Can a Bad Credit Report Stop You From Getting a Job?

Companies check more than your references and job history when you apply to work for them. In addition to the standard criminal background check, many employers now pull a credit report on job applicants. The credit report shows a snapshot of the candidate's level of personal responsibility. This may be a detriment to people with medical bills or the long-term unemployed whose credit has suffered.

Federal Law

The federal law that prohibits discrimination in employment against applicants who have filed bankruptcy does not apply to job seekers with other types of bad credit. Private employers can legally deny jobs to applicants with bad credit, according to the Federal Trade Commission.

Refusal to Hire

When many people apply for the same job, the employer may be very selective during the hiring process. The employer may eliminate candidates with financial blemishes, even if the job is not of a financial nature. An employer who refuses to hire a candidate due to information in the job candidate's credit report must supply a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" to the job applicant.

Employer Attitude

Some employers believe that job applicants who do not manage their finances properly and pay their bills on time would be bad employees. According to Money Central, employers believe that people with bad credit are irresponsible and more likely to steal. Additionally, some employers believe that a job applicant who does not make good decisions in his personal life would probably not make good decisions at work.

What You Can Do

You should not give up looking for work if you have bad credit. Read the job application to see if it contains a clause giving permission for the company to run a credit report on you. If it does and you receive a tentative job offer, then offer both a verbal and written explanation before they run the credit check. The explanation should include the reason for the delinquency, such as unemployment or lack of health insurance, and that you have arranged with the creditors to repay the debts. If the employer knows in advance that you have control of your financial situation, he may not give much weight to a bad credit report.

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How Do Timely Rental Payments Affect a Credit Score?

Credit scores are generally based on information that is reported to credit bureaus. While it is rare that a landlord or property management company reports rent payment history to a credit bureau, the consequences of not paying rent on time can end up on credit and tenant screening reports.

Credit Reporting

In order to report accounts to credit bureaus, a creditor must be a client of the credit bureau. This is an expensive undertaking, and simply isn't cost-effective for most landlords or property management companies, according to Maxine Sweet, Vice President of Public Affairs at Experian. As a result, on-time rental payments are not reported to credit bureaus and do not affect your credit score.

Collections and Evictions

While on-time rent payments are usually not reported to credit bureaus, some negative aspects of your rental history may end up on your credit report. For example, evictions and court judgments are a matter of public record and credit bureaus do monitor this information for inclusion on credit reports. In addition, some landlords may not choose to sue for any money still owed them, but may send the account to a collection agency that does report to credit bureaus.

Tenant Screening

Many landlords and property managers check references as well as credit reports when considering a tenant application. By paying your rent on time, you can help ensure that your landlord will give you a positive reference. In some cases, a good reference from a previous landlord can compensate for a spotty credit report.

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Definition of a Subprime FICO Score

When lenders consider applications for mortgages, car loans or any form of credit, their first concern is to determine how likely it is they will get their money back. The FICO score is a number ranging from 300 to 850 (a perfect score) that summarizes the credit risk a potential borrower presents. The term "subprime" indicates a low score--low enough that there is a significant risk that the borrower won't be able to repay the debt.

Identification

There is no formal definition of a subprime FICO score. A FICO score is considered subprime if mainstream lenders won't extend credit because they consider their risk to be too great.

Dividing Lines

The majority of mainstream lenders consider a FICO score of less than 620 to be subprime or poor; 620 to 680 is fair; and a score over 680 is good.

Mortgage Lenders

Fannie Mae, Freddie Mac and other mortgage providers usually prefer a FICO score of 640 or higher, but will usually accept 620 with a good downpayment.

FHA/VA

The Federal Housing Authority and Veterans Administration use 580 as the standard for home loans, provided the borrower meets income requirements and has good credit behavior in the recent past.

Subprime Lenders

Some lenders specialize in providing "second chance" credit to people with subprime FICO scores. These subprime lenders charge high interest rates to offset the increased credit risk.

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How Quick Can a Creditor Change a Credit Report?

Even though creditors can update records with the credit bureaus at will, they cannot control how long it takes to change a report. One type of company, rapid re-score, can change a report within a matter of hours. However, to use a rapid re-score company requires certain conditions and going through a lender.

Identification

In the scoring system set up by the major credit reporting bureaus, lenders control the information the bureaus report on a borrower's credit file. Updates can happen the same day, but the credit bureaus take up to 90 days to process new credit data forms from creditors and change data in a credit history, according to Smart Money.

Rapid Re-score Firm

The credit bureaus contract out some of the credit dispute process to rapid re-score companies. This type of firm has consent from the national credit reporting agencies to update reports almost instantly, but rapid re-score companies only work with financial institutions, such as banks and mortgage brokers. Thus consumers must find a lender willing send a request to a rapid re-score company. Most will do this for customers. The only difficult requirement is that the rapid re-score company probably won't investigate any claim beyond calling a creditor, so the consumer must get the creditor to agree that an item was a mistake before paying for a rapid re-score.

Considerations

The credit bureaus mostly automate the dispute system by sending a request to a creditor to re-report information. If a creditor has faulty data, it will keep reporting the wrong item, so fixing complex errors can take weeks or months. The Federal Trade Commission recommends initiating a dispute with creditors and the credit bureaus at the same time and including as much evidence as possible in a certified letter to any pertinent party.

Tip

Consumers can always write a letter of explanation for bad credit to future lenders until they resolve an issue with the credit bureaus. The bureaus allow consumers to leave a 100-word personal statement on any item in their credit file or the consumer could give the lender a longer, written letter. In any case, a letter of explanation could be enough to sway a lender's opinion of a borrower.

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How to Check a Credit Score in Canada

Checking your Canadian credit score regularly helps you monitor changes, check for errors and see where improvements can be made. You can access credit disclosure reports for free, but these do not show your credit score. The two major credit reporting bureaus in Canada, Equifax Canada and TransUnion Canada, charge a fee to check your credit score.

Instructions

1

Get your credit score in Canada online. The process is simple and allows you to view your score instantly. Click the links in the Resources section to access the websites of the credit reporting bureaus.

2

Click "Get Started" for Equifax's site, then "Order Now," or, on TransUnion's site, check the box to include your credit score and click "First Time." Enter your details in the application form. Click "Continue."

3

Complete the payment section. The charge for a credit score from Equifax Canada is $23.95 as of 2010, while TransUnion Canada charges $22.90. Fees may change and may be different in certain provinces. Check the websites before applying for your Canadian credit score.

4

Review your application details. Click "Continue." Your personal details and identification will be verified, and your payment method will be authorized. Create a login ID and password. Click "Submit." Follow the instructions to view your Canadian credit score.

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Why Does Cosigning Lower Your Credit Score?

When someone with a shaky or limited credit history applies for a loan, a borrower may offer a lower rate if the person can get a cosigner. The cosigner guarantees the loan will be repaid and becomes responsible for the loan if the borrower does not repay the loan.

More Debt

When you cosign for a loan, the credit scoring formula treats that debt as debt that you are responsible for repaying, even though you are just the cosigner. Having a large amount of extra debt will lower your credit score.

Payment History

The payments made by the person you cosign for will appear on your credit report. If the person makes late payments, your credit score will suffer.

Warning

Lenders often do not communicate with the cosigner about when late payments are made or if the borrower falls behind in payments until it is too late to protect the cosigner's credit report.

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Does Getting Preapproved for a Mortgage Affect Your Credit?

Just shopping for a home could damage your credit rating. Fortunately, the damage done by mortgage preapproval usually has a marginal effect on your credit score, and potentially less damaging than shopping for other loans, such as a personal loan. You should run a report on your credit well before you start looking for a mortgage, and ask the lender about the credit rating it wants for its best rates.

Identification

Mortgage preapproval and any application for credit lowers your credit score by five or fewer points. Although one application is almost invisible, compared to the FICO scoring range of 300 to 850, multiple inquiries do an increasing amount of damage, and six or more inquiries can be damaging like a collections account or civil judgment. Inquiries impact credit scores for one year even though they appear on credit histories for two years.

Considerations

After the 2008 housing meltdown, many real estate agents require customers to have mortgage preapproval before working with them, because the real estate agent wants to know customers can afford a home, according to Lisa Scherzer of Smart Money. This means you must commit yourself to a credit inquiry regardless of whether you actually buy a home.

Rate Shopping

You should apply for a preapproved mortgage at several banks to find the lowest rate possible. The FICO scoring model allows you to apply for as many mortgages as you want within a certain amount of time, with all applications counting as a single inquiry. Depending on which formula the lender uses, the rate-shopping windows lasts between 14 and 45 days.

Be Prepared

Run a personal credit check at all three major credit bureaus for free from the Annual Credit Report website. You should not have any negative items in the past two years, such as missed payments or collection accounts. If you have any delinquent debts, contact the lender about settling the account. Also, ask the lender about its credit scoring brackets. The few points of damage by a credit inquiry can knock you into a lower bracket with a higher interest rate.

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What Makes Up a FICO Score?

Your credit score is a number that represents your credit history and current credit risk. Credit scores are based on information in your credit report. They are called FICO scores because Fair Isaac Corp. developed the software that credit bureaus use to calculate them. Lenders use your credit score to decide whether they will offer you credit, how much they will lend you, and the terms and conditions of that credit, according to FICO. Scores range from 300 to 850, with a score above 750 indicating excellent credit. Credit bureaus consider categories of information in calculating your credit score.

Payment History

Your payment history makes 35 percent of your FICO score. Payment history includes how many and which accounts you paid on time or late. If you have an account that is or has been delinquent, credit bureaus consider the amount and length of the delinquency, and how long ago you were delinquent. Late payments, foreclosures, debt collections and adverse public records (bankruptcy, judgments, suits, liens and wage attachments) damage your score and stay on your credit report for at least seven years.

Total Debt

Thirty percent of your score is based on how many accounts you have and how much you owe by type of account. An account could be a line of credit, such as a credit card, or an installment loan, such as a mortgage or student loan. FICO scores also take into account your credit utilization: how much of each credit limit you have borrowed, and how much you still owe on any installment loan.

Length of Credit History

FICO scores factor in the ages of your accounts and how long since you have used each account. This category makes up 15 percent of your score. A longer credit history improves your score and reduces your credit risk.

New Credit

Ten percent of your score is based on new credit on your credit report, including the number and proportion of accounts you recently opened and when you opened them. The number of credit inquiries on your report, and how recently they occurred, also affects your score. Credit inquiries can happen when a legitimate business checks your credit or when you check your own credit. Multiple recent inquiries, if you initiated them by applying for credit, can harm your score.

Credit Mix

The final 10 percent of your FICO score is calculate according to your credit mix. Having different types of credit (credit cards, retail accounts, installment loans, mortgages and consumer finance accounts) will help your score.

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Where to Get Your National Credit Score

Two of the best ways an American consumer can obtain his national credit score is by contacting one of the three major credit-reporting agencies on the Internet or in writing. They are Equifax, Experian and TransUnion. The three major credit-reporting bureaus may produce or generate three different national credit scores primarily because the credit history at each bureau is usually different. Loan officers make decisions to extend consumers credit generally based on just one national credit score.

What is a Good National Credit Score?

The lowest national credit score starts at 300 and the highest is 850. The average national credit score is 600 to 700, and the higher the score the better. Consumers with a national credit score above 700 enjoy the most favorable lending terms and the lowest interest rates. Consumers with a national credit score below 600 are identified as high risk and are usually offered the least desirable lending terms with higher interest rates.

How Are National Credit Scores Calculated?

National credit scores are calculated by taking several factors into consideration. The payment history of the consumer accounts for about 35 percent of the overall score. Payment history identifies if loan payments have been made on time, the number of late payments and other negative payment entries like liens and bankruptcies.

The total amount of debt owed on credit accounts represents 30 percent of the national credit score. High debt to income ratios lowers the overall national credit score.

A longer favorable credit history contributes 15 percent to the national credit score while new credit represents 10 percent. The remaining 10 percent is made up of other factors such as the different types of credit. Having a good mix of credit including credit cards and installment loans such as a mortgage or auto loan can add slightly to a credit score.

Improve Your National Credit Score

If you need to improve your national credit score, it will take some time, up to 12 months if your score is below 600. One of the best ways to improve your national credit score is to make all credit payments on time. Second reduce the amount of debt that influences your national credit score. If your national credit score is below 600 because of too little credit history, consider opening one or more secured credit card accounts. Secured credit card accounts require the credit card holder to secure the credit limit with cash.

Reporting Inaccurate Information

It is not uncommon to discover inaccurate information on your national credit report that has a negative impact on your overall score. Correcting these inaccuracies is imperative and fairly easy to accomplished. Contact the credit-reporting bureau that is reporting the inaccurate information in a letter that disputes the incorrect entry.

Protect Your National Credit Score

Protect your national credit score by making sure that the information is 100 percent accurate. Inaccurate or erroneous entries on your national credit report will lower your score and can cause long-lasting negative effects on your credit score.

A careful review of your national credit score should be made annually if there have been no "Identity Theft" issues. Consumers who, in the past, have had problems with identity theft or inaccurate entries should check and monitor their credit reports quarterly.

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Is My Prior Work History Included on My Credit Report?

Consumer credit histories are not only important for lenders to review your financial history; they also contain your work history. Employers and lenders often use this demographic data to make informal decisions on loans and, possibly, potential jobs. Fortunately, if the credit bureaus have a false work history, or you do not want anyone to see it, you can request the bureaus remove the information from your report.

Identification

Your work history is included in your credit report, but not your salary. The credit bureaus ultimately get this data from you, because individual creditors relay information from credit applications to agency databases. When an employer pulls a credit check on a potential hire, they receive an employment credit history. This does not contain a person's age, credit account numbers or their credit score, so a low credit score does not affect your ability to get a job.

Effect

Even though work history has no bearing on your credit score, it can affect your creditworthiness. Lenders like to see borrowers with a stable job history, because bouncing from job to job may leave you without an income for those in-between months or not stable enough life to repay a loan. Employers may question your integrity if your stated work history does not match the one on your credit report.

About Employment

A potential employer running a credit pull and looking at your work history is usually a good thing, because it means the company considers you a likely candidate. Background checks take time and money, so companies typically weed out applicants before performing employment screening. If the employer decides against hiring you due to information in your credit report, he must send you a copy of your report and a summary of your rights under the Fair Credit Reporting Act. After furnishing this information, he must send an "adverse action" letter that describes where he received the credit report and includes the right to dispute negative information, according to the Federal Trade Commission.

Tip

Most consumer credit profiles contain errors in the employment history section, according to Norm Magnuson of the Consumer Data Industry Association. You can initiate a dispute with the credit bureaus to have them remove your employment data.

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How to Compute a Credit Score

It may sound creepy, but you're being tracked. Somewhere, a statistician is logging down your on-time Visa payments and your missed department store card payment. They can see if you have a car loan out, a past bankruptcy filing and where you live or work. At the end of the day, they churn out a three-digit number that answers the question: Should I loan to this individual, and if so, what rate should I charge?

Instructions

1

Don't miss a credit card payment. In the breakdown of your credit score number, 35 percent is based on payment history. It's easy to say, "Who cares if my payment is a few days late?" Yet, according to the credit bureau, the worst sin is missing or falling behind on a credit card, utility bill, mortgage or car payment. In some cases, your score could plummet up to 100 points and take 24 months to improve just from one missed payment.

2

Stay well below your credit limit. The second most important factor on your credit score, accounting for 30 percent, is the amount owed. Credit experts recommend that you use less than 30 percent of your "total available credit" limit. A credit card limit of $1,000 means you can safely spend $300 before your score is adversely affected. While this sounds misleading and dumb, creditors know that the closer you get to your limit, the more financial trouble you may be in.

3

Don't close out old cards. The third biggest factor is how long you've had credit history, which accounts for 15 percent of your score. Closing out old accounts hurts you because it appears as though you've had credit for a shorter period of time. Creditors want to see that you have a long history of paying bills on-time, managing financial responsibilities and juggling different accounts. These trends show you're a less risky borrower, entitling you to better interest rates.

4

Go easy on applying for loans. Another 10 percent of your score is based on "new credit" inquiries. Whenever you fill out an application for a credit card, car loan, mortgage or bank loan, an inquiry is made at the credit bureau to check your score and determine which interest rate to offer. Statistically speaking, people with six or more inquiries on their credit report in a one-year period are eight times more likely to declare bankruptcy, so keep your inquiries low.

5

Mix it up. The final 10 percent of your score is based on the types of credit you have. Experts say there are three types of "good debt" that improves credit portfolios: fixed rate mortgages, low-rate student loans and car loans. Revolving credit shows that you are capable of paying what's expected of you, month by month, for an extended period of time. Combining installment loans with one or two unsecured credit cards is ideal.

6

Don't sweat it. The most recent activity is weighted more heavily than the distant past. About 40 percent of your overall credit score is based on the last year's activity, 30 percent on the last 13 to 24 months, 20 percent on the last 25 to 36 months and 10 percent on the last 37-plus months. Within seven years from your first missed payment or debt, nearly all items will drop off your file, whether you've paid or not.

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Does Merging Credit Cards Hurt Credit?

In an effort to simplify your life or take advantage of a lower interest rate, you may give into the temptation to combine your credit cards into a single account. Although this can possibly save you some money in interest, it also has the potential to negatively affect your credit score.

Balance Transfer

A balance transfer is a process that many credit card holders use to move their credit card balances from one card to another. With this process, you take the debt that is on one credit card and transfer it over to another credit card. This is often available when you initially open a credit card account. The new credit card provider will ask you if you want to transfer any balances over to your new card and it can be completed at that time.

Credit Utilization Ratio

When transferring balances from one credit card to another, you must consider the impact on your credit utilization ratio. The credit utilization ratio is a ratio that the credit bureaus look at to help come up with your credit score. It looks at the relationship between how much debt you have compared to the amount of available credit. If your debt load is close to the amount of available credit, it looks like your card is about to be maxed out and it reflects negatively on you.

Merging Credit Cards

When you merge your credit balances into a single credit card, it can throw off your credit utilization ratio. By combining several balances onto a single card, it makes it look like your credit utilization ratio is very high on that one card. For example, say you have five credit cards, each with $1,000 balances and $5,000 credit limits. In this situation, you have a 20 percent credit utilization ratio on each card. When you combine all of those cards into a single account, you now have one card with a $5,000 balance and credit limit. Your credit utilization ratio changes to 100 percent for that card, which shows up as a negative item on your credit.

Length of Credit History

Another way that this could impact you is by affecting the length of your credit history. One of the factors that credit bureaus look at is how long you have had accounts opened. If you close out your accounts after you transfer the balances, you may end up closing your oldest account. This shortens the amount of time that your credit history has been open and can negatively affect your credit score.

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How to Calculate Credit History

A credit report is made up of four parts: identifying information, credit history, public records and inquiries. Together, these four parts determine your overall credit rating, which lenders and creditors evaluate when deciding whether or not to offer you a loan or revolving line of credit. Your credit rating is the best snapshot of your credit history. When calculating your credit history, consider your complete credit file.

Instructions

1

Request your free annual credit report through the Annual Credit Report's website. Complete a short questionnaire with your full name, Social Security number and date of birth. Print one free credit report from all three of the credit reporting bureaus, Experian, Equifax and TransUnion. Your credit score is not included, and must be purchased directly from the credit reporting bureaus for a nominal fee.

2

Familiarize yourself with the percentages credit rating bureaus give to different aspects of a credit rating. Weight your payment history the highest at 35 percent, followed by your debts, at 30 percent. Weight your credit history at 15 percent. Weight the types of credit loans you currently use, and the rate at which you open new credit lines equally, at 10 percent each.

3

Interpret your credit score, which is a numerical representation of your credit history. Your three-digit credit score can range from 300 to 850, with 850 being the most positive and 300 being the least positive.

4

Gauge your rate of delinquency. Put your rate of delinquency at 87 percent if your credit score is between 300 and 499. Put your rate of delinquency at 71 percent if your credit score is between 500 and 549.

5

Place your rate of delinquency at 51 percent if your credit score is between 550 and 599. Place your rate of delinquency at 31 percent if your credit score is between 600 and 649.

6

Mark scores between 650 and 699 with a 15 percent delinquency rate. Mark scores between 700 and 749, 749 and 799, and 800 and 850 with a delinquency rate of five, three and one percent, respectively.

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How to Obtain a New Credit File

If you are just out of college or have recently become a resident in the U.S., you need to obtain a new credit file. Your credit file is used by all lenders to assess whether you are suitable for credit. Without a credit file, it will be difficult to obtain lines of credit. With a little time and patience, and by following a few guidelines, you can obtain a new credit file.

Instructions

1

Get a prepaid card to obtain a new credit file. Apply online. Its fast. Check out websites for the best deals. Its usual to pay a joining fee and a monthly management fee. Use of the card is free, except ATM withdrawals. Apply for a card that offers credit reporting.

2

Get a secured credit card to obtain a new credit file. Apply online. The process is simple, but you do need to be able to make a deposit which is used as collateral. Charges apply. Your credit card limit can be up to two times your deposit. Use the card wisely, and keep within your budget. Pay off the total amount each month.

3

Arrange to have a co-signature on a credit card with someone who has a good credit history. These are available to help obtain a new credit file. It gives confidence to a lender. Should you fail to repay the money, the cosigner is required to pay.

4

Get a store card. Store cards are easier to obtain and will get you a new credit file. Interest rates are higher, but if you pay off the balance every month, no interest will accrue.

5

Pay for your utility bills by automatic monthly debit. Utility companies report to credit reporting bureaus, so paying on time will help to build up your credit file.

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Do Closed Items Help My Credit Score?

A three-digit number -- your credit score -- often is the key to whether you can borrow money for a new home or car, or receive low interest on your credit cards. The three major credit bureaus, Equifax, Experian and TransUnion, rank every borrower with a credit score from 300 to 850. Higher scores are better, and lenders tend to view these borrowers as less risky and offer lower rates. If you're considering canceling accounts to raise your score, think carefully before you do. It probably won't help.

How Credit Scoring Works

Your credit score depends upon five factors, some of which are more important than others. The two most important considerations are your record of on-time payments and the amount of money that you owe your creditors. These two factors alone make up 65 percent of your score. However, don't discount the other 35 percent. The types of credit you have, how many new or recent accounts you have and the length of your credit history make up the remaining factors. Length of credit history accounts for 15 percent of your score.

What You Owe vs. What You Can Borrow

When evaluating your creditworthiness, lenders calculate how much you owe versus how much available credit you have. Lower ratios are usually better. If you cancel an account, then even if you are a responsible borrower, your debt-to-credit ratio rises. Unfortunately, what you see as a commonsense approach to managing credit, lenders see as added risk. As a result, closing a credit line can lower your score. Nevertheless, keep in mind that your on-time payment history is the most important factor.

Managing Credit Wisely

The best way to keep a good score or to improve a poor one is to pay your accounts on time and in full every month. Also, keep your total revolving debt balances to less than 50 percent of your available credit, if possible. Credit cards are a type of revolving debt. Keeping a mix of loans is also wise. Mortgage loans are the best quality loan -- they're also the most difficult to qualify for. Car and other installment loans are the next best. Credit cards are last.

A Snapshot, Not a Life Sentence

If you have a poor credit score, don't despair. Credit scores are only a picture of your risk as of a particular moment in time. Although the consequences of bankruptcy, foreclosure and late payments are indeed severe, if you commit to maintaining good credit habits then your score will improve over time. If you are afraid that an open credit line offers too much temptation, then cancel it. That action is far less consequential than loan default, which stays on your history for seven years.

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Does Paying Off Credit Cards Raise the Credit Scores?

Your credit score is influenced by credit card use, your account balances, when you make your payments and your available credit lines. This information, combined with data about loans and other credit use, is used by the credit bureaus to calculate three-digit scores, according to the myFICO credit scoring information website. Your credit-related actions, including paying off accounts, affects those scores.

Score Factors

Various factors and financial activities carry varying weight in determining your credit score, according to the myFICO website. Payment history--whether you make payments on time--has the most influence, accounting for 35 percent of the credit score. The balance you owe is almost as important, making up 30 percent of your score. High balances hurt you, so you improve your score by paying off credit cards, especially if you make those payments on time.

Process

You should pay off your credit cards efficiently if you cannot wipe out the balances with lump sum payments. The Motley Fool consumer finance website explains that it makes sense to pay as much as possible on high interest cards while paying only the minimum on lower interest accounts. Hefty interest rates eat up most of the minimum payment, so sending extra payment makes the principal balance go down faster. You can redistribute the extra money to the remaining accounts when your high interest cards are paid off.

Confirmation

Your credit card statements may show a zero balance, but that does not mean your Experian, Equifax and TransUnion credit reports are showing the same information. You can order free copies of your credit report from annualcreditreport.com to ensure the accounts show a zero balance. The Federal Trade Commission explains that annualcreditreport.com gives you no-cost reports once per year. You should dispute incorrect information directly through the credit bureaus via the forms on their websites.

Warning

You should resist the urge to close credit card accounts once you get them down to a zero balance. Closing them lowers you credit score, Bankrate website writer Leslie McFadden warns. Accounts with which you have a long history help raise your score, and you lose some of that good influence when you cancel them. Closed accounts get erased from your credit reports in 10 years, and it may be sooner if the bank stops reporting them. Open accounts appear indefinitely.

Maintaining Paid Accounts

Your bank is forbidden from charging you a penalty for keeping credit card accounts open without using them, the Federal Reserve System website explains. A federal law called the Credit CARD Act forbids such fees, but it does let card issuers close unused accounts. Avoid involuntary closure by using paid-off cards a few times each year. Buy cheap items and pay the owed amount immediately to avoid running up a balance and accruing interest charges.

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Does Applying for Student Loans Hurt Your Credit?

Applying for most types of loans and credit cards can hurt your credit score a little, because the lenders run a credit check when evaluating your application. However, only some types of student loan applications affect your credit score, because some student loan offers are not based on credit history.

Credit Inquiries

Applying for any type of loan, including a student loan, can hurt your credit if the application generates an inquiry on your credit report. An inquiry is a notation of each creditor who checks your credit report or credit score. Inquiries do not hurt your credit score if they are not related to a credit application, such as when you check your own credit or an employer checks your credit. However, inquiries resulting from student loan applications can hurt your credit. Each inquiry usually drops your score by five points or less, according to the MyFICO website. However, if you have a thin credit file, the inquiries could have a more significant effect.

Federal Student Loans

Applying for Perkins loans, subsidized Stafford loans and unsubsidized Stafford loans does not affect your credit rating. These types of federal student loans do not require a credit check because the federal government makes them available to all students, regardless of credit history. The only credit-related item that can affect getting one of these loans is a default on a previous federal loan that remains unresolved. Because the federal government never runs a credit check on you, your application will not hurt your credit score.

PLUS Loan

If you are a graduate student, you can apply for a federal government-issued PLUS loan to help finance your education. These loans require that you not have an adverse credit history, which includes payments more than 90 days late, bankruptcies and court judgments against you. Therefore, when you apply for a PLUS loan, the government will check your credit report to ensure you qualify. This will generate one credit inquiry on your report, which can hurt your credit score slightly.

Private Student Loans

Private lenders check your credit to determine whether they are willing to lend money to you in the form of student loans. Many lenders require that a student have a co-signer with a good credit history, because the student may not have enough credit history. The application generates an inquiry on both the student's credit report and the co-signer's credit report. If you are applying for student loans with multiple lenders to compare interest rates, submit all applications within a two-week period. That way, the multiple inquiries are counted as just one inquiry by the credit-scoring formula, which recognizes you are shopping for a single loan.

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Secrets to Raising Your FICO Score

Your FICO credit score ranges from 300 to 850 and can affect many areas of your life. Lenders usually perform a credit check before approving a loan to see if you qualify. This score may also affect the interest rate you're charged for that loan. In addition, some employers check your credit before extending a firm offer of employment. It's important to know what steps you can take to help raise your credit score.

Pay Bills On Time

According to MyFico, how well you pay your bills accounts for 35 percent of your FICO score. Paying credit obligations on time is the largest contributing factor to a higher credit score. Late payments will not only lower your score, but the later the payments, the more damage they do. A 30-day late payment can ding your score; a 120-day late payment will drop it even further. Make at least the minimum payment on all of your bills each month.

Pay Off Debt

Another 30 percent of your score reflects how much debt you have. This is the second-largest factor that affects your score. FICO looks at your credit-to-debt ratio. This measures how much available credit you have vs. how much of that credit you're using. The more available credit you have, the higher this ratio becomes and thus, the higher your credit score. Paying down installment debt, such as a mortgage or car loan, also positively affects your score. The more the debt decreases, the more your score will go up.

Limit New Credit

New credit reflects 10 percent of your credit score. FICO likes to see the addition of new credit to your credit file; however, FICO warns against taking out new credit just to improve your score because it can backfire. The length of your credit history represents 15 percent of your score. The longer your credit history average, the better for your score. Each new account shortens the average length of your credit history and this can cause your score to drop once that new account is added. Only open new accounts when needed, not to boost your credit score.

Correct Errors

Your credit score is based upon the information contained within your credit report. Errors on your report can lower your score. Under the Fair Credit Reporting Act, you have the right to dispute inaccurate data in your report and have errors removed. You can file a dispute online at the bureau's website, by phone or mail. The bureau then has 30 days from the date of the dispute to complete its investigation and make corrections.

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How to Report Customer Credit

In the course of doing business, you may have to report a customer's delinquent account or nonpayment of a lease to the credit bureaus. There are three credit reporting agencies in the United States that list consumer credit history and compute credit scores: Equifax, TransUnion and Experian. There are a few different methods for reporting customer credit to the credit reporting agencies.

Instructions

1

Hire a credit reporting service. Credit reporting services such as Equidata take business debt accounts and report the amount of the debt, the name of the debtor, the address of the debtor and the length of delinquency.

2

Join the credit bureaus. Each credit bureau has its own application and fees, but in general, the debts must be at least 90 days past due and be in excess of $50 to $100. Member applicants also are required to have a minimum of 500 past-due accounts.

3

Sue the debtor. File a lawsuit in small claims court or civil court. Send a copy of the complaint to the defendant through a process server. Allow the answer time to expire, generally 20 days. File a hearing request for summary judgment and obtain a summary or default judgment. The judgment becomes public record and the credit bureaus will report it.

4

Hire a collection agency. Collection agencies not only attempt to collect debts, they also report those debts to all three credit bureaus.

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Does a 25-Year Mortgage Help Credit?

Obtaining a 25-year mortgage not only helps fulfill your dream of owning a home, it can lead to easier access to future loans for other big-ticket items. Despite their enormous value, paying a mortgage may not boost your score as quickly as revolving loans, such as a credit card. Revolving loans tend to give a better impression of your willingness to pay back a loan.

Identification

Assuming you pay every bill on time, a 25-year mortgage helps most facets of the FICO credit score calculation. You will gain good credit history and reduce your debt load at the end of the loan's life. You also build a lengthy credit history, which accounts for 15 percent of your credit score. If you have no other installment loans, a mortgage boosts your variety of credit -- which accounts for 10 percent in the credit score calculation. How much the mortgage helps depends mostly on other items in your credit history. However, expect a drop in your score during the first few months of the mortgage, because of the inquiry into your credit history and the new debt burden.

Considerations

The FICO scoring system weighs mortgages and installment debt less heavily than a revolving account, because lenders take much less risk with a mortgage, as the borrower backs the loan with an asset, according to Wallet Pop. You can wipe out unsecured credit lines in bankruptcy, so paying them off shows a better commitment to repaying a debt.

Potential

A mortgage does not always have to boost your FICO score to improve your creditworthiness, especially if you want another mortgage. Companies may use a proprietary formula that rates your risk as a mortgage borrower rather than the standard FICO formula. A formula that focuses on mortgage history will give much more weight to paying off a past mortgage than any other item.

Tip

Borrowers with the best credit scores usually have a ratio of two revolving loans to every installment account, credit specialist Wayne Sanford told MintLife. If you have a mortgage and a car loan, for instance, you should have four revolving accounts. This does not have to be a credit card. Home equity lines of credit, for example, also count as a revolving loan.

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How Long Negative Credit Stays on Your Credit Report

Negative information can remain on your credit report for a long time--10 years for bankruptcies and seven years for other negative information, including foreclosures, charge-offs, collection accounts, late payments and more.

Removal

Negative information must remain on your credit report until it expires--unless it is found to be inaccurate. You can challenge any mistakes on your credit report by writing the nationwide credit bureaus The Fair Credit Reporting Act requires the credit bureaus to remove inaccurate information within about 30 days of being notified by you.

Significance

Negative entries on your report will cause your credit score to drop and possibly make it difficult for you to obtain credit. However, the impact of negative entries on your report lessens over time, as creditors are more concerned with your payment history over the past 12 to 24 months than five years ago.

Prevention

The easiest way to avoid having negative entries on your credit report is to simply pay your bills on time. Missing even one payment because of forgetfulness can result in a negative mark on your report.

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How Does a Short Sale on a House Affect Your Credit?

Falling property values mean many people are upside down on their mortgages, according to the Bankrate.com financial site. Those homeowners owe more money that their houses are actually worth. Some opt for short sales to avoid foreclosure and its devastating credit effects. Short sales hurt your credit rating, too, but not as severely as actually losing the property.

Definition

A short sale means selling your home for less than you owe on your mortgage loan, Bankrate.com explains. Your lender must agree to the sale and amount, and most agree not to pursue you for payment of the remaining balance. Some mortgage companies allow a short sale to avoid the expenses involved in repossessing and reselling a home. You sell often the home more quickly because you are asking a low price.

Effects

You already have damaged credit if you were not paying your mortgage or were sending in late payments in the time leading up to the short sales. Your bank causes additional damage by reporting the loan as "settled for less than full amount" to the Equifax, Experian and TransUnion credit bureaus. This is a negative status that tips other lenders off to the short sale. Ask that your mortgage loan be reported as paid in full, and get this agreement in writing, along with a paper that absolves you of the remaining loan balance. Check the status when the sale is complete by ordering credit reports from annualcreditreport.com. The Federal Trade Commission explains that each credit bureau is required to give you one free copy each year through that website.

Damage Control

You can start with credit rating damage control immediately after your short sale. Create a budget that redirects the money saved from excessive mortgage payments onto your other bills. MyFICO, the Fair Isaac credit scoring website, explains that payment delinquencies are one of the worst drags on your score. Pay everything on time and avoid running up more debt until your finances are fully back on track.

Circumstances

Short sales should be considered carefully and only used in appropriate circumstances. Natalie Lohrenz of counseling for Consumer Credit Counseling Service of Orange County in California explains that you should try to get through short term problems, like illness or temporary unemployment, without getting rid of your home. Short sale is appropriate if letting the bank take your home is your only alternative.

Considerations

Short sales are rarely an option if you have two mortgages on your home. Your primary lender might agree to take a loss, but Bankrate.com explains that the second mortgage holder would forfeit its entire interest in the property. You must either find a way to pay the bills or risk foreclosure if you are stuck with dual home loans.

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How to Improve a FICO Score Quickly

FICO scores are risk-management scores created by the Fair Isaac Corporation used by banks and other lenders in making lending decisions. Your FICO score is very important because it determines what interest rate you will get on a loan, as well as whether you will be approved for a loan. If your FICO score has dropped, there are some tips to raise your FICO score as quickly as possible.

Instructions

1

Obtain copies of your credit score. You can purchase your FICO credit score from the myFICO Web site. There are two companies that utilize FICO--Equifax and TransUnion--and you can purchase each report.

2

Review your FICO report. Look for any mistakes in your credit report that affect your credit score. If there is an error, contact the reporting company or companies to have the mistake fixed.

3

Pay late bills. If you are past due on any accounts, pay the entire back balance and the current amount due to bring your account current. The sooner your past-due accounts are brought current and regular payments are made on time, the sooner your credit score will increase.

4

Use an old credit card. Your credit rating is based upon your credit history, and if you haven't used a credit card in a long time and there is no balance on the card, the account may be closed by the bank or lender and will no longer be a strong factor of your credit score. By using an older card and paying it off quickly, your FICO score will be based on a longer, more solid credit history.

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Does It Help My Credit If I Add My Name to the Title of a House?

Credit experts sometimes suggest consumers co-sign an account in good standing because the credit bureaus report the positive history for any name on an account. Adding your name to the title on a home gives you more assets to secure a loan, but won't boost your credit. If you wanted to use a home to improve your credit rating, you need to add your name to the mortgage.

Identification

Adding your name to the title on a home does not affect your credit. The credit rating bureaus only list accounts when a lender reports them. A bank would report a mortgage, for example, but the bureaus would neither know about your name on a property nor include it in a report because home ownership has no effect on a person's willingness to repay a debt.

Disadvantages

You may not be able to use ownership of the home to leverage credit. When multiple people claim ownership to a property, taking out a line of credit, such as a home equity line of credit, proves much more difficult. In most cases, you and the other owner must agree to ending a mortgage, such as if the original owner wants to refinance, or using the home to secure a loan. You and the other owner may have to go to court to resolve an ownership dispute.

Alternative

If you want to improve your credit, you should add your name to the mortgage rather than the deed. Almost all banks report payment history on a mortgage to all three major credit reporting agencies. However, this is risky for your credit. Should the primary account holder default, the lender reports the late payment on your credit history too. Also, the creditor often goes after cosigners in case of default.

Tip

Review the mortgage agreement with the primary account holder before adding your name to a deed. Most mortgages have a provision called "due on sale clause" which requires immediate repayment of the mortgage in full when the property owner changes or transfers ownership of the property. Some lenders may allow the primary owner to add you to a property if you ask them before attempting to change the deed.

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How to Improve Your Credit Rating and Increase Your Credit Score

Credit scores and ratings determine a plethora of things for a person. Your credit score determines whether you are eligible for renting or buying a home, for car loans, and for other credit cards and financial assistance. If your score or rating is too low you might be rejected or declined and no longer eligible for a specified amount of time, depending on the business reviewing you. By keeping your credit score and credit rating up, you will have more access to the resources and products you want or need.

Instructions

Improve Your Credit Score and Rating

1

Claim a free copy of your credit report to ensure all information is correct. Each person in the United States is allowed one free credit report from each of the three main credit bureaus annually. Your free reports are available from AnnualCreditReport.com. Beware of other sites, which might sign you up for paid offers that you would need to cancel after you received your report.

2

Find any errors on your annual credit report and take the necessary steps to get them fixed.

3

Cancel any paid-off credit cards that you haven't used for a long time and that you never plan to use again, especially if they are newer cards. By having fewer credit card accounts open, your credit report will not be overloaded with various credit cards when it is checked.

If there is an account that you use often, make sure to keep it open to continue building good credit. Having an active credit card account open and in good standing for a long period of time can help you build credit to improve your credit score and rating. Good credit history is built up over time by using the same select few accounts and keeping them all in good standing without having several unused accounts open.

4

Open a new credit card account only when absolutely necessary. If you don't need it, don't take it. By opening new accounts at various stores you visit, you accumulate a long list of credit cards on your report. That can cause points against your overall score and rating.

5

Keep your account balances low. The more money you owe to various companies, the lower your score and rating will be. By keeping these balances low, your credit scores will improve immensely.

6

Pay your bills on time. Keep your report clear of any late payments. If you pay a bill late, that will show up on your credit report, thus affecting your credit score and rating.

7

Avoid negative remarks on your credit report, which can cause your rating and score to plummet. By forgetting about a past-due bill that then is sent on to claims, your report receives a mark that will not go away for several years, even if you later pay that bill.

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How to Improve an Excellent Credit Score

For most Americans, the fate of their financial future is determined by three numbers: their credit score. The range of credit scores in the United States is from 300 to 850. A person with excellent credit will have a credit score of approximately 720 to 799. These people can secure low interest rates on things like home loans, credit cards and car loans. There are perks that people with an exceptional or perfect credit score have access to that even people with excellent scores cannot.

Instructions

1

Keep the balances on your existing credit cards low. A maxed out or nearly maxed out credit card can have a negative affect on your credit score. Keeping your balances low and paying the bill on time can raise the score.

2

Avoid opening new credit accounts or signing up for new credit cards as a way to raise a score. These can both lead to trouble in the future if the payments on several new accounts cannot be paid on time.

3

Check your credit score. You may have inaccurate collection attempts or misleading figures on the report that are keeping your credit score from improving. Contact the creditor that is responsible for the inaccuracies. Getting the inaccurate information taken off your report will help raise your score.

4

Avoid placing all of your credit card debt onto one or two cards. This strategy is known as debt consolidation and can actually lower your score. Many people choose to place the balances of several credit cards with higher interest rates onto one or two cards with lower interest rates. This can cause consolidated cards to become maxed out, which can lower your credit score. Instead, spread the debt out over several lower interest cards and pay these on time.

5

Continue to pay all of your bills on time. This will slowly but surely raise your score until you reach the top number.

6

Avoid closing accounts or credit cards that are completely or nearly paid off. This will have a negative impact on your credit score by reducing the amount of credit available to you.

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How Much Does a Repossession Change Your Score?

If you take out a secured loan and then do not repay the debt, the lender has the right to repossess the property that you pledged as collateral. Repossessions appear as bad debts on your credit report and have a negative impact on your credit score. However, the degree to which a repossession affects your credit score depends on your length of credit history and the way in which you manage your other accounts.

Credit Bureaus

In the United States, Equifax, Experian and TransUnion compile consumer credit reports. These companies all use a scoring system that involves awarding you a credit score of between 300 and 850. You get a high score if you manage your credit well and a low score if you fail to repay your debts. Credit scores are updated every time a creditor submits a report to the credit bureau, and this normally happens at least once a month because most lenders report your monthly payment activity.

Repossession

Your failure to repay your debt has a negative impact on your credit score even before your lender repossesses your property. The bad debt initially appears as a delinquent account and this causes a drop in your credit score. The lender notifies the credit bureaus about the repossession and at this point the lender closes the account because it sells your property to settle the debt. However, even though the repossession leads to the closure of the account, a record of the bad debt remains on your credit report for up to seven years.

Scores

Your payment history accounts for about one-third of your credit score. If you only have one active account and that account ends up with a repossession, then your credit score could drop dramatically. If you have dozens of open accounts in good standing, then your repossession has less of an impact on your overall score. Furthermore, past credit events also positively or negatively impact your score. Someone with a brief credit history will see a sharper drop in her credit score as a result of a repossession than someone with a long and otherwise positive credit history.

Considerations

Credit bureaus place more emphasis on recent credit events than past credit history, so over the course of time, your repossession has less impact on your score. You can offset some of the damage done by your repossession by paying your other bills on time and keeping low balances on your open credit cards. Since no two people have identical credit records, credit events such as repossessions impact different people's scores to varying degrees. However, repossessions, like foreclosures, are seen as a danger sign by lenders. So even if your good credit history limits the drop in your score, you may find that lenders are reluctant to lend you money in the near future.

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What Is a R9 on a Credit Report?

An R9 on a credit report means a particular type of account has been charged off by the lender. The terms charged off, bad debt and losses are interchangeable. The lender is reporting this account as a loss and removing it from its receivable listing because it has not been able to collect the balance.

Identification

On a credit report the, "R" stands for revolving. A revolving account is an account without a specific term such as 36, 48 or 60 months. Credit cards are examples of revolving accounts.

Time Frame

A charged-off account will remain on your credit for seven years. When this time frame has elapsed, the item should drop from your credit report automatically.

Significance

Bad debts or charged-off accounts will lower your credit score significantly. This can hinder your ability to receive credit, in the future, from other creditors. Lenders use credit scores to determine your level of risk. Scores range from 300 to 850. The higher your score, the better chance you have of receiving a lower interest rate on loans.

Considerations

A creditor will report an account on a credit report as a R9 when the borrower has not made a payment in approximately 180 days. These accounts are usually turned over to a collection agency for further collection activity.

Benefits

If you decide to pay off an account which has been charged off, you may be able to negotiate with the lender and have the derogatory information removed from your credit file. Some collection agencies are willing to negotiate and some are not.

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How to Obtain a Credit Report From All Three Agencies

A free credit report from all three credit reporting agencies can be requested once per year. TransUnion, Equifax and Experian are the three credit reporting agencies in the United States. These agencies compile information about credit history into a credit report that is typically accessed by financial institutions or other businesses offering credit.

Instructions

Request a Credit Report Online

1

Go to the website Annual Credit Report (see Resources). This website is the only site that provides a free annual credit report from all three credit reporting agencies without any additional commitments such as signing up for a monitoring service.

2

To request the report online, enter your state. On the following screen, complete all of the personally identifying information. After the information has been verified, the credit report will be displayed on the screen.

3

Print the credit report for easier viewing and for future reference.

Request a Credit Report by Phone

4

Request the free annual credit report by phoning Annual Credit Report. Call the agency at (877) 322-8228.

5

The employee will ask for identifying information including your Social Security number, date of birth and address.

6

After providing all of the personally identifying information, the credit report can be processed. The report will be sent to you through the mail within two to three weeks.

Request a Credit Report by Mail

7

Request your annual credit report through the mail. Go to the Annual Credit Report website and download the form (see Resources).

8

Print the form and fill out the form. Provide all requested information to avoid the form being rejected for incompleteness.

9

Mail it to the address provided on the form. The annual credit report should be processed and mailed within two to three weeks of being received by the agency.

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How to Dispute a Credit Rating

A good credit rating is important to your financial planning. Get your credit ratings regularly from the three credit reporting bureaus: Equifax, Experian and TransUnion. You should check the reports for errors. They affect your credit rating and your ability to get a line of credit. Always dispute a credit rating if you think the information is wrong. The Fair Credit Reporting Act (FCRA) requires credit reporting bureaus and lenders to correct errors in your report.

Instructions

1

Apply online at AnnualCreditReport.com to get a copy of your credit report from all three bureaus. Reports are free once a year. Getting the reports will enable you to dispute a credit rating if there are errors. Select your state from the dropdown box. Click "Request Report." Complete the application form accurately. Re-type the alphanumeric security code shown at the bottom of the application form into the box. Then, click "Continue."

2

Choose the reports you want to view: Experian, Equiifax or TransUnion. Choosing all three is best since report information can vary. Click "Continue," and your identity will be verified. You'll be given a link to set your username, password and password reminder. Click "Continue," and you can then access your chosen reports online.

3

Check your reports carefully. To dispute a credit rating, identify any errors and highlight them on your report. Make a note of the error, the lender and the credit reporting agency. Write down the correct information clearly.

4

Write to the credit reporting bureau. Provide detailed information of why you're disputing your credit rating. Be specific and identify each error separately. Enclose other supporting documentation and a copy of your report with the errors highlighted. Make sure you provide your full name and address, and retain a copy of everything you mail. Errors should be investigated within 30 days. The credit reporting bureau will contact the lender with details of your dispute. The lender must investigate and respond to the bureau. If the lender confirms that there are errors in your report, all three credit reporting bureaus must be informed, so the errors can be corrected. You will receive a written copy of the results and a copy of your credit report.

5

Make a written statement if you are not satisfied with the result of the investigation. Your statement must be concise. Detail the reason why you dispute your report and what you believe the correct information should be. Send the statement with a cover letter to the credit reporting bureau. Ask for the statement to be included in your credit file. Request that it be mailed to anyone who recently accessed your report. A fee may be required for this service.

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