all those inquiries are viewed as a single credit check, so your score drops five points at most.

Hard credit checks sometimes show up in error on your Equifax, TransUnion and Experian credit reports. You can search for incorrect inquiries regularly by getting your free credit reports as soon as you are eligible for them each year. Immediately send a dispute letter to any unrecognized companies listed as making a credit inquiry on your reports, the Illinois Attorney General's website advises. Ask for erasure of the questionable inquiry if the company cannot send you written proof that you authorized it to check your credit. Removal negates its adverse effect on your credit score.

Are Attorneys Allowed to Request Credit Reports?

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Credit reports are generally available to several parties, including attorneys. Your credit report contains sensitive information about your financial history, your work history and in some instances, even your legal history. There are a variety of ways an attorney can go about accessing your credit report, whether the attorney is someone you hired or is working for another party.

When you hire an attorney to represent you on a non-contingent basis, legal fees can accumulate quickly, and your attorney may require some type of assurance that you will be able to pay your bill. Generally attorneys request a retainer for this purpose, but it is acceptable for an attorney to check your credit history provided that she disclose this to you in person.

The following entities can legitimately request your credit report: anyone considering granting you credit; landlords; insurance companies; employers, with your consent; anyone considering your application for a government license; child support enforcement agencies; any government agency and anyone with a legitimate business need. Attorneys fall under the category of those with a legitimate business need provided that they have agreed to represent you.

Your credit report can also be provided to other attorneys if they subpoena the report as a matter of official business. Under the rules of discovery an attorney is allowed access to any material that is calculated to lead to admissible evidence. If your credit, or any of the information on your credit report, is related to a matter being litigated the opposing attorney can likely subpoena that information. If you are uncomfortable with exposure of your credit history you should ask your attorney to object to the discovery request.

Because so many agencies and individuals are allowed to access your credit report, it is important to maintain good credit and to routinely remove non-vital information such as prior addresses and employers from your report. You want to limit the amount of information that is available about you so that your privacy is safeguarded and organizations are not given more information than they need. Financial websites, including the Federal Trade Commission, can provide more information about maintaining a good credit score and a strong credit report (see Resources).

How to Correct Experian Credit Report

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Experian is one of the three major credit reporting agencies, along with Equifax and TransUnion. Although all three agencies serve a similar function, they are entirely independent and do not share information with each other, so your Experian credit report may contain information that isn't reflected on your other credit reports. If Experian contains inaccurate or outdated information, you can file an online dispute and ask to have that information updated.

Instructions

Visit the Experian online dispute center and log into your account. (See Resources.) Click the blue "Log In" button beneath the description of your account type in the center box.

Click on the category containing the incorrect information. If you are disputing incorrect personal information, click on the "Personal Information" category; if you are disputing an incorrectly-reported account, click on the category containing credit account information.

Click on the item that you believe is not correct. Click the blue button that says "Dispute This Item."

Enter a reason for your dispute. If you are correcting personal information, include the correct information in the reason. If you are disputing an account, explain why the information is incorrect. Provide your current email address to receive notification of the results of your dispute.

Click "Submit." If Experian can't validate the information, they will remove it from your credit report. You will be notified of the decision generally within 30 days.

My RV Loan Was Denied Due to a Charge-Off, How Do I Turn This Around?

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A charge-off is a serious blemish on your credit report that might keep you from getting certain loans, including RV financing. RVs are expensive, and a charge-off shows the lender that you ignored a previous obligation to a creditor, raising the risk that you might default on new loans. The lender may reconsider financing you, or you might get approval from another finance company, if you get the charge-off removed from your credit reports.

Instructions

Contact the lender or credit card company that charged off your account and offer a settlement. A charge-off means the company wrote off the loan as a bad debt on its taxes, although you are still legally liable for the debt. The lender got a tax benefit from the charge-off and was not expecting any further payment, so it is likely to accept less money than you originally owed as a settlement. Offer what you can afford to pay in a lump sum.

Ask the lender for an agreement to mark your account "Paid as Agreed" rather than simply reflecting a settled charge-off on your TransUnion, Equifax and Experian credit reports. Settled charge-offs are still negative and will keep you from getting your RV loan. The charge-off needs to be replaced with a paid status that has no negative connotations.

Request a written summary of the agreed-on terms for settling your charge off from the creditor. This document should include the amount you will pay and the fact that the credit is accepted it as payment in full for the debt. It should also state that the charge-off will be replaced with "Paid in Full" status on your credit reports, with no indication that the account was delinquent or was settled for less than the full balance.

Send the lump-sum payment to the lender, along with a copy of the written agreement. Ask it to change the information on your credit reports immediately because you cannot apply for an RV loan again until the negative information is gone.

Order copies of all three of your credit reports through AnnualCreditReport.com, which is run jointly by TransUnion, Equifax and Experian to comply with the federal law that requires them to give you free reports every year. Make sure the charge off is changed to a paid in full account so you can make another RV loan application.

How to Change a Credit Score Online for Free

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Most consumers want to make sure their credit score is as high as possible. A high credit score makes you more attractive to lenders and can help you get insurance or a job. If your credit score is low, you can change it by checking information online and filing disputes when appropriate. By removing negative information through the online process, you can improve your credit score.

Instructions

Fill out a request for a free copy of your credit reports. You can get one at no cost annually from TransUnion, Equifax and Experian if you go through the proper website (see references).

Check carefully through each of your credit reports and make a list information that will bring your credit score down. Typically this includes late payments, charged-off accounts, judgments and other items related to slow payment or not paying a bill at all.

Go through the list and identify any items that have grounds for dispute. A credit bureau must remove information that is incorrect or cannot be verified. By having this information removed, your credit score will increase.

File a dispute for each item that you believe is incorrect or that the credit bureau will not be able to verify. They will have to investigate each item you specify and let you know the outcome. If the item does prove to be incorrect or if the creditor does not verify it, it will be taken off your credit report at the end of the inquiry. Usually this is completed within 60 days.

Get another copy of each of your credit reports to make sure the appropriate items have been removed. If any of them are still showing up, notify the credit bureau, refer to the results of the investigation and ask them to remove the items in question immediately.

Can a Creditor Punish Me for a Dropping FICO Score?

7:39 AM No comments

A FICO score dropping like a rock is a nightmare for any lender or borrower, but current creditors usually have few weapons to punish your poor lending habits. Do not take this as carte blanche to fall behind on payments; if a falling FICO score is due to a negative item, it could cost you an account and/or your mortgage.

Before 2010, credit card companies could raise your interest rate for defaulting on an account with another creditor -- called universal default. The CARD Act of 2010 overhauled the credit card industry and essentially eliminated universal default rate hikes. However, credit card companies can close your account when you miss payments on any other loan -- a common reason for a FICO score to drop -- and require immediate payment of the balance. This could cause you to default on the closed account and further drop your credit score.

In 2010, mortgage giant Fannie Mae issued a new rule that any creditor who resells its mortgages must perform a second credit check before closing on the property. If your score sees any significant drop or change in your creditworthiness occurs, the mortgage provider must resubmit the application to Fannie Mae. This might mean paying a higher interest rate on the mortgage or losing the mortgage completely, according to Smart Money.

Refinancing is taking out a new loan to pay off an old one. If you had a high FICO score when you took out the loan but now have a low one, refinancing might be impossible, which could end up costing you money, especially if interest rates have dropped significantly since the original application. This happens because you must apply for a refinance loan like you would any other credit.

A drop of a few points probably won't concern anybody. You can see a drop in your score due to quirks in the FICO scoring system. This sometimes happens when new lenders have a good score, but then see a drop when the FICO model lumps them in with older borrowers who have much better and longer credit profiles. The real problems start when you miss payments or default on a debt, so run a credit check on yourself and review any negative items. Remember, even if the lender cannot do anything to "punish" you now, future loans will probably be more expensive.

Monday, December 31, 2007

Debt Cancellation Definition

Credit Rating Calculations

Outstanding Debt Definition

Options

Bankruptcy and Credit

Risk

Considerations

Options

Sunday, December 30, 2007

Identification

Danger

Considerations

Tip

Saturday, December 29, 2007

Defined

Function

Considerations

How Financial History Affects Credit Score

Lifespan of Negative Credit History

Consequences of Low Credit Score

Tips to Repair Credit Score

Reporting Your Credit Score and FICO

Have a Good Payment History

Credit Variety

How Long is Your Credit History?

What Do You Owe?

What's New?

Friday, December 28, 2007

Take Advantage of Others' Good Credit

Distribute Your Debt and Pay Down Debt

Talk to Your Creditors About Payment History

Effects

Time Frame

Considerations

Instructions

Identification

Misconception

How Long Will it Affect Your Credit?

Tip

Warning

Thursday, December 27, 2007

Mortgage Application

Credit Report

Quitclaim Deed

Community Property

Consequence of Default

Wednesday, December 26, 2007

Instructions

Instructions

Free Report

Instructions

Monday, December 24, 2007

Credit Card Limits

Credit Scores

Debt Utilization

Your Response

Sunday, December 23, 2007

Instructions

Instructions

Piggybacking to Increase Credit Scores

Saturday, December 22, 2007

Instructions

Wednesday, December 19, 2007

Instructions

Sunday, December 16, 2007

Too Many Inquiries

Late Payments

High Debt Ratio

Fines

Instructions

Friday, December 14, 2007

What is a Credit Report and Score?

What is Reported?

Misconception

Tip

Significance

Considerations

Consequences

Prevention/Solution