2008 ~ Personal Finance and Money Management

Wednesday, December 31, 2008

Credit Help Solutions

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If you are worried about your credit, help is available -- starting with finding out where you stand. Order your credit score from the Myfico website. According to Experian, a good credit score is 700 or higher; with a score in this range, it becomes easier to qualify for refinancing. Also, obtain your free credit report from Annual Credit Report to check for accounts in collection and for late payments. Then, learn solutions to boost your score and improve your credit.

Open credit card and loan statements when they arrive and note the due date. Paying late is a key way to destroy your credit score. Since timeliness makes up 35 percent of your credit score, it's imperative to respect due dates and get payments to your creditors early or on time.

Don't get into a routine of charging items and leaving the charges on your credit card from month to month. Paying off debt and keeping your balances on credit cards below 30 percent of the credit limit helps solve credit problems by increasing your personal rating. Pay more than the minimum to reduce debt and once you've reduced or paid off the debt, start paying off balances in full each month.

Collection accounts and delinquent bills will hurt your credit score. Resolve these debts by paying off the balances in full, establishing a repayment plan to pay off the debt or negotiating a debt settlement with your creditors (pay less than the balance owed to satisfy debt). Ask creditors to update your credit report once you've paid or settled the debt.

Once a year order your personal credit report from Annual Credit Report. You can receive a free annual report from each of the three bureaus. Checking your report is imperative to detecting creditor errors and fraudulent activity. Annual Credit Report features a link to file an online dispute if your report reveals inaccuracies.

The type of accounts held in your name makes up 10 percent of your credit score. For this reason, it's wise to maintain diverse accounts, such as a credit card, student loan, auto loan and mortgage loan.

How Bad Does a Credit Score Go If You Default on a Loan?

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Defaulting on a loan is as bad as it gets in the lending industry, but with the release of a new version of the FICO scoring model in 2008, defaulting may not be as terrible for your score as in years past. Missing payments on a loan is usually the last option when you face a financial hardship. Most lenders will work with you to get you current on your account.

Missing a single payment puts your loan in default. A 30-day late payment hurts a score by 40 to 110 points, according to CNN. Expect damage in the higher end of this range if you have a score in the upper 700s and toward to the lower end for a score in the 600s. 90-day late payments cost up to 135 points and more if you cannot pay for 180 days.

After 180 days the creditor must declare the loan a loss. He has two choices: try to collect the debt himself or sell it to a collector. In either case, the charge-off or collection accounts does even more damage. If you settle the account for less than the original balance, you just add another negative on top of that. How much damage this means nobody can say, because it depends on a host of other factors, such as any other delinquent accounts. Once you get to a debt settlement or charge-off, your score is probably already in the tank.

Lenders that use the latest FICO software as of 2011 -- FICO 08 -- will likely see a higher score for your credit report than a creditor that uses an older version. FICO 08 treats the occasional 30-day late payment less harshly than in previous years. You can probably regain the points lost on a short default within a year or two.

Accept missing payments for a month or two only as a last resort and try to work with lenders the minute you feel you could miss a payment. The lender might allow you defer payments -- stopping payment for a few months with the agreement that you will pay a lump sum for all of the deferred months at the end of the agreement. Some creditors could even permanently lower your interest rate. This eases the strain of the monthly debt payment and saves your credit score.

The Effect of Multiple Credit Score Requests

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Several factors go into calculating your credit score. One of these factors is the number of credit score requests. If you make several credit applications in a short period, it can hurt your score. Multiple applications make you look desperate for money and, therefore, a bad credit risk. However, there are exceptions where multiple credit score requests won't hurt you.

Every time you want to borrow money, whether as a mortgage, a personal loan, a car lease, a credit card or even a cell phone contract, the lender will run a credit check. A credit check tells the lender how likely you are to pay back the debt. Your credit history is summarized in a three-digit number --- your credit score. The higher the score, the more creditworthy you are. People with low credit scores find it difficult and expensive to borrow money.

Each credit request affects your credit score by approximately five points. However, other things have a much greater effect. If you miss a repayment, your score will suffer. If you're more than 90 days behind, it can cost you as much as 100 points. If you've maxed out your credit lines, your score will also drop. Having a high debt-to-income ratio will hurt you more than a few credit score requests.

You can check your credit score as often as you like without affecting it. You can get a free copy of your credit report online. The free report does not include the score, but it gives you an idea about the state of your credit history. If you want to know your exact score, you can get it from the bureaus for a fee.

If you are in the process of buying a house, it's a good idea to shop around for the best deal on a mortgage. This will result in multiple credit score requests. You can avoid hurting your score by making all of your inquiries within 45 days. Then, they will count as a single inquiry. If you do apply for a mortgage, any inquiries made in the 30 days before the application will count as one.

How to Figure Out Your Credit Score (FICO, BNI)

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Your credit score is used by lenders and credit card companies to make decisions about whether or not to extend you a line of credit or issue you a mortgage or auto loan or business loan. Creditors also use your credit score to figure out how much interest to charge on a loan. Knowing how important credit score is, you're probably wondering who decides what your credit score is and exactly what it is. Find out how to understand the process of credit scoring whether or not you can figure out your credit score on your own.

Instructions

Learn the range of credit scores. For people in the U.S., a credit score is a number from 300 to 850 that represents the risk to a lender that you'll default on a debt, loan, or payment or declare bankruptcy. You cannot figure out a credit score on your own, as the formulas are not made public. However, you should be able to find out what your credit score is. See Tips for information on what is considered a "good" credit score.

Decide what purpose you have in finding out your credit score. Whether or not your credit score is considered good or bad, risky or not, varies depending on what kind of loan you're seeking - a mortgage, auto loan, or revolving credit. And your riskiness to lenders--how credit worthy you are--depends on more factors than just credit score.

A credit score compares you with others who have similar credit history data and makes projections about your borrowing and payment behavior. The most well-known type of credit score is called the FICO score, which stands for Fair Isaac Corporation. You FICO score tells your creditors how likely you are to default on a mortgage, auto loan, or consumer credit loan. The BNI score tells your creditors the statistical likelihood that you'll declare bankruptcy.

Keep in mind that credit scores are calculated independently--using different statistical models--by the three consumer reporting companies, Equifax, TransUnion, and Experian. Your credit score may be different with each company. The information that goes into calculating your credit score comes from reports by lenders in your credit history.

Understand that FICO scores are also called BEACON scores by Equifax, Experian/Fair Isaac Risk Model by Experian, and Empirica by TransUnion.

Equifax, Experian, and TransUnion are the three consumer reporting companies who calculate credit score and report credit score to lenders and consumers, as well as insurance companies, landlords, and employers. If you want a copy of your credit score, know that you are entitled by the FCRA (Fair Credit Reporting Act) to receive your credit score from these companies for a small fee along with your free annual credit report.

What Is the Safest Way to Look Up My Credit Score Online?

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Managing your credit is important to make sure you get the best financing possible on any purchases you make. Also, the better your credit score, the more negotiating power you have with credit card companies. Choosing the right source for checking your credit is just as important as keeping on top of your score.

There are three major credit reporting agencies, Equifax, Experian and TransUnion. Not all creditors report to every credit agency. Because of these differences, it is important to check all three scores on a regular basis. Your credit score, FICO, for example, is based on a proprietary mathematical formula. Each agency calculates your credit score differently.

The Fair and Accurate Credit Transactions Act allows you to get a copy of your credit report from each of the three credit bureaus once every 12 months. The rules also state that you must be able to get all three reports with one contact, a phone call, letter or website inquiry. While you can get your credit report for free, you have to pay for your score, since that isn't covered by the law.

A credit score is one of the major things that a lender looks at when making a loan decision. Since your score is made up of information about how you have handled your debts in the past, it gives lenders a good indicator of what you will do in the future.

The higher the score the better. Sometimes the score just determines whether you will be extended credit. With some larger purchases---homes and cars, for example---the score helps determine the interest rate and fees you will be paying.

The credit reporting agencies have created www.AnnualCreditReport.com to be the centralized service to get your annual reports. This is the only site that is authorized by the agencies to provide your score.

When you are requesting your credit report you can also order your score.

You can also order your credit score directly from the credit bureaus at their websites.

You can get your annual credit report online in many places. The safest and most reliable is the one provided by the credit bureaus themselves.

If you haven't gotten your report in the last 12 months, order your report and score at www.annualcreditreport.com so you can get the score and the information that the score is based on.

If you have gotten your report recently, then go directly to the credit bureau whose score you are interested in checking. The updated score will show the effect of the payments you have made since you last got your report.

Who Has Access to My Credit Report?

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Your credit report is a very important database of information about you and your financial history. It is rightly kept confidential for most purposes, but several agencies and companies can look at it. Some need your permission to access the report, and some do not. Access to your credit report is regulated by the Fair Credit Reporting Act.

You have the right to see, for free, the information compiled about you by the three credit bureaus once a year. You can do this through Annual Credit Report, the only authorized website backed by all three agencies to provide truly free reports in accordance with federal law. It can be a good idea to request the report of a different agency every four months, as you can then check your credit three times in one year. Each agency has procedures in place for you to dispute any information on the report that you think is inaccurate.

If you request a loan from a bank or mortgage broker, you give it permission to check your credit report. This is also the case when you open a credit card account --- the company will check your credit report as a matter of course. If you are denied credit as a result of a check during the application process, the lender must inform you of this in writing. Credit card companies that want to send you pre-approved card offers can also check your credit without your permission. Companies through which you already hold loans or credit card accounts can access your report periodically as part of the routine maintenance of your account.

If you apply for homeowners or auto insurance, the insurance company will check your credit as part of the underwriting process. Your credit score and the information in your report will affect the terms of the insurance that you are offered.

Most private landlords will request a credit check before deciding whether to rent to you. You must consent in writing to this credit check and give your Social Security number so that the landlord can access your report. Many employers also do a credit check as part of the screening process before offering you a job. Again, the company must get your express permission to access your report.

If you are ordered by the courts to pay child support, the agency in charge of administering the payments can access your credit report. Law enforcement agencies also have the right to see your credit report in connection with terrorism or counterintelligence investigations.

Can You Really Repair Your Credit?

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When it comes to credit mistakes, such as bankruptcies, missed payments and accounts in collection, nothing is forever. However, companies promising quick credit repair are unlikely to deliver through legal methods. There are many things you can do to repair your credit mistakes, but they take time and effort on your part.

The only way an event or action affects your credit score is if it appears on your credit report. Therefore, the first place to focus when repairing your credit is your report itself. Every piece of information on the report should be accurate. Mistakes could be dragging your score down. If you find inaccurate information, such as an account listed with a balance past due when it was really included in your bankruptcy last year, dispute it with the credit bureau that provided the report. You can write a dispute letter, call the credit bureau or file a dispute online.

One of the best things you can do to repair your credit once your report is accurate is to pay all of your bills on time. Your payment history is the most important factor used to calculate your credit score, so cleaning up your act in this area can have a significant impact. To pay your bills on time, you will not only need to remember when each bill is due, but you also need to have the money to pay it at that time. Create a household budget and set aside money from your paychecks to cover all of your bills before you spend on luxury items.

Reducing your debt is easier said than done, especially if you are on a tight budget, but you cannot have a good credit score when your credit cards are all maxed out and you are applying for new credit all the time to make ends meet. At first, just focus on spending with cash or debit rather than credit so you do not increase your amount of debt. After you can cover all of your monthly expenses and debt payments, decrease your expenses further so you can make extra payments on your debts with the highest interest rate. Ideally, you should never use more than 30 percent of your available credit line on any credit card.

Many credit repair companies aid customers in using fraudulent methods to repair their credit. Examples of fraud include misrepresenting information, obtaining an Employer Identification Number as an individual to avoid using your Social Security number to apply for credit, and applying for credit with another person's name and Social Security number. You could be prosecuted for these actions, even if a credit repair company advised you to do them.

Keys to Raising Your Credit Score

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Maintaining a good credit score is important when using a lender to purchase a home, car or other items on credit. Consumers with high credit scores can borrow money at much lower interest rates than consumers with poor credit scores. If you desire to improve your credit score, follow a few key steps. How much your credit score improves and how long it takes depend on your personal credit situation.

The primary way to improve your credit score is to improve your payment history. According to My FICO, payment history accounts for 35 percent of a consumer's credit score. Failing to pay your debt on time can cause your credit score to plummet. When you miss a payment deadline, you should get it current as quickly as possible. To help make timely payments, you can set up automatic payments with your creditors and bank. You should make payments even if they only equal the minimum amount. A small, timely payment is better than not paying your bill at all. As you continue to make timely payments, creditors report your positive payment history to the credit bureaus and you score begins to slowly increase.

Although this is often the hardest task to accomplish, reducing your outstanding debt while maintaining your credit limits causes your credit score to increase. Your outstanding debt makes up 30 percent of your credit score. After several months of paying down your debts, your credit score should improve, and even a modest increase in your credit score can cause a significant difference in the interest rate you receive on a mortgage or car loan.

Errors on your credit report can cause a decline in your credit score. To improve your credit score, you should contact the credit bureau reporting the erroneous information and inform them of all errors. You may need to provide proof that the blemish on your credit report is not accurate. For example, if your report states an incorrect account balance for one of your credit accounts, you can submit your most recent credit card statement or a letter from your credit card company stating the correct balance of your account. Keep copies of all documentation sent to credit bureaus and send certified mail to verify they got your information.

The length of your credit accounts plays a part in your credit score, around 15 percent. Your older accounts impact your credit score more than newer accounts. When choosing between your new and old accounts, you should use your older credit cards to improve your credit score. Using your older accounts does not mean you must rack up a huge credit card bill. You can simply make periodic purchases and pay off the bill when it's due. To avoid a decrease in your credit score, keep your accounts open. Closing your credit card accounts can cause a decline in your credit score.

What Is a Reasonable Credit Score?

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It might seem like a paradox, but the average person has an above average credit score, because people with bad credit tend to have extremely low scores that drag down the national average. A "good" credit score is within reach of just about anyone, because it does not require any secret tactics, just paying your bills. A reasonable credit score, however, can vary, depending on where you apply for a loan.

The average credit score was 692 as of March 2011, according to the Experian National Score Index. At a score of 692, you will probably qualify for any loan, but do not expect lenders to give you the best rates or roll out the red carpet. However, you are getting very close to having an excellent credit score. You also could shop around for a lender with the lowest lending standards to make your score look better without actually increasing it.

About 40 percent of borrowers have a credit score above 750, according to Score Truth, so it is well within reason to reach for a score that matches or exceeds this. Once you get above 750 to 760, you are almost guaranteed to get the best loan rates, even with the tightest lending standards in years in 2011. This should be your goal, because anything less and you probably pay more finance charges on loans.

Thirty-five percent of your credit score comes your total existing debts, 30 percent from your payment history and 15 percent from the length of your credit history. As long as you eliminate as much debt as possible, pay on time and have accounts that are several years old, you probably have an average or above average score. The last 20 percent comes from having several revolving and installment accounts and any new accounts. You usually only have to worry about the last two if you want a very high score or are trying to rebuild credit.

You should aim for the highest credit score tier possible--above 760--and always attempt to improve your score. If you do not have a major credit card, such as Visa, MasterCard, Discover or American Express, get one and at least one active installment account, such as a car loan. If you cannot eliminate your credit card debt, spread it across your credit card accounts so you do not use too much of the limit on any one card. You could consolidate revolving debt into a personal installment loan, because the FICO scoring system cares less about installment debt than unsecured revolving lines, but expect higher interest rates, according to Liz Weston of MSN Money Central.

How to Read Equifax Credit Report Codes

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Credit reports can sometimes look like a document written in a foreign language. Equifax credit reports use an Account History with Status Code listing only with some accounts. This number and letter system indicates the current state of the account and shows the status for any month and year that a payment was at least 30 days or more past due. The numbers 1 through 6 and the letters G, H, J, K and L are used.

Instructions

Read the last line of information entered for the account on the credit report you're inquiring about. This is a line of numbers and letters underneath a month and year date, if there were months when a payment was late. The listing ends on the first month and year that it was reported to Equifax. The first month and year listed on that line indicate the status of the account as it was last reported.

Read from the left on this line any letters that are listed under a month and year date. The letter G will indicate a collection account, H indicates a foreclosure, J shows a voluntary surrender, K will indicate a repossession and the letter L will indicate a charged-off account.

Read any number codes that may be listed under each date. The number 1 will indicate which month and year the account was 30 to 59 days past due. The number 2 shows any date the account was 60 to 89 days past due. A 3 indicates that the account was 90 to 119 days past due. The number 4 means that the account was 120 to 149 days past due. Number 5 shows a payment was 150 to 179 days past due and number 6 indicates the account was 180 days or more past due in the month and year indicated.

How to Raise Your Credit Score Quickly

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Learn how to boost your credit score without spending money with online credit repair companies! No matter what your credit history or how low, it can always improve.

Instructions

Pay your bills ON TIME! A large part of your FICO score is determined by your bill payment history. Set up an automatic withdrawal on your bills. However, be careful not to spend your bill money on shopping sprees!

Pay all your credit card bills down to less than 40% of your limit. Example: If your limit on a credit card is $1,000, then always keep your balance $0-400. To apply this formula to other cards simply multiply your limit by .40 or 40%.

Having excessive credit cards takes a toll on your FICO score. Trim the credit cards in your wallet down to only 1 of each major credit card. Get rid of any unnecessary retail credit cards.

If you have several credit cards with PAID balances, it is not always necessary to close them. Just do not use them. Leave them open! By doing so, you are helping your credit history.

Call all credit card companies if you are having difficulty paying. Stop ignoring debt collector calls. Many times you can prevent negative credit information from being reported on your credit report.

If you have any credit history on your credit report that is old BUT is positive. KEEP IT THERE! Do not have it removed from your Credit report.

Have all negative information removed from your credit reports by disputing either by mail or directly online.

What Can I Do If There Is Incorrect Information in My Credit Report?

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Your credit score is based solely on the information contained in your credit report. If your credit report contains incorrect negative information, this information is artificially dragging down your credit score. If you find an error on your Equifax, Experian or TransUnion credit report, dispute the error with the credit bureau that has the inaccurate information.

Obtain your credit report from the credit bureau website or through the Annual Credit Report website, and print out a copy of the report and circle every piece of incorrect information you find. Examples of incorrect information include a wrong date for when you opened the account, a listing of a missed payment when you actually never missed the payment or a listed account that you never opened. In addition, if the report contains any negative information from more than seven years ago, or 10 years for a Chapter 7 bankruptcy, dispute it because information that old should not appear on your report.

Type your full name and address at the top of the dispute letter. Write an opening sentence that states that you are writing to dispute incorrect information that appears on your credit report. In the body of the letter, clearly identify the item that is incorrect, state why you believe it is incorrect and request that the credit bureau investigate the item and correct your credit report. The Federal Trade Commission website provides a sample letter that you can adapt to your specific situation.

Make photocopies of any documents you have that support your case. For example, if your credit report shows an inaccurate missed payment, you might have a payment record from your credit card that shows that your payment was received on time. Do not send the original document in case the credit bureau loses it. Make copies of the dispute letter for your records.

Mail a dispute letter and enclosures to each credit bureau that lists the incorrect information. Send it through certified mail and request a return receipt so you have proof the credit bureau received it. In addition, mail a copy of the letter and enclosure to the company that reported the incorrect information. For example, if the dispute was related to a credit card account, mail your dispute letter to that credit card company.

Can I Get a Free Score After Revisions to My Credit Report?

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Revisions to your credit report occur when you dispute an entry with the credit reporting agencies and the agencies determine that the disputed notation is, in fact, invalid and remove it from your credit history. A common misconception surrounding revised credit records is that consumers receive a free credit score after the credit reporting agencies revise their records. Unfortunately, this isn't the case.

The Fair Credit Reporting Act, or FCRA, entitles you to a free updated copy of your credit report from the credit reporting agency that modified your records following a dispute. The information present on your credit report is the same information used when calculating your credit score. You aren't, however, entitled to a free credit score after correcting credit errors. Even if your score changes following a dispute, you must purchase your score to view the impact the change has on your credit rating.

You can purchase your VantageScore, or "consumer credit score," directly from each credit bureau; you can access your FICO score through the Fair Isaac Corporation at MyFICO.com. Because VantageScores and FICO scores are calculated using different formulas, your credit scores will differ depending on where you purchase them from. Certain third-party websites also sell credit scores calculated using a private formula.

Although websites often advertise "free" credit scores, obtaining a legitimate FICO score or VantageScore by itself isn't free. If you don't purchase your credit scores by themselves, you can purchase access to them as part of a monthly credit-monitoring service. Credit monitoring allows you to view your credit report whenever you wish and gives you access to your credit scores as a bonus.

Certain credit monitoring services provide consumers with a free trial. If you opt for the free trial, you have access to your credit report and credit score free for a limited period of time. Unless you cancel your account during the trial period, however, the company charges your credit card a recurring monthly fee.

Your financial information may differ depending on the credit report you review. Because your credit information determines your credit score, your credit score may also differ depending on the credit bureau that provides it.

Although certain lenders pull your credit score from only one credit bureau, others utilize your scores from all three bureaus when making a lending decision. Thus, if you want to review your scores before shopping around for a loan, purchasing your credit score from all three credit bureaus provides you with the most complete picture of your creditworthiness.

How Can I Raise My FICO Score As Quickly As Possible?

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The FICO credit score is a number in the range from 300 to 850. The three national credit bureaus, Equifax, Experian and TransUnion, prepare credit reports and calculate the FICO that quantitatively evaluates an individual's creditworthiness. Generally, a higher credit score allows you to obtain loans, mortgages or a line of credit more easily and with lower interest rates. To increase your FICO score quickly you need to improve your payment history and reduce your credit card debt since these two components have the largest influence on the credit score.

Instructions

Get your credit reports from each of three credit bureaus using the link in Resources.

Examine carefully each credit report. If there are errors or discrepancies in your credit reports contact the respective reporting agency to correct them; this allows you to instantly boost your FICO score.

Review carefully all your credit card statements each month, noting the amount due and the due date.

Pay your credit card bills (at least the minimum amount due) and monthly loan installments on time. Keeping an excellent payment history is the fastest way to increase your FICO score.

Pay your credit card debt as fast as possible to raise your FICO score quickly; your goal is to bring credit utilization below 30 percent for each credit card. For instance, if a credit line is $5,000 your goal is to bring the balance below $1,500 ($5000 x 30 /100).

Keep credit card accounts with a zero balance open. Such accounts decrease your total credit utilization and hence improve your FICO score.

Use each of your credit cards at least once a month. This builds up and improves your payment history, and also prevents credit card issuers from closing your accounts due to inactivity.

Can Being a Cosigner on an Established Credit Card Help Increase Your Credit Score?

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Creditors often report credit accounts to the credit bureaus. The bureaus, in turn, use this data to compile individual credit reports on consumers. The Fair Isaac Company, or FICO, uses the data in your individual report to calculate your credit score. Information on your credit report can negatively or positively impact your credit. If you're a cosigner on a credit card, it's beneficial to understand if this can help increase your credit score.

Your credit score runs from 300 to 850 and has five major factors. According to FICO, ten percent of the score is the type of credit mix that you have. Fifteen percent is the average length of your credit history. Thirty percent is the amount of debt that you have. Another 10 percent is the amount of credit you've recently applied for and the final 35 percent reflects how well you've paid your bills.

An established credit card account on your credit report can help your score, even as a cosigner. FICO looks favorably on a longer credit history because it shows you've managed credit for an extended period of time. Fifteen percent of your score is the average length of your credit history, which means all of the credit accounts are added together and then divided by the number of accounts. According to FICO, generally the longer your credit history, the higher your score.

As a cosigner, any payment activity on the credit card account will appear on your credit report. On-time payments will help increase your score. Late payments on the account can severely damage your credit. According to MSN Money, one 30-day-late payment can drop your FICO score by as much as 110 points. The later the payment, the more damage it will do to your overall score.

As long as the account remains in good standing, it will positively impact your credit score. Any derogatory occurrence on the account, such as a late payment, will not only damage your score at the time the derogatory hits your report but will continue to negatively affect your credit for years to come. Under the Fair Credit Reporting Act, negative account data can remain on your credit report for up to seven years from the date it occurs. Positive payment history can remain on the report for up to 10 years.

Keep in mind that as a cosigner, the way the primary borrower handles the credit card account will directly impact your credit score. If the primary borrower makes payments late, maxes out the card by charging up to its credit limit or goes over the credit limit, this activity will appear on your report and could damage your score. Therefore, you should consider very carefully the reliability of the person for whom you intend to cosign.

Also, since you cosigned for the debt, you agreed to be responsible for payment if the primary borrower fails to pay. The card issuer may seek payment of the debt from you. Depending upon the dollar amount, the card issuer could sue you and the primary borrower. If the card issuer obtains a judgment, this will appear on your credit report as a public record and according to FICO, it will have an adverse impact on your credit score.

Steps to Raise Your Credit Score

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A credit score is a number lenders use to help them decide whether you qualify for credit and how much they should charge you for it. It offers a guideline for lenders to determine how much of a credit risk you are and whether you are likely to repay on time. The companies that report your credit score use a complicated mathematical system to calculate it. You increase your score by the way you handle credit.

Carefully review your credit reports from each of the three major credit reporting agencies--Equifax, TransUnion and Experian--to check for inaccuracies. Immediately correct any errors that you find. Do this periodically, at least once a year.

The most important way to raise your credit score is to make your payments on time. Payment history accounts for 35 percent of your score. This includes payments on all your open lines of credit--a mortgage, a student or car loan or bank, department store and gas station credit cards.

Set up automatic payments and make sure that the funds to cover them are in your account. Pay close attention to due dates, which sometimes change from month to month.

Keep the balances on your credit cards as low as possible because amounts owed account for 30 percent of your score. This includes the number of accounts that hold balances, so limit those as well.

Every time you apply for a department store card to save 10 to 15 percent on your purchase, a credit inquiry is sent to a credit reporting agency. This also happens each time you apply for a car loan, credit card or bank line of credit. Demonstrate responsible borrowing behavior and boost your score by limiting the number of such applications.

The longer you have had credit--i.e., the older your credit history--the better for your credit score. Try to have at least two credit accounts of at least $2,500 each open for at least two years. If you already have two years or more of credit history, keep your older credit accounts active by using them every couple of months so the lender will keep sending updated information to the credit reporting agencies.

How to Write Dispute Letters to Creditors

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The Fair Debt Collection Practices Act and the Fair Credit Reporting Act regulate how creditors can collect on debts and how they must report debts to credit reporting agencies. The laws serve as protection from unscrupulous creditors who may try to get people to pay more than they owe or to pay debts that are not theirs. The FDCPA allows consumers to dispute information that is incorrect or to dispute responsibility for debt.

Instructions

Write the creditor's name and address in the top left corner. Write "Subject:" and the account number from your credit report or the debt collection letter.

Tell the creditor the date you received a copy of your report or the collection letter and state your dispute in the first paragraph. If you are only disputing inaccurate information about the debt, such as balance amount, date or payment status, give the correct information and request a change. If you dispute the debts is yours, request documentation that validates the debt, such as copies of signed contracts and credit applications.

Remind the creditor that it must adhere to the laws of the Fair Debt Collection Practices Act when it sends validation of the debt and other information and must respond within 30 days of receiving your letter. Tell the creditor that the Fair Credit Reporting Act requires it to report the debt as "Disputed" to the credit reporting agencies until the matter is resolved. Place these sentences in the second paragraph. Sign at the bottom of the letter.

Include documentation such as bills, canceled checks or receipts of payment and account statements to prove the changes you have requested are correct. If you are disputing the debt in its entirety, you do not have to send any documentation. Mail the letter and any documents by U.S. Postal Service using certified mail with a return receipt requested. This provides a documented start date for the 30 days window because the creditor must sign for the package. The post office will send you the signature card with the date and time of pick up.

Wait for the creditor to investigate your claim and send a notice of its findings and the action it will take. If it cannot provide validation of its information as required by the FDCPA within 30 days, it must comply with the changes you requested or stop reporting the debt to the credit reporting agencies.

Who Can Check My Credit?

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Under federal law anyone or any business can check your credit score but only for a legitimate business purpose. Generally, you do not have to give your consent for someone to check your credit score. Credit scores are used to build a character profile and if you have a low credit score, companies may view you as a high risk customer. That could cause you to be denied services or have to pay above-average rates on loans and fees.

When you apply for new credit the lender checks your credit score. Your credit report details your payment history and current debt levels. When you make a payment more than 30 days after the due date, the creditor notifies the credit bureaus and the late payment lowers your credit score. A loan default or bankruptcy filing can remain on your credit file from seven to 10 years. Lenders are reluctant to lend to people with a history of making late payments and defaulting on loans. Some state laws require lenders to ask your permission before pulling your credit. But if you refuse your consent, you cannot qualify for a loan since the credit check forms an important part of the application process.

Insurance companies deal with risk on a daily business. Unsurprisingly, insurance companies check your credit report to determine how much of a risk you are to insure. If you have poor credit, the insurer assumes you are more likely to default on insurance premiums and therefore the insurer may charge you a higher rate.

Prospective landlords also check your credit because landlords do not like to rent to people who have a history of not paying their bills. Other companies including phone providers and cable TV companies also check credit before providing services to new clients.

When you apply for a job the prospective employer may order a credit report but only with your written consent. Companies in the financial services industry are particularly wary of hiring people with money problems. These firms almost always check applicants' credit reports.

Government agencies can check your credit report but only to affirm your identity. If you apply for some kind of government licensing the agency handling your request normally check's your credit report. State child support agencies also monitor credit reports when attempting to arrange child support payments.

Federal laws entitle you to a free annual credit report from each of the credit bureaus: Equifax, Experian and TransUnion. You must pay a small fee, though, to receive your actual credit score. Some companies monitor your credit report on your behalf to try to detect and prevent fraudulent activity. These firms must have your prior consent and normally check your credit report once a month in exchange for a service fee.

What Happens to a Credit Score When Items Are Deleted?

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Your credit score is based directly on your credit report information. Positive and negative data in your reports are plugged into the scoring formula to determine the three-digit number that represents the likelihood that you will repay your accounts. The score fluctuates as the three credit reporting bureaus -- Experian, Equifax and TransUnion -- continually update your reports by adding new data and deleting items for various reasons.

The credit bureaus erase credit report information when the allowable reporting time expires. Bankruptcies are deleted in 10 years, while most other harmful information, from late payments to collection accounts and judgments, is eliminated in seven years, according to Diane Moogalian of Equifax. Open accounts remain on your credit reports, but closed accounts with positive status are usually deleted within 10 years. The bureaus also must delete disputed entries if the companies that provided the data cannot verify it within 30 days after receiving a consumer complaint.

Old accounts that were in good standing when they were closed lose their positive credit score effects over time because of the lack of activity. By the time they are finally deleted, they no longer have much effect on your score. Old negative items have some effect until they are erased, so your score may go up slightly once they are erased. Deletion of recent negative information can raise your score significantly, depending on what gets erased. For example, the MyFICO scoring site identifies late payments, collection accounts and judgments as heavily weighed items, so their deletion is very helpful to your score.

You can sometimes negotiate deletion of negative items before their reporting period ends. Your score goes up when bills written off as bad debt and collection agency accounts get removed. Call your creditor or the debt collector, offer a partial or full lump sum settlement and explain that the account must be completely deleted from your credit reports in exchange for the payment. To ensure the creditor or collection agency complies, get the agreement in writing, Bankrate columnist Steve Bucci explains.

The credit bureaus are supposed to automatically delete outdated items and unverified data involved in disputes, but sometimes they remain on your reports. Experian, Equifax and TransUnion must provide you free copies of your credit report after processing disputes so you can verify that the appropriate items are gone. You can obtain a free copy of your credit reports once a year through AnnualCreditReport.com to check whether items scheduled for deletion have been erased. This site is run by the bureaus to comply with federal law, the Federal Trade Commission explains. You should dispute any outdated information you find in your files.

How to Get a Real Credit Report

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The Federal Trade Commission (FTC), as part of the Fair Credit Reporting Act, requires the three credit bureaus Experian, TransUnion and Equifax, to issue every citizen a free copy of her credit report once a year. Request a copy of your credit if you have recently been denied credit, as well. There are a lot of scam websites that offer you a free credit report, but then charge you a monthly fee to monitor your credit. Get the real deal by going to the right site.

Instructions

Visit the website AnnualCreditReport.com. This is the official site to get a free credit report.

Select your state from the drop down menu. Press the "Request Report" button.

Enter your identifying information. This is your address, birth date and Social Security number. If you have lived at your address for less than two years, enter your previous address. There will also be a security text to make sure that you are a real person or you may have to enter your phone number to verify by phone. Click "Continue."

Verify your identity. The site will then ask you a question to verify your identity. Typically, it will give you a choice of different addresses or cities and ask which one you've lived in. One option is "None of these." Select the correct answer and choose "Continue."

Choose the credit report that you want to see. Choose from the three credit reporting agencies. You can view them all, but not at the same time.

Decide whether to pay to see your credit score. While it's free to see your credit report, you will have to pay to see your credit score. You'll be given the option to pay to see it or to continue to your report. Once you've made this selection, view the report.

View the report from a different credit agency. When you've finished looking at the first credit report, you can return to the bureau selection screen and view a different report.

How Much Will the Credit Score Increase After Closing a Debt?

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Paying off debt almost always improves your credit score, but which debts you pay off first determines how fast your score rises. However, you never know how much your score will rise after making the last payment on a debt. In general, it is better to try to pay off all of your debts and accept whatever points you gain than to try to calculate the exact point value of eliminating a certain debt.

The FICO scoring model is so complicated that asking for the exact point value of paying off debt is impossible. While the Fair Isaac Corporation reveals that 30 percent of a credit score comes from the amount of debt owed, several variables with unknown values affect the number of points taken away when you add debt to a credit profile. In general, the FICO model gives more weight to paid debt on a revolving account than a secured debt, such as a mortgage, because secured debts have real property against the loan.

The Fair Isaac Corporation, designer of the secret FICO formula, sometimes reveals data on the effect of certain events on a credit rating. A 2009 Fair Isaac Corporation study found that a maxed-out credit card takes 25 to 45 points off a FICO rating of 780 or 10 to 30 points off a rating of 680. If you settle an account for less than the value of the debt and the lender reports the account as settled to the credit reporting bureaus, the account does 105 to 125 points of damage on a score of 780 or 45 to 65 points of damage to a rating of 680.

Much of the effect of closing an account depends on other data in your credit history. If you have several missed payments, or if the lender writes off a debt or sends a debt to a collection agency, paying the bill has little effect on your credit rating compared with the damage the presence of a negative account will do. In some cases, you can get the lender to agree to remove record of the account with the credit bureaus. For example, if you pay off an IRS lien, the agency withdraws the lien from the public record if you make that a part of your payment terms.

Paying off debt usually is a good idea regardless of how it impacts your credit rating. Lenders like to see borrowers paying off collection accounts because it shows good character. Reducing debt levels means your outstanding balances do not accrue finance charges. Review state law to ensure you actually owe on the debt. Unsecured debts usually become noncollectable after a few years. The bureaus cannot report most debts after seven years on your credit report.

How to Get a Negative Comment Off Your Credit Report

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Your credit score can affect many areas of your life, including lending, purchasing property and automobile insurance as well as gaining employment. Because your credit score is so important, you should check your credit report regularly and diligently work to have all negative comments removed. To get a negative comment off a credit report, one must dispute the item with the credit bureau that has reported it. The dispute process can be easily accomplished online.

Instructions

Acquire a copy of your credit report. It is best to have a copy that details information from all three credit bureaus as sometimes the information will vary among them. You want to make sure you get the negative item removed from every bureau that has it reported.

Access the credit bureau website and navigate to the section that allows people to dispute an item on their credit reports.

Use the information on your credit report to fill in the information section of the online dispute form. You need to know the exact item you're disputing and the reason why.

Check your email over the next 30 days to see the response from the credit bureau. The creditor has 30 days to respond to any dispute, or the credit bureau must remove the item from your account. If you do not receive response from the credit bureau within 45 days, and the item is still on your credit, submit the dispute form again with a note that this is the second time you are filing the dispute due to non-response.

How Does a Credit Report Work?

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Chances are good that you've had your credit report checked by a lender or creditor. What your credit report says about your borrowing and repayment habits greatly impacts the loan and interest rates you qualify for. It is very important to understand what a credit report is, who puts the information there and who has access to it. A credit report can best be described as a summary of your credit history. It lists any credit account or loans you have, balances, payment history and any actions brought against you because of defaulted payments.

Your credit report contains 4 types of information: Personal, credit-related, recent inquiries and public record information.

Personal Information: Your name, past and current address, telephone number, birth date, Social Security number and employers.

Credit-related Information: This contains your payment history on all accounts (mortgages, retail stores, credit cards, other loans and lines of credit). It also contains information on credit limits, monthly payments, missed payments or defaults, and whether the account has been paid off or closed.

Public Records: This section usually contains bankruptcies and court judgments you might have against you.

Recent Inquiries: This includes a list of dates and names of people who have accessed your credit report. Some people who access your credit report are current and prospective creditors and employers.

The only people allowed to access your credit reports are prospective and current employers and creditors, insurance companies, government agencies and yourself. One thing to remember about your credit report is that it does not tell a lender whether to grant you a loan; it merely provides relevant data and leaves the decision-making to the lenders.

Check your credit report often to make sure that the information is accurate. You are entitled to one free credit report a year from all three credit reporting agencies (Equifax, TransUnion and Experian). Report any errors immediately.

How to Update an Address on Equifax

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Having an updated credit report is the best way to receive accurate information on your credit file. The wrong address can discourage creditors from lending to you because cannot verify your personal information. Understanding how you can change the address on your Equifax report will keep your file updated and accurate.

Instructions

Write a letter to Equifax asking that it update your credit file. You must provide your Social Security Number, name, previous address, telephone number and your new address. Mail the letter to Equifax Information Service, LLC P.O Box 740256 Atlanta, GA 30374.

Access the Equifax website to initiate an online dispute to change the address on your file. To initiate a dispute, visit equifax.com, and click Member Center followed by Dispute. Select Initiate an online dispute to move to the next screen.

Enter your information into the appropriate fields. Insert the verification code and click Submit.

Select Update your address from the drop-down menu and enter the correct address in the populated fields. Click Submit to forward the request to Equifax. Equifax will update your file in approximately 30 to 45 days.

Contact all of your creditors and request that they update their files with your new address. This is important because Equifax uses the information that the creditors have on file to keep your information accurate.

What Effect Does Divorce Have on Credit Score?

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It is easy to get caught up in the stress of a divorce and disregard aspects of your separation from your spouse that would impact your credit score. Being aware of the potential credit effects a divorce can have ahead of time can help you prepare for your future.

If you live in a community property state, you may be held liable for debts that your ex-spouse accrued during the marriage--whether you agreed to those debts or not. If your ex-spouse does not pay the debts, derogatory entries will be placed on your credit report for debts you were not even aware of.

If your divorce decree requires you to sell and pay off marital assets, this can positively impact your credit score. Loans that are paid off are positive credit report entries and look good to future lenders.

The length of your past credit history accounts for 15 percent of your credit score. If accounts that you hold jointly with your ex-spouse were your oldest accounts, when those accounts are canceled, your credit score will drop.

Some creditors may be willing to allow you to keep your current accounts open and remove you ex-spouse's name from the account. This depends upon the creditor and your current credit score.

Creditors are not required to abide by a divorce decree. By trusting that your ex-spouse will pay the debts assigned to him in the divorce that are in your name as well, you risk creditors pursuing you for the unpaid debt--and ruining your credit score.

Will My Credit Score Go Down If I Close My Credit Card Account?

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Your credit score is a key factor in whether creditors give you low-interest loans and even whether you get a loan at all. Closing a credit card account can affect your credit score, but the effect isn't always negative. By carefully timing the closing of your account, you can minimize the effects on your credit score.

Credit reporting agencies use five criteria to calculate your credit score: the length of your credit history, your repayment history, the types of credit you have, the amount of money you owe and the amount of new credit you have. Closing a credit account affects the amount of money you owe in relation to your available credit. This ratio accounts for 30 percent of your score -- second only to your payment history, which accounts for 35 percent -- yet its impact may not lower your credit score in all cases.

If your score is above 700 -- which is a high scores since the maximum score is 850 -- you may be able to close an account and still maintain a high score. Yet if your score is lower than 700, closing an account can lower your score enough to make you an undesirable borrower in the eyes of creditors, despite other aspects of your credit history. Before deciding whether to close one of your credit card accounts, learn your credit score. Under the Fair Credit Reporting Act, you're entitled to one free credit report from each bureau every 12 months, which you can order from Annual Credit Report.com, the official credit reporting agency for the FCRA.

The primary reason closing credit accounts affects your credit score is that it changes your debt-to-credit ratio; that is, the amount of money you owe in comparison to the amount of credit available to you. For example, if you have a credit card with a $2,000 limit and another with a $3,000 limit and you owe $1,000, you have $5,000 in available credit and a debt-to-credit ratio of 20 percent between the two cards. By closing the card with a $3,000 limit you increase that ratio to 50 percent. Closing an account doesn't affect this ratio if you owe no money, but if you owe anything, closing an account increases the amount of money you owe in relation to your available credit.

It's not uncommon to want to close an account after you pay off the debt. Instead of taking a hit to your credit score for doing so, wait until after you obtain any loan you need so you can prevent a lower credit score from disqualifying you. If closing an account isn't important to you, pay off the debt and keep the account open. This eliminates the chance of having to apply for a new account with the same company should you change your mind about closing it.

Fast Ways to Fix Credit

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Credit scores can slip easily if you spend more than you can afford and miss a payment. Fixing your credit score is important if you want financial security for your family or if you need to apply for student loans. Overcome your fear of facing your debt, and try a few methods to raise your credit score.

Contact your bank and see if it can approve a higher credit limit on your account. Having a high credit limit demonstrates to potential lenders that your bank thinks that you are responsible. Banks typically raise credit limits on accounts that have shown financial reliability, which hopefully you have. If you can get a larger credit limit, you might get approved for a mortgage or loan that you need. You also only want to spend a portion of your limit. According to Credit Info Center, your score will plunge if you charge close to your limit even if you pay it off each month (see Reference 1). Ideally, spend only around 20% of your credit limit each month.

Having your name added as an authorized user to someone else's card can help your credit score. Consider asking your mom or significant other if they mind adding your name, and explain your motives. Being specific about wanting to accomplish certain financial goals may show them that you are serious, which should convince them to add you. According to Bad Credit Advisor website, being added to an established card can improve your credit score (see Reference 2). If your family is concerned about adding you because of past mistakes, explain that you do not need a card for the account and never plan to use their account.

Student loan payments are vital to your credit score. Defaulting on a student loan can wreak havoc on your credit score, and it causes numerous other problems. For instance, the Internal Revenue Service can take your tax refund. The government might also take up to 15% out of your paycheck (see Reference 3). If you are close to defaulting, inquire about an Income Based Repayment or deferment. According to Credit Info Center, lenders might let you enter into a rehabilitation program to help fix your credit score (see Reference 1). Speaking with student loan lenders is an important first step in fixing your credit score.

Does Chapter 7 Come off Your Credit Report in 7 Years?

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Despite the warnings against bankruptcy, it won't hurt your credit score forever, but it may feel like it. Chapter 7 bankruptcy is considered by some the most attractive of the bankruptcy filings, because you can wipe out unsecured debts without paying a penny on them. As a slight punishment, the credit bureaus also get to report it longer than any other bankruptcy case.

Chapter 7 comes off your credit report in 10 years, versus seven years for Chapter 13. This is because people who file Chapter 7 are in worse financial shape and cannot pay anything toward most of their debts. However, since it may take up to five years to complete the debt repayment plan, Chapter 13 cases can actually stay on a report for 10 years.

The credit bureaus can report a bankruptcy indefinitely when the borrower takes a great risk. This is usually limited to applications for a line of credit or life insurance policy worth more than $150,000 or a job that pays more than $75,000 per year, according to the Federal Trade Commission. However, according to John Ulzheimer of Smart Credit, rarely do the agencies exercise the right to report information indefinitely under the Fair Credit Reporting Act.

The bankruptcy on your report probably prevents you from gaining credit only during the first two to four years after you file the case. As long as you pay other debts and new accounts on time, you can usually regain much of the lost ground, because bankruptcies become less important day after day, while good payment history continues to boost your score.

A bankruptcy can only come off your report sooner than the federal reporting limit allows if it does not belong to you and you dispute it with the national bureaus. Thus, your only option is to start using credit again so you can build new accounts without a derogatory history. Go for a secured account, which requires a deposit to secure the line; banks almost always accept applications for these.

The First Step to Repair Bad Credit

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More than 30 million Americans have some credit problems, including credit reports riddled with negative information and subprime credit scores, according to MSN Money columnist Liz Pulliam Weston. These problems are a barrier to opening new accounts and getting loans. There are ways to repair bad credit, and certain steps pave the way for a smooth process.

Bad credit means financial problems that appear on a consumer's credit reports. Information from these reports is used to calculate credit scores, so negative items mean a low score, according to the FICO credit score company. Typical examples of bad credit include delinquent or skipped payments on credit cards and loans, accounts that have been charged off or placed with a collection agency, court judgments, liens, repossessed vehicles or other property, foreclosures and bankruptcy. Collection accounts, court cases and seized assets are worse than late payments, but all of these things are harmful to some degree, FICO explains.

FICO cites building up a positive payment history as the more important factor in good credit. Rebuilding a record of prompt payments is the first credit repair step because it shows creditors a person is willing and able to meet financial obligations. This is true whether the main problem is minor delinquencies or full-blown bankruptcy. People whose old accounts are charged off or discharged through bankruptcy must open new accounts.

Pat Curry of Bankrate explains that people with bad credit can deposit money with a bank and get a secured credit card that uses the funds as collateral. A typical deposit is $300 to $500, and the bank usually converts the account into a regular unsecured credit card if the customer pays on time for at least a year.

The Federal Trade Commission (FTC) advises reviewing credit reports to ensure the first credit repair steps are working and that new information is being reported accurately. Experian, Equifax and TransUnion are the three bureaus that compile reports. They are required under the Fair Credit Reporting Act (FCRA) to give consumers free yearly reports requested through the annualcreditreport.com website. The FCRA allows for dispute of mistakes and requires unverified information to be erased. If a creditor is not reporting a new, positive report the consumer can request that it do so.

Most items that constitute bad credit stay on credit reports for seven years, while bankruptcies remain for a decade, the FTC explains. Creditors see them for the entire time but do not give them much weight after a few years if recent financial records are good. The credit repair process is ongoing because it is critical to build up the positive recent history to offset older negative items.

Once the first credit repair steps are taken, the consumer must continue the efforts without any missteps. FICO warns that any late payments or other problems destroy the progress and bring the credit score back down.

Fastest Way to Get Your Credit Report Updated

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A company that says it can update your credit report overnight might sound suspicious---credit repair fraud is a top complaint to Federal Trade Commission year in and year out---but this is actually a common service called "rapid rescoring." The potential benefit to your score can be significant if used properly.

A rapid rescoring service can fix errors on your report overnight, but only for disputes you already prove are wrong. The major credit bureaus in the U.S. give some companies, mostly banks and other lenders, the right to update reports quickly when a lender admits to a mistake. A normal dispute process takes up to 90 days before the bureaus fix an error on a person's report; rapid rescoring companies do this in a few days.

The credit bureaus do not allow private individuals to offer rapid rescoring service, so you must find a lender who deals with a rapid rescoring company to use this service. Normally, you give documentation of the error to a loan officer and he contacts the rescoring service. In some cases, the rescoring service may contact a creditor to confirm an error. Remember, you cannot change legitimate errors on your report nor will a rapid rescoring service investigate a case for you.

One negative item, such as an erroneously report bankruptcy, can kill an entire deal. In addition, lenders often streamline the approval process by pulling a credit report and running a FICO score calculation. The fee for rapid rescoring is usually small---about $50 in 2011---when you consider that just a few points can raise your interest rate. On an expensive account, such as a mortgage, this might mean thousands more over the life of the loan. At the very least, a false negative item on a report will slow down the approval process.

You should only go for a rapid rescoring company when you find an error in your report shortly before shopping for a loan or during the loan application process. Disputes can drag on for months, and in rare cases, years. Check your report for free each year from Annual Credit Report and hunt for mistakes. You can initiate a dispute with the agencies for free and save some money by not needing a rapid rescoring service.

Does Paying Off the Credit Purchase Immediately Damage Your Score?

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Any time you use your credit card or make a payment your actions may affect your credit score. Paying off a purchase you made with your credit card soon after making that purchase might, in some cases, lower your score, but typically only briefly and not by a lot. . While it's not always easy to predict what a specific action will do to your credit score because credit scoring companies use different score calculations, you can get a good idea of what an action will do by understanding the factors that influence credit scores.

A person's credit score is based on various factors, each of which impact the score differently. For example, the FICO score, one widely used credit score, is based on five factors: the consumer's payment history, amounts owed, the length of each item's credit history, the number of new forms of credit and the variety of types of credit the person has.

Part of your credit score depends on the amount you owe your creditors. With credit cards, the amount you owe is measured against your card's credit limit, known as a balance-to-credit limit ratio, according to Leslie McFadden, writing for Bankrate.com. Having a zero balance on a credit card may lead to a slightly lower score than having a card with, say, a balance equal to 10 percent of the card's limit. If you make a purchase and immediately follow it by paying off the card balance, therefore, your score may decrease slightly.

Having a zero balance on all your credit cards may hurt your credit score, and paying off a purchase soon after making it can lower the score if it reduces your balance to zero. However, making even a small purchase with your credit cards, especially after a period of inactivity, can raise the score again. Creditors use your payment history to judge how good a credit user you are, and even by making a small purchase and adding more information to your payment history you can increase your score by showing you are a responsible credit user.

If you make a purchase and quickly pay it off, and do so with a credit card that you have had for a long time but haven't used, this may improve your score more than having a zero balance may lower it. This is because your payment history counts for about 35 percent of your credit score and your credit history accounts for 15 percent while your credit utilization accounts for about 30 percent. A dormant card that hasn't shown up on your credit report for a while but which is suddenly resurrected with your purchase and payment may raise you score because it positively affects your payment history and length of credit.

Arkansas Laws About Free Credit Scores

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Your credit score, also known as a FICO score or credit rating, is the number that lenders use to determine your credit risk based on the information in your credit report. The number of accounts you have, your payment history and your degree of debt all influence your credit score. Each of the three credit bureaus may have a different score for you, since each may have different information. Arkansas consumers are subject to the same laws and protections offered to the rest of the country by the Federal Trade Commission (FTC).

In Arkansas, you are entitled to one free copy of your credit report each year. You can obtain this report by going to www.annualcreditreport.com and filling in the information requested. You can then download and print your report and check it for errors. Federal law also allows you to request a copy of your credit report any time that you are turned down for credit, such as a loan or credit card. These reports do not supply your credit score. In most cases, you will need to purchase a copy of your credit score from a reporting agency or directly from FICO at www.myfico.com. These generally cost around $8 per report.

The Credit Card Act of 2009 requires that any services advertising "free" credit reports and scores disclose that these reports are not the same as those offered annually by the credit bureaus. In most cases, these "free" reports require enrollment in a monthly credit-monitoring service or the purchase of a credit score report.

The best way to improve your credit score and ensure your access to the credit you need is to pay your bills on time, every time. Maintain low balances on the credit cards you do have. If you detect errors on your credit report, federal law allows you to contest the information on your report and have those errors corrected. If you are having trouble paying your bills, consider enlisting the help of a reputable debt management company to create a workable repayment plan. See the Resources section for a list of Arkansas credit counseling agencies approved by the Department of Justice.

Avoid companies that offer to repair or rebuild your credit for a fee, especially those companies that do not help you repay your debts. According to the Federal Trade Commission, only time and a concerted effort to repay your debt can improve your credit score.

How Long Does it Take to Build Good Credit?

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Although many people don't know their credit score at any given point, it is an extremely important part of a person's financial life. A good credit rating can open fiscal doors and loan opportunities that are closed to the majority of people. Unfortunately, however, it can be relatively hard to build good credit and it can take a long time to do so. Of course, the length of time that it takes to build a good credit score depends of several variables that are different from case to case.

In the United States, the most common credit rating that is used is referred to as the FICO (short for Fair Isaac Corporation) credit score. This type of rating was invented by engineer Bill Fair and mathematician Earl Isaac (the founders of the Fair Isaac Corporation) in the 1950s. FICO scores are given in a three-digit format and range between 300 and 850, with higher numbers representing a "better" credit score. There are a variety of ways to you can improve your FICO credit score and other such credit ratings.

There are several main methods of building good credit, each with its own associated time frame. The first step is to secure a line of credit, usually a credit card or small loan of some type. It is important to always make payments on time and to make sure that you never overextend yourself financially and take out more debt than you can easily repay. It is also important to make sure that your debt remains relatively small in comparison to the credit available to you. All of these things will help to build your credit score in a positive manner.

There are several major considerations involved in determining how long it will take a person to build a good credit score. The first consideration, and generally the most important one, is previous credit history. Those with an extremely poor credit rating or a lot of bad credit history will find it extremely difficult to build good credit. A bankruptcy, for instance, generally has a major negative impact on a person's credit score for around 10 years.

Another thing that seriously impacts the length of time required to build good credit is a person's yearly income. Whether it's fair or not, those with high salaries will be able to build good credit much more rapidly than those who earn less money.

The last element that is crucial is the availability of a co-signer with established credit. Those who can secure loans with the help of a parent, guardian, friend, relative or spouse who is willing to co-sign on the loan will find that is much easier to get a relatively good loan and to quickly build good credit.

The exact time frame that is required to build good credit varies significantly based on the variables mentioned previously. A person with no previous credit history who secures a loan, is never late on payments and who makes a good amount of money will be able to build a relatively good credit score within six months to a year. Those who have a terrible credit history, a severely low credit score and less income often require upwards of a decade to repair their credit and get it back to a decent score.

There is no real shortcut to building your credit score, though many people claim that there is. Sound financial planning, reasonable spending and sober handling of credit are what is required, and it just isn't a process that can be sped up easily. Always be skeptical of those who claim they can rebuild your credit quickly, particularly if they want compensation in return. There are many scams out there that seek to take advantage of those who are desperate and who are least capable of bearing any unnecessary financial burden.

Insider Tips for Fixing Your Credit Report

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A credit report is like a gateway to financing opportunities, low interest rates, new housing and employment. If you have a bad credit report, the doors to these opportunities may close. This report tells a story about your credit worthiness, spending history and financial past. If you need to fix your credit report, it is never too soon to get started.

The most important aspect of fixing your credit report is knowing what information is recorded on the report. The Federal Trade Commission (FTC) states that you can get a free annual report from the credit bureaus'-- Experian, TransUnion and Exifax---central website, Annual Credit Report.com. For a fee, you can order more than one report in a 12-month period.

Check your report to figure out why your credit score is low. Late bill payments could be the problem. Or, there could be errors on your report. Look for statements saying that you spent more than your credit limit when you did not; that you had late payments that you actually turned in on time; or that you had new credit cards for which you did not apply.

Make a list of any errors you find on each report, listing the oldest accounts first with their corresponding dates. Write to each applicable credit bureau regarding the errors, citing each individual error, its date and the reason for your dispute. In your letter, ask the agency to amend the incorrect information. It is a good idea to include documents that support your claims, such as bank statements, receipts and canceled checks, as well as a copy of your credit report. According to the FTC, you should highlight the errors on the copy of the report you send. Save a copy of the letter and mail the original to the credit bureau via certified mail. The FTC states it can take up to 30 days for a credit reporting agency to begin the investigation on your claim.

If your credit report has a low score because of less-than-perfect spending habits, follow the FTC's advice to create a budget. Set money aside for necessary expenses, create an allowance for unnecessary items and work toward paying your debts and saving money. Necessary expenses are those that help meet basic needs and debt payments, such as housing bills, groceries, car payments and insurance. Unnecessary expenses may include trips to the nail salon or a gym membership. As you create a budget, note bill due dates on a calendar. If you have an electronic calendar on a computer or cell phone, use the feature that reminds you of events so you do not forget to pay your bills on time.

When you piggyback, someone with a good credit score adds you as an additional cardholder on one of his credit cards so his good credit starts to reflect on you. You should only piggyback with an individual who has good credit and a good payment history because a delinquency can reflect poorly on your credit score. Moreover, your bad spending decisions with the shared credit card account reflect poorly on the other person. If you find someone who will allow you to piggyback on his credit, it may be best to never use the credit card that comes in your name.

What Credit Score Is Considered Good Credit?

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Today, credit scores are used by potential employers, landlords, insurance companies, banks, mobile phone companies and other entities that may wish to extend goods or services on credit. Having a good credit score can be the difference between landing a dream job or getting a new apartment...or not.

In 2010, a 720 score is considered the minimum threshold for good credit. That's about 100 points higher than before the housing market crashed and the current recession began in 2008. The median credit score for all consumers is 725, although the gap between the percentage of consumers holding scores below 600 and those with scores over 800 is getting wider.

For home mortgages, however, it seems that a score of 740 is now the minimum needed to avoid a higher loan interest rate, according to Rodney Anderson, a Texas-based mortgage lender.

The credit score was crafted in 1989 as part of a joint project between Equifax, one of the three major credit reporting bureaus, and the Fair Issac Corp., a global financial services firm. The original purpose of establishing credit scores was to predict the likelihood of a person repaying his debt on time. Credit scores may range from 300 to 850. They paint a picture of a person's creditworthiness at a specific point in time.

Also known as the FICO score, a credit score not only dictates whether a borrower gets credit, but also determines the cost of that credit. Holders of low credit scores, if deemed creditworthy, likely have to pay higher interest rates on loans or higher insurance premiums.

The credit score is calculated using an algorithm owned by the Fair Issac Corp. The credit bureaus do not store credit scores, but rather, calculate it when the score is requested based on a number of factors: the types and amounts of credit held; the person's payment history; the amount of outstanding debt; the length of the person's credit history; and how frequently and how recently the person has taken on new debt.

Holders of credit scores at the upper echelon of 720 or higher may see increasing competition--in the form of more credit card offers--for their business.

Those with credit scores beneath 700, in the midst of today's recession, will find it increasingly difficult to obtain credit. Scores between 620 and 700 are now considered marginal and anything below 600 is seen as a poor risk.

Nothing but time and attention to the good money management practices as well as to one's credit report will affect a change in one's credit score. Negative, but accurate, information cannot be removed legally.

Americans are entitled to a free copy once a year or when credit has been denied in the past 30 days, from any of the three major credit reporting agencies: Experian, Equifax and TransUnion--one from each a year.

To raise one's credit score, one must: pay bills on time; pay down debt; minimize new credit; and demonstrate the ability to make purchases and pay them off promptly.

How to Interpret a FICO Credit Score

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FICO credit scores are created by the Fair Isaac Corporation to help lenders determine how creditworthy a prospective borrower is. The FICO credit score uses information found in your credit report and translates it into a number between 300 and 850, with higher numbers representing more creditworthy borrowers. Once you have determined where you fall, examine the five factors that effect your score: your payment history; the amount you owe and the amount of credit available to you; length of credit history; types of credit you use; and new credit applications. Though the formulas for calculating credit scores are not released, looking at your credit report can help you determine which components are hurting your score.

Instructions

Compare your score with the national average to determine where you rank. Only 13 percent of individuals have credit scores above 800 points, while 14 percent have credit scores below 600. Individuals with scores above 720 will usually qualify for the best interest rates.

Examine your payment history on your credit report, which accounts for 30 percent of your score. If you have late payments, delinquent accounts or defaults on credit owed your score will be lower.

Examine your use of credit, which accounts for 30 percent of your score. If you are using a large percentage of your available credit your credit score will be lower. To figure out what percentage of your credit you are using, divide your total credit owed by your total credit limits.

Examine your length of credit. There is only so much you can do about how long you've had credit, but it accounts for 15 percent of your score so if you have a limited history that may explain why your score is lower.

Examine your types of credit, which account for 10 percent of your score. If you only use credit cards, your score will be lower than if you used multiple types of accounts.

Examine the inquiries on your credit report, which account for 10 percent of your score. If you have a number of applications in a short period of time, your score will go down because you are viewed as a greater credit risk. An exception to this is if you are applying for a home loan or a car loan. As long as multiple applications for these types of loans are received in a short period of time, the score will treat them as a single inquiry.

List of Businesses That Check Your Credit Score

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When a particular business wishes to evaluate the likelihood that a client will be able to pay back a loan, it typically runs a credit check on the person. These businesses can be financial institutions that loan money or other types of companies, such as those that provide products or services before compensation has been provided.

Most institutions that are considering lending money to someone will generally want to know the person's previous credit history. These institutions include mortgage issuers and auto lenders. A credit history will give the company a general idea of the likelihood that the person will pay back the loan. In many cases, the company will base the rate of interest on the person's credit score. Those with lower scores typically pay more in interest.

When a landlord is considering a rental application, he will generally attempt to check the person's credit score. Although the landlord is not lending the tenant money, he is allowing him access to the space, with the proviso that the tenant pay rent in advance each month. If the tenant fails to pay, the landlord may be forced to go through a time-consuming and expensive eviction proceeding. By taking only tenants with good credit scores, some landlords hope to prevent this from happening.

Insurance companies use a number of factors to determine whether the people they cover will be likely to incur a claim against the company. Generally, insurance companies will base the rates they charge clients based on the estimated likelihood that the person will force the insurance company to make a payout: those with a higher likelihood generally pay higher rates. Some insurance companies use credit scores to calculate this.

Cell phone companies typically bill clients at the end of each month for the charges incurred during the previous month. While some companies bill ahead of time, most set their rates so that the customer may incur additional fees each month depending on how he uses the phone, meaning those charges cannot be pre-billed. Before issuing phones, many cell phone companies will check the credit score of clients: those deemed a high risk of missing payments may be asked to put down some form of collateral.

Many companies that hire employees choose to run a credit check on prospective hires. Although some states have regulations against using a person's credit score to discriminate against her for a position, many do not. The employer may use the credit check to get a better understanding on the job candidate's background as well as a sense of his ability to be responsible.

Wednesday, December 31, 2008

Meet Due Dates

Keep Balances Low

Negotiate with Collectors

Fix Credit Report Mistakes

Diversify Credit Accounts

Identification

Potential Effect

FICO 8 Changes

Preventing Default

Tuesday, December 30, 2008

Credit Score Requests

What Affects a Credit Score?

Checking Your Own Credit Score

Exceptions

Instructions

Sunday, December 28, 2008

Credit Agencies

The Law

Why Your Score is Important

www.annualcreditreport.com

Credit Bureaus

Summary

You

Lenders

Insurers

Employers and Landlords

Government Agencies

Correct Credit Report

Pay On Time

Reduce Debt

Warning

Saturday, December 27, 2008

Improve Payment History

Reduce Your Debt

Fix Errors

Use Your Older Cards

Identification

760 the New 720

Obtaining a Good Credit Score

Boosting Your Score

Instructions

Friday, December 26, 2008

Instructions

Identify Incorrect Information

Write Dispute Letter

Gather Enclosures

Mail Letters

Credit Report Revisions

Buying Credit Scores

Free Credit Scores

Consumer Considerations

Thursday, December 25, 2008

Instructions

Wednesday, December 24, 2008

FICO Scores

Credit History

Payments

Significance

Considerations

Tuesday, December 23, 2008

Correct Credit History Inaccuracies

Pay on Time

Keep Balances Low

Limit the Number of Credit Applications

Keep Old Credit Updated

Instructions

Credit

Businesses

Employers And Government Agencies

Checking Your Score

Sunday, December 21, 2008

Deletion Reasons

Deletion Effects

Negotiating Deletions

Considerations

Saturday, December 20, 2008

Instructions

Friday, December 19, 2008

Considerations