February 2008 ~ Personal Finance and Money Management

Friday, February 29, 2008

How Often are FICO Scores Updated?

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Your credit score, otherwise known as your FICO (Fair Isaac Corporation) score, is what employers and lenders use to determine your creditworthiness. This number changes frequently in response to your changing borrowing habits and your credit history. If you are working to improve your credit, it is important to know how and when your FICO score changes. To understand how FICO updates, it is best to first ascertain how your FICO score is calculated.

Your FICO score is calculated from information that is contained on your credit report. Also known as a credit history, this report is compiled separately by the three major credit reporting agencies--Experian, Equifax and TransUnion. Lenders, banks, credit card companies, utilities companies and other creditors report information about your accounts to these credit reporting agencies.

To calculate your FICO score, several different factors are considered. Though the exact formula for determining your score is proprietary information, there are five main categories that FICO uses. According to FICO's website, these categories are payment history, amounts owed, length of credit history, new credit and types of credit used.

Each of these categories is assigned a different value when calculating your FICO score. For example, payment history accounts for 35 percent of your score while types of credit use accounts for 10 percent. Because of this, a delinquent $300 payment will have a much greater effect on your FICO score than only having one type of loan (i.e. revolving credit, installment loan or secured loan) in your credit history. The remaining weights are: amounts owed 30 percent, length of credit history 15 percent and new credit 10 percent.

Your score is calculated each time a creditor or another party pulls your credit history (called an inquiry). This is because the score is calculated from items that are on your report. Each time your credit report is requested, the software automatically runs the figures from your most recent credit history information and gives an up-to-date FICO score.

Federal and state law dictates how long certain adverse public records remain on your credit report. These items, such as judgments, items sent to collections, outstanding tax liens and bankruptcies, are part of the payment history category. Typically, these items remain on your credit report for seven to 10 years, though it will vary depending on type of record and state. Once these items no longer appear on your report, they will no longer be factored into your FICO score.

Eight Ways to Tidy Up Your Credit Score

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A clean credit report and a high credit score opens the door to financial opportunity. If you have a high rating, you qualify for the cheapest interest rates, and oftentimes, lenders will compete for your business. Consider a few easy ways to build a solid credit score.

Get rid of your consumer debt to help tidy up your credit score. Debt balances make up 30 percent of credit profiles, and paying off credit card balances can cause your credit score to jump. As a rule, keep your balances at less than 30 percent of your given credit limit.

Sending in a late payment harms your credit profile. Clean up your credit score with on-time payments every month. Your payment record makes up 35 percent of your credit score, but timely payments help you get better rates and easier financing.

Some people get into the routine of applying for department store credit to save a certain percentage off their purchases. Inquiries can affect credit scores by 10 percent; build a better credit profile by applying for credit only when necessary.

A strong credit file usually results from a mixture of credit accounts -- perhaps a couple of credit cards, an installment loan and a home loan. If you currently only have one or two credit accounts, diversify your credit profile by adding a different type of account. The type of credit you hold influences your scores by 15 percent.

Outdated information, or erroneous updates to your credit report, can cause your credit score to drop. Monitor your report every now and then to check for mistakes. Get reports from Annual Credit Report, and write a dispute letter to your creditor and the bureaus, if you detect mistakes on your profile.

Don't leave unpaid collection accounts on your credit report. Get in contact with old creditors or collection agencies, and work out a deal to pay off any old balances. As part of this deal, ask creditors to remove the unpaid account from your credit report after you pay the balance.

Credit reports have space after each listing, and this allows you to include a comment or explanation for the account. Adding an explanation to your credit report is to your advantage if you defaulted, or were unable to make a payment due to extenuating circumstances, such as loss of employment. Future creditors will read your comment and take this information into account when reviewing credit applications.

Don't let a bankruptcy destroy your credit profile. Tidy up your score and rebuild your history by acquiring new accounts after your discharge. Most banks will give you a secured credit card to help you start fresh, and if you didn't include a student loan, mortgage loan or other debts in the bankruptcy, make these payments as agreed, to steadily rebuild your credit score.

Do Secured Credit Cards Help Credit?

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Secured credit cards are designed to allow people who do not qualify for a regular credit card to be able to use credit. For a secured credit card, the cardholder deposits money in a savings account at a bank and gets a secured card with a line of credit equal to the deposit amount. Using a secured credit card regularly and responsibly can help you build a positive credit history and increase your credit score.

A secured credit card will only help your credit score if the credit card company reports to the major credit bureaus. Before signing up for the card, ask if the company will send monthly data about your account to Experian, Equifax and TransUnion. If the company does not report to these credit bureaus, the information about your account will never make it onto the credit reports that are used to generate your credit score.

Use the card responsibly to help your credit score. Never charge more than your credit limit on the card. MSN Money recommends not charging more than 30 percent of the credit limit to keep your ratio of balance owed to total credit low. In addition, pay the bill on time every month to develop a consistent payment history. If possible, pay the bill in full so you do not get yourself into more debt than you can handle.

You might see a slight drop in your credit score when you first apply for a secured credit card. This is because the application generates an inquiry and creates a new account, both of which hurt your score slightly. However, as soon as you start making on-time payments, you will begin to see your score increase. After 12 to 18 months of on-time payments, your credit score will definitely have benefited from using the secured card. At this point, ask the credit card company to change your account to an unsecured card and return your deposit.

Some secured credit cards are better than others. When you are shopping for a card, look for one with no application fee and an annual fee of less than $50, according to Bankrate. Ensure that the card has a grace period, meaning that the card does not charge interest on new purchases if you paid the previous bill in full by the due date. This will allow you to build credit at the lowest personal expense.

Does Working With a Debt Management Company Affect Your Credit Score?

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Both debt settlement companies and credit counseling agencies offer debt management services. Depending on your specific financial situation, counselors for both types of agencies contact creditors and attempt to settle your accounts and negotiate acceptable payment plans. While each company's policies differ regarding how consumer debts are handled, working with a debt management company to get your debt under control can impact your credit score.

Debt management companies often advise consumers to stop making payments on their debts in order to obtain a more favorable settlement. The rationale behind withholding payments is a valid one---creditors receiving regular payments have no incentive to adjust the debtor's payment plan or consider a settlement offer. If the creditor in question reports payments to the credit bureaus, however, withholding payments does severe damage to the consumer's credit score because the missed payment notations indicate that he is less likely to pay future creditors on time.

Settling debt may provide you with partial relief from your financial burden, but it has an unpleasant effect on your credit rating. The credit scoring formulas view debt settlements negatively and if you participate in a settlement that your creditor reports to the credit bureaus, this will lower your credit score.

Unfortunately, settling a debt is sometimes worse for your credit than leaving the debt unpaid. When your creditor reports that your debt was "settled" this updates the negative entry for the debt on your credit report---making it appear more recent in the credit scoring formula and giving it a stronger negative impact on your scores.

While some debt management companies have success helping consumers lower their debts and manage their existing accounts, creditors are not under any obligation to participate in any program. Because debt management companies charge for their services, you can pay for debt management only to discover that your creditors will not work with the service provider. This costs you money you could have put toward paying down your debt load. The longer you go without making a payment, the worse your credit suffers.

Seeking out help managing your debts does not mean that you must sacrifice your creditworthiness in the process. Provided you continue making regular payments to your creditors, a reputable credit counseling agency can help you learn to better budget your income---making paying your creditors less of a burden without damaging your credit score.

Debt settlement poses a greater danger for consumers worried about their credit ratings. Although settling a debt hurts your credit, the Fair Credit Reporting Act notes that evidence of your settlement will only haunt your credit report---and score---for seven years before it disappears from your record.

How to Access My Credit Report Online

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You can access your credit report once per year for free. Many websites advertise free credit reports but to access them you are required to hand over credit card details for a "free" trial period of one product or another. The Annual Credit Report.com website allows you to access all three credit bureaus' reports online or have them sent to you through the mail. The three bureaus will also sell you a copy of your credit report on their websites if you have already received your free report for the year.

Instructions

Go to Annual Credit Report.com if you are trying to access all your report files at once or go to the individual credit bureaus for single reports. Click the Get My Credit Report button on the website's home page.

Complete the form that appears. You are required to provide your name, address, Social Security number, birth date and driver's license number. Click the Submit button.

Choose which credit bureau you want to acquire your report from first. Click the button that corresponds with the bureau you have chosen.

Verify your identity with the credit bureau by answering a variety of questions it poses. These questions will cover such things as past addresses, phone numbers, employers and past or current transactions that appear on your credit report.

Click the Show My Report Online button. Your report will open up in its own window. You can print it or copy and paste it into a word-processing document and save it to your hard drive.

Click the Return to Annual Credit Report.com link to check the next bureau. Complete this process for all three credit bureaus.

Does Debt Settlement Negatively Impact My FICO Score?

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Credit scores are a reflection of your spending habits and how reliable you are when it comes to paying your bills on time consistently. Because credit affects so many aspects of our lives, understanding how credit works is essential to maintaining a healthy credit rating. If you have fallen behind on paying your bills, or have several charge-offs listed on your credit report, you may be considering debt settlement as a solution to your credit problems. While it's true that debt settlement can help you to pay off debts, your credit score may be negatively impacted, depending upon how it's listed on your report.

Debt settlement is the process by which you pay less than the amount owed to your creditors, and they agree to accept this amount as fulfillment of the debt. Debt settlement can be negotiated at any point during the process, but it's most common when you are several months past due and/or have charge-offs that you must repay. Many people turn to debt settlement when attempting to qualify for certain loans that require all outstanding debts to be paid.

You can negotiate debt settlement with your lender directly, or through the use of a debt settlement company. If you decide to negotiate the debt directly, be prepared to document your requests in writing, as a verbal agreement will not be binding should the lender later decide to pursue the entire amount that you owe. For debt settlement companies, be certain to choose a reputable establishment, ideally one that is registered through the Better Business Bureau. Be certain that you understand any fees that you will have to pay as a result of the service, and incorporate these into your budget.

In the short term, debt settlement will almost certainly cause your FICO score to drop. This is because repaying a debt for less than the full amount owed will always have a negative impact on your credit scores. Additionally, if you are paying down an old debt or charge-off, the new activity on the account will make the settled debt have more weight when calculating your credit scores. However, if you are in a situation where debt settlement is a viable option, chances are good that your credit is already in trouble due to missed payments and charge-offs.

Debt settlement may be a viable option in some instances where you can negotiate the terminology that will be placed on your credit report. If possible, get the creditor to agree to "paid" versus "settled" or "settled for less than full amount," as any terminology that indicates that you paid less than what was owed will damage your credit scores. Not all creditors will be willing to work with you on terminology, so you should get any agreements in writing before you pay.

Another option is called "pay for deletion." This works the same as a debt settlement, only the creditor agrees to remove the account from your credit report entirely. This can be helpful, if you can find a creditor that will agree to it.

Debt settlement may be required before you can qualify for certain types of loans, such as a mortgage. However, you should be aware that any debt settlement will negatively impact your credit rating if it is listed on your report. If you have debts that are close to the credit reporting limit, it may be better for your credit to let the debt age off of your credit report before you pay.

How Much Can a FICO Score Come Up in a Month?

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Having a low FICO score can make it difficult to qualify for a mortgage, loan or credit card, and people with low FICO scores typically receive high interest rates and fees. You can improve your credit score quickly and be on your way to getting more approvals and lower rates.

The credit bureaus compile the information from your credit report into five categories: payment history, available credit limit, length of your credit history, types of credit you have and applications for new credit. They use these categories to create your FICO score. Each category has a different impact on your credit score. Paying your bills on time each month accounts for 35 percent of your score. How much debt you owe accounts for 30 percent. The length of your credit history accounts for 15 percent. Having different types of credit accounts for 10 percent, and applying for new credit accounts for 10 percent, according to Bankrate.

Paying all of your bills by the due date each month and keeping the balances on your credit cards low will have the largest impact on your credit score. Paying down a high balance on a credit card will give your FICO score a quick boost. Other factors, like opening a small personal loan, may increase your credit score as it will show you have a mix of credit types on your credit report. As your credit accounts age, your score will also improve. How much of an effect something has on your FICO score will depend on your credit history. For example, if a consumer with a history of missed payments starts making all of his payments on time, his credit score will likely increase more than someone who has no missed payments.

Your FICO score will increase as soon as the creditor reports the new positive information to the credit bureaus. However, this can take up to 30 days in some instances, and some creditors do not report to the credit bureaus at all. For example, utility companies, wireless providers and some gas cards do not often report payment history to the credit bureaus. However, consumers will see small but consistent results on their FICO score if they keep adding positive information to the credit report.

Your credit report may contain inaccurate information or accounts that do not belong to you. Removing or correcting inaccurate information on your credit report will raise your FICO score. You can receive a free copy of your credit report from each bureau once a year through Annual Credit Report. Once you order your credit reports, examine each one carefully and dispute any errors with the credit bureaus directly. You can dispute errors with the bureaus by mail or online.

What Is the Highest Credit Score?

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Your credit score is also known as a FICO score. FICO in an abbreviation for the Fair Isaac Corporation, which created the system for credit scores. There are a number of factors that contribute to your FICO score. If you have the highest FICO score available it will create certain advantages for you in terms of credit products and services. There are certain actions you can take to increase your credit score and eventually you may be able to achieve the highest score.

Fico scores can range from a low of 300 to a high of 850. If you have the highest credit score you will be able to receive the best interest rates on mortgage loans, automobile loans, credit cards and other credit products. This allows you to save a significant amount of money by paying less in finance charges for your credit products. A lower rate of interest also means having a lower payment as well. Many companies will send you offers, in the mail, for credit products based on your credit score. A high credit score gives you the ability to pick and choose the offer with the best terms and agreements.

If you want to receive a high credit score it's important to know the five factors that contribute to your credit score. Your payment history is the first category that helps configure your credit score. This category represents 35 percent of your credit score, which is the largest contributor. When you pay your debts on time you help increase your credit score. Your previous and current pay history is reviewed for this category.

The next category deals with the amount of debt you owe. Having too much debt can be harmful to your credit score. How much available credit you have is also a determinant of your credit score. If you close one of your accounts, you lower the amount of available credit and it can lower your credit score. Also, using too much of your available credit can lower your credit score. Once you use 30 percent of your available credit your credit score can start to fall. Coincidentally, the amount of debt you owe contributes 30 percent toward the calculation of your credit score.

The longer you have been on file with the credit reporting agencies the better. The length of your file contributes 15 percent to the formation of your score. When you close out some of your older accounts and open new accounts you lower your score because the older accounts no longer contribute to the age of your credit file.

The number of new accounts you have contributes 10 percent toward the creation of your credit score. Opening too many new accounts in a short period of time will lower your credit score. Don't open new accounts you will not need or use.

It's a good idea to have a variety of credit accounts because this contributes 10 percent to your credit score. A credit file which has a number of accounts such as credit cards, automobile loans, mortgages, and home equity lines will have a higher score because of the different types of accounts. However you don't want to overextend yourself. This will lower your score. Another 10 percent of your credit file is based on the types of credit that you actually use.

How to Report Credit Corrections to Employers

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Prospective and current employers have the right under the Fair Credit Reporting Act to order credit reports on potential or current employees, with their consent. If the information on a credit report proves to be inaccurate but is reported to an employer with adverse consequences, that individual can request a corrected credit report be sent to the employer after successfully disputing the error.

Instructions

Order copies of your credit report from the three major credit bureaus (TransUnion, Equifax and Experian) after receiving notice from an employer that adverse action has been taken against you because of information on your credit report. This includes being fired, demoted or not being hired. Employers are required by the Fair Credit Reporting Act to inform you in these circumstances.

Review your credit report for errors. If you find a mistake, file a dispute with the credit bureau. If you're viewing your report online, there's a form under each entry. Otherwise, you can send a letter or contact the bureau by telephone. You may be required to produce some documentation supporting your dispute. The credit bureaus are required to respond to all error disputes within 30 days. In most cases, it will be resolved quickly.

Request that your updated credit report be sent to any employers that took adverse actions against you. While the bureaus are obligated to send these updated reports, the companies are not required to alter their decision based on the new information. If you suffered significantly from a credit report error, you may be entitled to damages under the reporting act for each violation by creditors. Contact a debt lawyer if you're interested in collecting on damages because of employment difficulties caused by false entries on your credit report.

Free Information on Improving Your Credit Score

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A credit score is a numerical valuation of your credit history. It gives a snapshot of your overall credit worthiness and provides lenders with a basis for approving applications and determining interest rates. Your credit score plays a large part in being able to make purchases, such as cars and houses, and most lenders have minimum credit score requirements. If your score is low, you can improve it by paying your debts on time and following a few guidelines.

About 80 percent of credit reports have mistakes that can lower an individual score, according to the Chicago Sun-Times. These errors can include incorrect reporting of credit limits, payments and debt amounts. Credit bureaus also make larger mistakes, such as placing accounts on your report that are not yours. Federal law grants you the right to dispute incorrect information and forces credit bureaus to verify the data or delete the item within 30 days.

You can submit a dispute on the credit bureau website, over the phone or by mail. You will need to provide your name, Social Security number and current and previous address if you've moved in the past two years. List all the inaccuracies and, if necessary, provide the correct information.

Although many people think creditors want you to fully use your credit, the truth is, using all of your available credit means you are racking up more debt in relation to your income. This makes it harder to meet your credit obligations and makes you risky to new creditors, causing a drop in your score. Credit bureaus prefer to see less than 50 percent utilization but less than 35 percent is ideal.

If your utilization is high, you can improve your credit score by paying those balances down as quickly as possible and keeping them low. You may be able to transfer balances to different cards or request a higher credit limit to lower your debt-to-limit ratio but credit bureaus award higher scores to people who simply pay their debts.

Although secured credit such as mortgage and auto loans help your credit history, potential lenders prefer to see how you handle riskier unsecured credit obligations, such as personal loans and credit cards. Make your unsecured debt payments in full and on-time every month to prove you can handle additional credit. If you don't have any unsecured credit, you can usually qualify if you have a good history of paying secured debts on time. Since you need a good credit history for most unsecured debt applications, this is often the last step of improving your credit score.

When you apply for new credit, do not file multiple applications in the hopes that at least one company will approve you. This causes a lot of credit pulls, called inquiries, and can lower your credit score. Instead, call each creditor and ask about the basic income and credit eligibility guidelines, interest rates, credit terms and any available perks, such as reward programs or airline miles. Submit one application to the creditor whose credit criteria you meet and who can offer you the terms you want.

The Secret to a Better Credit Score

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A better credit score does not happen by accident, and it does not happen because you have a high net worth or good income. In fact, these factors have nothing to do with your credit score. Your credit score is dependent on how you manage your debt and open lines of credit. By managing them correctly in the eyes of the credit reporting agencies, you can build a better credit score at any income level.

A major factor in calculating a person's credit score is how they pay their bills. On time payments over time will improve the score, or keep it in the healthy ranges. If you go past due on just one bill, it will affect your credit score. The more bills that you become past due with, the more your score will drop. The severity of the delinquency also matters, with a 90-day late payment being worse than a 30 day late payment. Always pay your bills before they are due to maintain the top credit score.

The FICO score depends on how much debt you are carrying on revolving accounts. The amount of debt is not the most important part of this equation. This must be measured as a ratio of debt to available credit. You should never carry more than 30 percent of your available credit as a balance on your credit cards and other revolving accounts. Some experts say 10 percent is even better. For example, if you have a credit card with a $2,000 limit, you should carry no more than $600, or 30 percent of the limit, as a balance, with $200 being even better for your score.

Too many lenders asking for copies of your credit report can affect your credit score. Any one inquiry will not necessarily lower your score, but several unrelated inquiries over a period of a few months can damage it. Banks view someone who is applying for a large number of accounts as someone with potential financial problems who is shopping for credit. The exception to this is multiple inquiries within a relatively short time period, within a month, for instance, that are for the same purpose. The scoring models view this as one application to allow a consumer to shop for the best interest rates without penalty.

Dispute any inaccurate information on your credit report. Inaccurate negative information can lower your score. Write a letter to the credit agency telling them why you think the information is inaccurate, and see if they will remove the information. Do not close older credit accounts even if you don't use them anymore. There was a time when open credit lines like these were viewed as potential debt, but now they count as older accounts, and lengthen the average time that you have had credit lines open. A long-term credit history is better for the credit score.

Is There a Credit Card That Lets Me Pay Things Off Over a Few Months Without Messing Up My Credit?

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Carrying a balance on a credit card can be a detriment to your finances, but it does not hurt your credit score as long as you meet your monthly bill and use no more than 35 percent of your credit limit. The only type of revolving account that can hurt you for not paying the balance in full each month is a charge card.

Any unsecured or secured credit card lets you pay off a balance over several months. The creditor charges a minimum payment -- usually 2 to 5 percent -- each month and interest on the entire balance. As long as you pay the minimum bill the creditor reports the account to the credit bureaus as "paid as agreed," which counts as a positive item and boosts your credit score.

Consumers often confuse charge cards with a credit card. Charge cards offer a revolving account, but approval for purchases depends on spending habits and you must pay the bill every month, so balances do not incur interest charges. Instead, the creditor makes money from membership fees. If you miss a payment on this type of account, the creditor may report it as late to the credit bureaus, which hurts your score. As of 2011, American Express is essentially the only major card company offering charge cards.

Credit card debt is usually a bad thing to have on a credit history, because debt load counts for 30 percent of the FICO score, according to MyFICO.com. Another major part of the amounts owed is credit utilization or the percent of the total credit limit a borrower uses. Maxing out a credit card, for instance, hurts a score of 780 by up to 45 points and more as the borrower's score climbs up to the maximum of 850, according to Bankrate. Thus you should wait a few months until you have the money to pay off the purchase in full if the transaction ties up a significant portion of your credit limit. Also, you should never use more than 35 percent of their overall credit limit or the limit on any card. As credit utilization moves over 35 percent, your scores steadily drops.

If you must make a purchase you cannot afford now, figure how much money you can pay toward the credit card balance each month. Layaway may be a better alternative to putting the item on credit. On a layaway plan the store holds the item while you pay off a small amount each week until it is paid off. Stores do this for most items except perishables, such as food, and highly popular electronics.

How to Add History Accounts to My Credit Score

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Credit plays an important role in American society. Landlords, lenders, utility companies and even some employers perform credit checks. Your credit score is directly based upon information contained within you credit report, so it's advantageous to have as much positive data on the report as possible. According to Equifax, if you have accounts you want added to your report, request that the creditor report it to the bureaus. It will then appear on your report and ultimately reflect in your score.

Instructions

Order your credit report for free. Under the Fair and Accurate Credit Transaction Act (FACTA), consumers can receive one free report per year from Experian, Equifax and TransUnion. Order the report at the bureau's website or at the website Congress established under FACTA, annualcreditreport.com

Look over your report. Read the "Accounts Section" to ascertain exactly which accounts are reporting each month. Also check the "Personal Information" section to ensure that your name and Social Security number are listed correctly.

Call your creditor if that company's credit account doesn't appear on your credit report. Have your account number and other identifying information handy. Keep in mind that a creditor may not report to all three bureaus; some only report to one.

Inform the creditor that you account history was not reported to the credit bureau. Ask what their reporting practices are when it comes to the bureaus. Failure to report your account may have been an error on their part.

Ask the creditor to make a one time report of your information if the company doesn't normally report to the bureaus. It is within their discretion to do so or not. If the company agrees to make a one-time report on your behalf under these circumstances, remember that the account data will not update, therefore you should only add accounts with a positive payment history.

File a dispute with the credit bureau in the future once a major change occurs with the account: payoff to zero balance or an increase in credit limit. The bureau will investigate your claim, contact the creditor then update your account to reflect the current status of the account. Positive, periodic updates on the account can help increase your credit score, especially if there is a decreasing balance.

Credit Reporting of Medical Bills

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Medical bills are not like your regular credit accounts. There are certain situations that dictate if an account will be reported to a credit reporting agency. If you suspect you have accounts that were reported to the credit bureaus, but should not have been, you may want to contact the credit reporting agencies and put in a dispute. This should be done in writing. They will take the correct steps to investigate your claim.

When you have a medical bill that falls past due, there is a chance that it will be reported to one of the three, or all, credit reporting agencies. Only members of the credit reporting agencies are allowed to report information. Sometimes, smaller organizations such as hospitals or doctors don't join any of the credit reporting agencies because it is too costly. If they turn your account over to a collection agency, then the agency will report it to a credit report agency--TransUnion, Equifax or Experian.

Any medical bills you have outstanding, which you are making payments on, will not be reported to a credit reporting agency or turned over to a collection agency. These accounts are unlike your standard credit accounts, which are reported to the credit reporting agencies monthly. Most consumers will pay a small portion every month toward outstanding medical bills to keep them from becoming collection items.

When medical bills are reported to a credit reporting agency, the information remains for approximately seven years. Your credit score can be reduced. The amount of the reduction can vary from person to person. If you have been on file with the credit reporting agency for a long time and you have other accounts you pay on time, the effect may only be minimal. Order a copy of your credit report to review the information and see what has been reported.

If you decide to pay your medical bills in full, the information will still remain on your credit report if the seven year time limit has not passed. The accounts will show as a "paid collection" account. Before you decide to pay off your medical bills, contact the collection agency and try to have the information removed once it is paid in full. You may be able to use your payment as a bargaining tool with the agency. Any agreements you reach should be put in writing by the collection agency before you send your payment. Some collection agencies will agree to remove the information only to renege after the payment has been received. Having written correspondence will confirm your agreement.

Medical bills that have been on your credit file for seven years should drop off automatically. This does not always happen, and you may have to take the appropriate actions, such as contacting the credit reporting agency, to have the information taken off.

How to Find a Legitimate Credit Repair Service

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According to The Fair Credit Reporting Act, you can dispute your credit report errors for free, but this process takes time. You need to apply for your credit report, review and file errors, and send dispute letters to creditors. An alternative is to hire a credit repair firm, which does all the work for you. But, chances are high that you may end up with fraudulent companies promising 100 percent bad credit remedy, including removal of bankruptcies, which is just not possible legally. It is important that you know you are hiring a legitimate credit repair service to solve your credit problems or you end up with more problems than before.

Instructions

Ask your friends or relatives about credit repair companies they approached when they had similar problems. A simple Google search can also get you several firms in your area.

Research the company before you approach it. Check with the Better Business Bureau to see whether any consumer complaints have been registered against the company. Find out if there are any pending legal cases filed against the company through your state attorney general's office or state-level consumer organizations.

Check the fee payment policy of the company. According to the Credit Repair Organizations Act, you are not entitled to pay the company until they deliver on all their service guarantees. If the company asks for any upfront payment, shun it.

Ask them how they go about repairing credit. If they say that they would dispute all negative information on the credit report including accurate and inaccurate, then just ignore the company. It is not possible to remove accurate negative information of bankruptcies, bad loans, and lawsuits, from your credit report. Bankruptcy cannot be removed from the report for 10 years, judgements and lawsuits stay for 7 years or until the expiry of the statute of limitations, under law.

Ask what information the company provides on its contact form. A contact form should give the company name and address, complete details on the services to be offered, total cost of services and payment policy. It should also include information on the time period required to achieve the target and other service guarantees, if any. Further, there should be a grace period of three days after signing of contract until which the company cannot start their services for you. You have a right to cancel the contract during this period without any payment of fees.

How to Improve a Credit Score in 24 Hours

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Most of the time, improving your credit score is a long and laborious process that does not yield immediate results. However, there are a few things you can do to raise your credit score immediately if you have the capital and the financial freedom to do so. Particularly if your credit report contains errors like incorrect credit limits or past-due payments that don't exist, you can raise your credit score significantly just by making a few calls and avoiding actions that drop your score.

Instructions

Access your credit report at annualcreditreport.com, which is the only government-approved site where you can get your credit report online. You will need personal information, including your Social Security number, so make sure that you do not access your credit report on a public or wireless connection.

Read carefully through your report and make sure it contains no errors. According to a study by the U.S. Public Interest Research Group, 79 percent of credit reports contain some type of mistake. You can significantly and quickly raise your credit score by finding and correcting errors on your credit report.

Send copies of any documents that prove there is a mistake on your credit report to the credit bureau that sent you the report. Credit reporting agencies must investigate these claims and, if necessary, correct the information in your file and send you a free corrected credit report.

Pay down your debt aggressively if you get an unexpected bonus. The Fair Isaac Corporation (FICO), which calculates credit scores, reports that 30 percent of your score comes from the amount that you owe, including the proportion of available credit that you use. Paying down your debt decreases the amount of available credit that you use, increasing your score.

Do not open several new credit accounts or buy something with a financing plan. Every time you apply for a new card, a lender makes a credit inquiry, which can lower your score. Fair Isaac Corporation claims that one inquiry will not lower your score much, but that several inquiries can drop your score, because it tells lenders that you desperately need money.

Do not apply for store credit cards, even if the initial savings seem tempting. FICO considers people who have store credit cards more of a risk, and their credit score calculation algorithm takes this into account, according to former FICO executive Andy Jolls.

Pay any past due amounts immediately. The longer it takes you to pay a bill, the more it hurts your credit score. Paying off a past-due bill can have a positive effect on your credit score, especially if you get a "goodwill" gesture from a lender. If you usually pay bills on time, a lender may agree to take that late payment off your credit report, which can significantly boost your credit score immediately.

How to Remove Negative Credit Report Items From Debt Collectors

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Your credit report is a very important part of your financial life. Any debts you have are reported to credit bureaus, along with information as to how timely you are paying your bills. Any late payments, defaults, arrangements to pay or court orders are recorded, and accessed by future companies who want to assess your level of risk. Typically, this is other providers of credit, from credit cards to auto loans and mortgages. Your report can also be accessed during an employment check, or by potential landlords. For this reason, it is important to check your credit report regularly and keep it looking as good as possible.

Instructions

Order a new copy of your credit report. There are three main credit bureaus, all who produce different reports. These are Equifax, Experian and Transunion. You are entitled to one free credit report from each per year, but can purchase more whenever necessary.

Collect all of your documents regarding your debt. This could be your mortgage statement, bank statements, credit card statements, car finance statements and anything else that shows how much has been paid and when.

Analyze the credit reports carefully. Match up each entry with your own records, and mark anything that does not match. Different companies report different information, although most will record the payment received that month, whether it was on time, and what the remaining balance is.

Highlight any entries you wish to dispute and. If the data contained in these entries is accurate, you may not be successful in removing them. However, there is no harm in trying, and lenders are often willing to negotiate in return for debt settlement.

Write to the company concerned, asking for details of the debt. Ask for a copy of your signed credit agreement, and to detail how they have calculated the amount owed. Inform them that if they cannot prove the debt is yours, you want the incorrect data removed from your credit report. The company has thirty days to respond.

Examine the information you are sent carefully. Check that the signature is your own, and that the interest rate being charged is the correct one you agreed too. Read the section on the contract about missing or late payments, and check that this protocol was followed. If charges have been added for other purposes, such as sending you a reminder letter, ask for proof that you received this.

Negotiate with the creditor. You may do this by letter or by phone, but if you reach an agreement on the phone, always ask for a copy of it in writing before acting on it. If you can afford to, offer to settle a large percentage of the debt as a full and final settlement, and ask for your credit report to be updated. If you cannot afford this, try offering higher monthly payments.

Act on your agreement, and check your credit reports again after one month. This should display the updated information.

What Are Soft Credit Checks?

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You may wonder about soft credit checks and how they differ from hard credit checks. Although both soft and hard credit checks involve your credit report, there are significant differences between the two. In some cases, you have no control over whether a hard or soft check occurs, however, in some cases it is advisable to opt for a soft credit check if possible.

Soft credit checks result when inquiries are made for your credit report by entities that do not intend intend to offer or extend direct financial services such as mortgages, car loans or credit cards. Soft credit checks do not show up in credit reports provided to third parties; they are only visible to you whenever you request copies of your own credit report. A request for a copy of your own credit report also counts as a soft credit check, even if you request copies from all three major credit reporting bureaus.

Soft credit checks are often conducted by entities seeking information about you in the process making a decision concerning their professional or business relationship with you. For instance, employers may conduct a soft credit check as part of a hiring decision. Banks may conduct soft credit checks to verify the identities of individuals that apply for accounts, especially checking accounts, although some banks use hard credit checks. Many financial experts recommend checking your own credit at least once every year to minimize the possibility and adverse effects of credit fraud and identity theft.

Hard credit checks appear on credit reports provided to third parties. Each hard credit check remains on your credit report for up to two years; each inquiry lowers your credit score by five points for about six months. according to Money Blue Book. The appearance of too many hard credit checks on your credit report during a short period of time can cause lenders and other credit-granting agencies to suspect that you are seeking credit to compensate for a shortfall in your income or to cover large individual or household expenses and may run into difficulties paying off high credit card balances or other financial obligations.

Request merchants and other credit granting agencies conduct soft credit checks whenever possible, especially if you are still investigating your purchasing or borrowing options. Another suggestion to minimize hard credit checks during the process of shopping for a mortgage or a car is to conduct your own credit check and provide the results to potential lenders or car dealerships. Ask the merchant or financial institution to conduct a preliminary evaluation based on your information, and authorize a hard credit check only when you are ready to buy or have a loan or credit offer on the table.

How to Update My Experian Credit Bureau Credit History

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Your credit score is determined by the number of current or past-due accounts on your personal credit history. Paying off past-due accounts can increase your credit score. Some individuals even find that accounts on their credit report do not belong to them. This can result from a mistake by the credit bureau or by the creditors filing a claim. Updating your credit report can ensure that the proper credit score is reflected, allowing lenders to appropriately assess whether you're a high-risk borrower.

Instructions

Obtain a current copy of your credit report, either by paying for a copy through the Experian website or getting your free yearly credit report at AnnualCreditReport.com. Analyze the credit report thoroughly and make notes of items that need to be updated or items that you feel are incorrect.

experian.com

Dispute any items that you feel are incorrect. To do this, request an investigation on the Experian website. You'll need the report number from the top of your current credit report to initiate an investigation. Provide full details of the item you feel is wrong, as well as any evidence you have which suggests that the item on the credit report is either incorrect or not yours.

Send a letter and copies of receipts to Experian when you have paid off bills that are currently on your credit report. Include the report number of your current credit report. The letter should clearly state that you want to update your credit and include any relevant supporting details. Mail these materials to:

Experian

P.O. Box 2002

Allen, TX 75013.

In addition, when paying off bills, ask the creditor whether it will be reporting to the major credit bureaus to update them regarding the status of those bills. Most creditors do update the credit bureaus when an account has been paid off or is being paid on a regular basis.

Classic FICO Vs. Vantage Score

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A consumer's credit report and credit score play a major role in his financial future. The three credit bureaus -- Equifax, TransUnion and Experian -- maintain credit reports for consumers in the United States. Previously, the Fair Isaac Corporation maintained the only credit scoring model based on these reports. However, in 2006, the credit bureaus developed their own credit scoring method, known as the VantageScore, which differs from the original model known as the FICO credit score.

Creditors review a consumer's credit score when deciding whether to give the consumer a new credit card, loan, mortgage or line of credit. Although the credit score is not the only factor considered, consumers with higher credit scores typically receive more approvals and better interest rates. Creditors also periodically review their customer's credit scores when deciding whether to increase the customer's available credit line or to lower an interest rate. Landlords may check a tenant's credit score before signing a lease, and many employers check credit scores as well. Some creditors use the FICO score when assessing a credit application, and others use the VantageScore.

Fair Isaac developed a method of grading a consumer's credit report known as the FICO credit score. According to the MyFico website, the FICO score divides a consumer's credit report into five categories to calculate a three-digit rating ranging from 300 to 850: A consumer's credit history accounts for 35 percent of the score. The amount of debt the consumer accumulated accounts for 30 percent. The length of the consumer's credit history accounts for 15 percent. The number of credit inquiries a consumer made accounts for 10 percent. The different types of credit a consumer has in his credit profile accounts for 10 percent.

The credit reporting bureaus -- Equifax, TransUnion and Experian -- developed the VantageScore. The VantageScore uses a slightly different scoring method than the FICO credit score and has both a numerical range and a letter grade. Under this scoring model, a consumer's rating ranges from 501 to 900 and has a letter grade of A through F, according to Bankrate. The VantageScore is calculated based on six factors, according to Bankrate: 32 percent comes from the consumer's credit history, 23 percent from the percentage of available credit being utilized, 15 percent from the amount of debt owed, 13 percent from the length of credit history, 10 percent from the number of recently opened accounts and 7 percent from the amount of available credit.

Consumers can order a copy of their FICO credit score and their VantageScore as well as their credit report. Consumers can order a copy of their FICO credit score through the MyFICO website. Consumers can order a copy of their VantageScore from Experian. Obtaining either score requires a small fee.

How to Request My Credit History

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Credit history is used to secure employment, credit, insurance and home rentals. Monitoring your credit file is your best protection against identity theft, according to the Federal Trade Commission. It can also help you identify inaccuracies, such as reports of late payments or incorrect balance information on credit cards. Annual Credit Report is the only authorized source for providing free credit reports, according to the FTC.

Instructions

Request your credit history online. According to the Federal Trade Commission, consumers can get access to a free credit report, which details credit history. Order a report online (see Resources) every 12 months. When ordering the report, you'll be asked for personal information (such as the exact amount of a mortgage payment). Have this information handy to confirm your identity.

Call Annual Credit Report to order credit history. If you prefer to order credit history by phone, call 877-322-8228. The employee will ask you several questions to confirm your identity (similar to the online ordering process). After providing correct answers to the questions, the employee will approve your request and mail you a credit history from all three credit bureaus (Experian, TransUnion and Equifax).

Request your credit history by mail. Visit Annual Credit Report's website and complete an online request form (see Resources). Mail the form to the correct address, which is listed on the form. Requests by mail are processed within 15 days of receipt, according to Annual Credit Report.

Review your credit history. According to FTC, consumers should be looking for unfamiliar accounts or inaccuracies (like late payments or collection activity). If you find errors, contact the reporting bureau. Fill out a dispute request (found on the bureau's website) and submit. Disputes are typically processed within 45 business days. If approved, the inaccurate activity will be removed from your credit history.

Why Check Your Credit Report?

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Your credit report is a detailed record of all of your credit accounts, including when you opened them, how much you borrowed, how much you currently owe, when you last made a payment and how many late payments you have made. Because the credit score that lenders see when you apply for credit is based on your credit report, having a good report is critical for receiving credit in the future.

It is your responsibility to ensure that all of the information that appears on your credit report is accurate. Lenders sometimes make errors in reporting your account information, and these errors can damage your credit score. When you check your credit report, read each piece of information and ensure that it matches your records. Things to look for include the dates on which accounts were opened, the credit limits on your credit cards and any negative information, such as missed payments or collection accounts. If you find anything inaccurate, send a dispute letter to the credit bureau that identifies the mistake and asks that it be corrected.

If someone applies for credit in your name and with your Social Security number, this will appear on your credit report. Checking your credit gives you the opportunity to detect identity theft and move quickly to fix the problem. If you notice accounts you do not recognize or hard credit inquiries you did not initiate, you might be the victim of identity theft. The Federal Trade Commission outlines the process for repairing identity theft, which includes placing a fraud alert on your credit report, closing fraudulent accounts and filing a police report.

If you are planning to apply for credit in the future, checking your credit report can give you an idea of where you stand and how you can improve your credit to boost your score before your next application. For example, if your report shows a few missed payments, set up automatic payments on your accounts or schedule them on your calendar to avoid missing more payments. If your report shows many credit inquiries, stop applying for new credit for a while to boost that portion of your credit score.

All consumers are entitled to one free copy of their credit report each year from each of the companies that maintains a credit report. To get these free reports, use the Annual Credit Report website to order a report from TransUnion, Experian and Equifax. You can order all three reports at once or get one every four months to monitor your credit throughout the year.

How to Get Creditors to Erase Accounts from a Credit Reporting Agency

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Collection accounts, charge-off accounts and other bad debts appear as a negative mark on your credit file and lower your overall credit score. You can work with a collection agency or creditor to remove a negative listing from your credit report by offering to pay the debt if the creditor will agree to remove the listing.

Instructions

Order a copy of your credit report. By law, you can obtain a free copy of your report from TransUnion, Equifax and Experian once a year through Annual Credit Report. Access and print your credit report from all three credit bureaus.

Review your report and circle any collection reports or charge-off accounts.

Call the creditor or collection agency reporting the bad debt using the phone number listed on your credit report. Inform the creditor that you are disputing the validity of the debt, but wish to reach a settlement amount in exchange for the creditor removing the listing from your credit file.

Write down the name and phone extension of the person you spoke to as well as the settlement amount offered. If the creditor did not agree to a settlement amount, write down the full amount owed.

Write a letter to the creditor or collection agency you spoke to stating you agree to pay to the agreed-upon amount providing the creditor removes the negative listing from your credit report. Request that the creditor agree to the arrangement in writing on their company letterhead.

Mail the letter certified mail to the address listed on your credit report.

Send a certified check or money order for total owed or the settlement amount to the creditor after you have received a letter from the creditor or collection agency stating it agrees to remove the negative credit listing.

Order a second copy of your credit report from the three credit bureaus 45 to 60 days after you pay the debt. You can order a second copy of your credit report directly from the credit bureaus by visiting their websites or calling their toll free numbers.

Review your credit report and verify that the creditor removed the negative file.

Dispute the negative file with the credit bureau if the company did not remove it from your report. Write a letter to the credit bureau saying you wish to dispute the information. Provide a copy of the company's written agreement to remove the file as well as proof of payment and your original correspondence with the creditor or collection agency.

Should I Fix a Credit Report Typo?

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The majority of the 20,000 disputes the credit reporting agencies receive each day are handled by a computer system, and those verified by humans are done at lightning speed, according to Smart Money. Errors on a credit report are common, and they result from lender mistakes and mishaps by the credit agencies. You should not let a typo go uncorrected, because it can cause years of financial headaches.

You should fix a typo on a credit report, because something such as an incorrect name can cause your file to get mixed with another person's file. If that other consumer has bad credit, you might also receive that negative data. This could cause your loans to cost more, it might provide a unfavorable impression in an employment background search, and it could prevent you from getting certain utilities or services. A typo on an account detail could also damage your credit score. If you have a $10,000 credit limit on a credit card, but the report states you have only a $1,000 limit, your credit utilization ratio (the amount of your debt relative to the credit available) will rise, and that could damage your credit score.

If you discover a typo, you should submit a dispute as soon as possible. Even if the credit rating agencies correct your error, it can take 90 days to update a report, according to Financial Web. Some cases can take months to settle, especially if you have little evidence to support your claim.

The credit reporting agencies control your report, so you should dispute the typo with them. However, if the lender reports inaccurate account information, ask the lender to correct the mistake, suggests Laura T. Coffey of MSNBC. Coffey recommends that, instead of using the online dispute form offered by each agency, you should mail a certified letter with copies of your supporting documents. This guarantees the credit agency will receive your dispute.

When you need a type fixed quickly, consider employing a rapid re-scoring service. This typically costs no more than $50 in 2011, and it can help you fix most errors in days, not weeks. Rapid re-scoring services are not available to the general public, so you have to find a lender willing to act as a middleman to obtain the service on your behalf.

Does a Collections Account Affect My Mortgage Approval?

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Most prospective home buyers will pay for their properties by taking out a loan. When shopping for a mortgage, buyers will generally receive offers from a number of lenders and select the one with the best terms. The terms offered by the lender will depend on a number of factors, including prevailing rates of interest, the lender's policies and the borrower's credit rating. Open collections accounts drag down an individual's score, which could prevent them from qualifying for a loan.

When considering whether to offer a loan to a prospective borrower, a lender will consider a large amount of information related to the borrower's financial history, including his current credit report and its resultant score. A person's credit report includes mentions of all outstanding collection actions. The lender may factor in the presence of a collection action specifically when considering whether to approve the borrower, or he may simply factor in the borrower's credit score.

A collections account is an indication that the creditor to which an individual owes money has hired a debt collector to seek payment of the money. Such accounts are generally only opened by a creditor when an account has fallen several months delinquent. Collections accounts may be opened for a number of reasons -- for example, a genuinely delinquent loan or simply a disagreement over a bill. However, all collections accounts will drag down a person's score.

The presence of a collection action may cause a lender to consider a potential borrower to be at higher risk of defaulting, thereby causing him to offer a loan only at a higher rate of interest or not at all. However, if the collections account is on an individual's credit report for a justifiable reason -- say, the creditor has made a mistake or is acting dishonestly -- the lender may be willing to ignore it.

In order to prevent a collections account from negatively affecting his score and affecting his chances of having a mortgage approved, an individual must settle up with the lender who has opened the collections account. Generally, the individual must either pay what he owes or reach some alternative settlement. The creditor can then close the account. This closure will help boost the individual's score and improve his chances of receiving a mortgage with good terms.

How Long Can Charge-Offs Affect a Person's Credit Rating?

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A charge-off occurs when a lender gives up on collecting a debt from you, usually after you are several months late on payments. When the debt is charged off, the creditor usually sells it to a collection agency, which tries to get you to pay the debt. A charge-off can have a significant negative impact on your credit rating.

An account that has been charged off appears on your credit report for seven years after the date the account was charged off. Charge-offs usually occur six months, or 180 days, after your last payment, according to Bankrate. After a charge-off has been on your credit report for seven years, the credit bureaus must stop reporting the negative information. When it is no longer on your credit report, the charge-off will no longer affect your credit score.

The exact impact of a charge-off on your credit score depends on what your credit score was before the charge-off and other positive and negative information on your credit report. Charge-offs for higher amounts will have a stronger negative impact than those for smaller amounts. A charge-off is one of the most damaging items to have on your credit report, along with bankruptcy, foreclosure, unpaid tax liens and court judgments against you. However, as time passes, a charge-off's effect on your score decreases until it stops affecting your score when it comes off the report after seven years.

As with any item on your credit report, if the charge-off information is incorrect or does not belong to you, dispute it with the credit bureau reporting it to have it removed from your credit report. However, if the charge-off is accurate, the only way to have it removed is to negotiate the removal as part of your payment of the debt. Steve Bucci of Bankrate recommends you negotiate to have the collection agency remove the debt completely from your credit report upon payment, rather than just marking it as paid. A paid collection account is as damaging to your credit score as an unpaid one. In addition, ask the collection agency to have the original creditor change the charge-off status on the original account to "paid as agreed." Obtain all terms in writing before paying your debt for maximum leverage.

Even with a charge-off on your credit report, you can take other steps to rebuild your credit and boost your score. Focus on paying all your open accounts on time every month to add positive account history on your report and avoid future charge-offs. Focus on keeping the balances on your credit cards well below each card's limit, because a low debt-to-credit ratio -- the amount of debt you carry relative to your credit limit -- helps your credit score. Avoid applying for new credit, which hurts your credit score, unless you absolutely need it.

How Will a Loan Modification Affect My Credit?

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You can save your home through loan modification, and it probably won't mean sacrificing your credit score. On the contrary, loan modification may help your score by preventing a more serious incident from appearing on your report. To be truly sure of the effect of loan modification, query your lender.

Loan modification might negatively affect your score if you negotiate with a private party. The private lender may report the account as settled if he must forgive part of the loan. The federal loan modification program -- known as Making Home Affordable -- lowered credit scores in 2009, even ones who were current on their payments, because of an outdated reporting code. In 2011, HAMP won't affect your credit score as long as you follow through on the restructured payment schedule.

Loan modification itself may not harm your score, but the history leading up to it may do significant damage. Most creditors will not consider a loan modification until the borrower appears to have serious financial problems, such as missed payments for more than 90 days, according to Experian. Debt settlement companies often tell customers to stop paying their loans to "force" the creditor to negotiate. A 90-day missed payment can lower your score by as many as 135 points, according to CNN.

Borrowers should seek out loan modification assistance before missing payments and ask the lender how he will report loan modification to the credit bureaus. Also consider that even if the lender reports the account as settled, this is still much better for your credit score than letting the home go to foreclosure. A foreclosure, for instance, takes 20 to 40 points more off of your credit score, whereas debt settlement and about 85 points less than a bankruptcy.

You may have alternatives to a loan modification if you are worried about the potential hit to your score. On credit cards, for example, card issuers typically lower your interest rate immediately just by calling their customer service number. Refinancing the loan can reduce your monthly payments and/or interest rate and only cost you a few points due to a hard inquiry. Keep in mind that modification usually is not that bad -- a 2010 VantageScore Solutions survey found it had a negligible impact on scores.

9 Ways to Build Credit from Scratch

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Building credit from scratch can prove challenging because some credit card companies and lenders do not extend financing to people without a credit score However, it is possible to acquire credit with no prior history. The key is knowing where to apply.

Secured credit cards are one of easiest credit accounts to get with no credit history because these credit cards require a security deposit before you're approved. Security deposits are compared to collateral, and if you don't pay your credit card balance, the bank issuing the card deducts the delinquent amount from your deposit. Talk to your personal bank or credit union about acquiring a secured credit card.

Department store and retail charge cards tend to carry higher interest rates, which results in higher minimum payments. But on a positive note, these cards are easier to acquire with no credit history. And despite the higher interest rate, these accounts can help you build a good credit score, and help you qualify for lower rates in the future.

Some banks offer credit card accounts to college students. Take advantage of these offers and apply for a student account. Student credit card applications are available on most college campuses. These card companies usually start students with a low credit limit and gradually increase credit limits as they make timely payments.

Instead of applying for your own credit card, get help from your parents and convince them to add your name to one of their credit cards. By piggybacking or becoming an authorized user on their credit card, the creditor reports the account on your credit report, and as long as the account remains in good standing, your credit score benefits.

Smaller, private car dealerships offer loans to people with no credit history. Consider applying for a "fresh start" or "no credit history" auto loan to begin building your credit history. Prepare for a higher interest rate and monthly payments due to your lack of credit experience.

Federal student loans do not require good credit or credit checks. If interested in attending college or a university, take out a student loan to begin adding years of positive history to your credit report.

Getting approved for credit is only the beginning. To build a good credit history, you've got to make smart credit decisions, which involve paying your bills on time each month. Late payments or missing payments reduces your credit rating, while timely payments add points each month.

Carrying huge balances on credit cards from month to month also lowers your credit score. Use credit responsibly and develop a habit of paying off charges in full each month to keep debt to a minimum.

Building credit from scratch involves credit checks. Bear in mind that credit checks or inquiries can hurt your credit score. Instead of submitting several credit applications within a short time, start slowly. Apply for a line of credit, wait for a response, and then submit another application months later to spread out your inquiries.

Insufficient Trade Lines Reporting on Bureau

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If you apply for a loan you can be denied credit based on your credit report. One of the factors considered when deciding to extend credit is the number of trade lines on your credit report. A trade line is how a creditor that has approved you for credit reports your information to the credit reporting agencies. The components of a trade line include the name of the creditor, the amount borrowed, the credit limit, date last paid, the credit rating, the high credit amount and the type of account such as revolving or installment.

If you apply for credit and you only have one trade line on your credit file, there is a good chance that your request will be denied. The reason used by the creditor will be insufficient trade lines reporting on the bureau. Your credit file does not have enough established credit for the creditor to approve you. In other words you don't have enough of an established credit file. A creditor will need to see how you pay over an extended period of time in order for him to evaluate you for credit.

Insufficient trade lines can also fall in the category of insufficient credit history. Creditors want your credit profile to include different types of trade lines such as credit cards, and installment loans such as mortgage and auto loans. This also helps to improve your creditor score. If your credit file consists of one credit card trade line or one auto loan trade line you will probably be rejected for insufficient trade lines, especially if you have had these accounts for less than one year.

Once you have started your credit file you might want to take a look at your credit report every six months to see what information is being reported. If you have credit with a creditor and they are not reporting that information to the credit reporting agencies, put in a request to have it reported. Eventually your credit file will be sufficient for creditors to consider when making credit decisions. The more trade lines you have the better. Just be sure that you watch how you use your credit. Don't start using an excessive amount of credit because this can lower your score even if you pay on time.

The three major credit reporting agencies are Equifax, TransUnion and Experian. Information showing up in the files of one credit reporting agency might not show up on another. It's a good idea to take a look at your credit report at least once a year to confirm all of the information is being reported. Keeping an eye on your credit report can help you avoid problems later on.

You can order your credit report online (see References). This is the only place that is established for you to get a free credit report. There are other locations that claim to be free but they will either charge a fee or request that you buy a product or service. You can get your report for free. Order a report from all three credit reporting agencies at the same time, or individually.

The Objectives of a Credit Risk Rating

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Any time a bank loans money to a consumer through a credit card or loan, there is a level of credit risk since the consumer may default on the loan or credit card, causing the bank to lose money. To protect their assets, banks use a credit risk rating to determine which customers are eligible for credit cards and loans. Banks also use this rating system to set credit limits, interest rates and loan amounts.

Financial institutions use credit risk ratings to determine eligibility for credit cards and retail cards. By reviewing a potential customer's credit score and credit rating, the bank can estimate how risky the customer may be. For example, consumers with a low credit score may be more likely to default on their credit card payments. The bank also uses the information in a credit risk rating to determine the amount of credit they can extend to the consumer. The banks may also use credit risk to determine the interest rates on credit cards and set other charges such as annual fees.

Like credit cards, financial institutions use credit risk ratings to determine eligibility for their loan products such as personal loans, auto loans, home equity loans and mortgages. Once the bank determines eligibility they use the information in a credit risk rating to set the terms of the loan. For example, a person with a higher risk rating may have a larger interest rate then a person with a lower risk rating. Banks may set stricter repayment terms or require collateral to back up the loan for higher risk customers.

Financial institutions periodically review their portfolio, including any credit cards, retail cards or loans they have leant to customers. During these reviews, banks may raise interest rates for higher risk customers or offer higher credit limits for customers who have lowered their credit risk rating while doing business with the bank. Utilizing credit risk ratings helps banks protect their assets and increase their profits. For this reason, consumers with a higher risk credit rating are reviewed more frequently then consumers with a lower risk credit rating.

Does Mortgage Preapproval Affect My Credit Score?

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Mortgage pre-approval is the process of submitting basic information to the bank and waiting for that particular lender to examine the information and create a letter that shows it is willing to loan up to a specific amount of money to the borrower. This is not the application itself, which is far more detailed, or a pre-qualification, which is less detailed but faster, but a middle ground that provides a strong incentive for sellers to accept offers that have a high chance of going through. However, applying for mortgage pre-approval does come with its share of risks and other problems.

When it comes to credit checks, there are hard inquiries and soft inquiries. Soft inquiries are done by lenders that have already loaned money or businesses that are just running a basic check. Hard inquiries are more detailed and count in the FICO formula used to calculate the score. A pre-approval creates a hard inquiry, which is why it has the power to affect your credit score and in many cases can lower your score without any further action.

While a pre-approval can lower a score, its effects are very limited. The FICO score allocates only a small portion of its tally to credit checks, since merely checking credit is relatively minor activity. At the most, borrowers may see their scores drop between three and five points, if not less. This is rarely enough to affect the actual mortgage application process itself or to change the way that the lender approaches the borrower when offering specific terms like principal amount or rates.

A pre-approval credit check does have the ability to drop a credit score by more than five points, but this is based mostly on additional factors. For example, a borrower that tries to apply for several different types of credit without a short space of time will see a credit score drop more for a pre-approval check than otherwise. Also, having bad credit in the first place may enhance the negative effects of a credit check, especially if pre-approval is declined.

Pre-approval is not necessary in order to get a mortgage. Borrowers looking to purchase a home and doubtful about their credit may be able to talk with a loan officer and find a loan package that is very likely to be accepted without using a pre-approval. On the other hand, a borrower with good credit may be able to get the pre-approval letter and use it without worry, since a couple months should erase the small drop it creates.

Reporting Rent on a Credit Report

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One-third of all people rent their dwelling, but despite the large number of renters, the credit bureaus do not track rental history for most consumers, according to Wallet Pop. In 2010, however, Experian became the first of the major credit bureaus to combine rental histories and traditional credit reports. Until collecting rent data becomes standard practice, most consumers can only try to self-report payments.

The majority of landlords do not and cannot report rental history, because they lack the resources to set up the data reporting system required by the major credit bureaus. Experian purchased RentBureau, the largest rental history reporting company in the U.S., in 2010 as part of a push to incorporate rent data into credit scoring. In 2011, Experian will report on-time payments only, and then negative and positive data in 2012 and beyond.

If your rent payments do not appear on your credit report, you could self-report to an alternative credit rating agency. You will have to pay for the rating agency to verify your data, and lenders are far less likely to weigh an alternative score in credit decisions, but at least you get some "credit" for paying rent on-time.

Landlords can report delinquent rent payments by proxy by sending the account to a collection agency. The collection agency then alerts the credit agencies to the delinquent debt. Also, the Fair Isaac Corporation, the patent holder to the algorithm used by the credit bureaus, has the FICO Expansion which incorporates rent data from alternative credit agencies. The FICO Expansion, like other alternative scores, are far less important to lenders than a true FICO score.

You could build credit through rent payments by putting the bill on a credit card, or if you do not have a credit card, a secured card backed by a security deposit. Pay your rent by the due date every month and you will receive positive data on your credit card account. Also, keep in mind that omitting rent data can help customers that frequently pay late.

Who Can Request a Credit Report From Individuals?

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Any time a company needs to decide whether to lend you money, the company will check that you have a history of paying your bills to make sure it will get its money back. The same goes for companies that provide services, and for potential landlords who need to know you'll pay your rent each month. Finally, although it's a source of debate, employers in most states may ask for access to your credit score to understand your history of responsibility.

When you need to borrow money, obtain a credit card or get insurance, the company to which you've applied must put in an inquiry to your credit report. These inquiries are considered "hard inquiries," which indicate that you may be a higher credit risk because you'll potentially be borrowing more money or paying more money out each month; therefore, the more hard inquiries you have, the worse your credit score.

For landlords, your credit report is a reflection of how financially responsible you are, and whether you'll be able to pay your rent each month. According to MSN Money, if your credit rating is non-existent or low, you may need to have someone co-sign your lease. Otherwise, your landlord may ask for a higher security deposit or more rent to ensure that he is protected in the event that your finances fall through.

Your cell phone plan is a monthly payment, and cellular providers need to make sure you're going to pay your bill each month. Utility providers may also check your credit report. Those with low credit scores may get worse rates or need to put down a deposit to obtain service.

Potential employers may access your credit report only if you give your permission. In Hawaii and Washington, employers are prohibited from using credit reports in considering whether to hire a candidate. However, according to a 2010 survey by the Society for Human Resource Management, 47 percent of the society's members used credit checks on some or all job candidates. Candidates for jobs that include working with money are more likely to be asked for access to their credit reports.

What Is a Judgment for Credit Scores?

7:14 AM No comments

A judgment means someone has won a small claims case against you, but it may not affect your credit score much. The impact of a judgment depends in part on other items on your credit report. If a debt gets to the point of requiring litigation, you might already have a poor credit score. The best thing you can do it is pay it off and try not to make that mistake again.

The credit reporting bureaus list public judgments when they relate to a person's willingness to repay a debt. This typically is limited to anything that involves money, such as an order for a wage garnishment, bank levy or unpaid tax lien. Criminal cases and judgments not directly related to money, such as a divorce, cannot appear on a credit report and do not affect FICO credit scores.

Judgments typically are the final action a creditor takes on a debt, and everything after that is a collection matter. This means the creditor probably has already reported the debt as several months late to the credit bureaus, unless the lender does not subscribe to them. Any payment more than 90 days late is almost as damaging as a bankruptcy as far as lenders are concerned, according to John Ulzheimer of the SmartCredit website. Because your score probably is already quite low, a new judgment might not lower your score much, because you have fewer points to lose.

The Fair Credit Reporting Act allows the credit bureaus to report public judgments for seven years after the plaintiff files the case. Paying off a judgment makes a better impression on potential lenders than a unpaid claim, but it might not improve your score much, because you let the debt go unpaid so long. However, judgments damage scores less and less over time. If you pay it off immediately, you can start rebuilding your credit score.

Try to negotiate with a creditor before he files a court case. If you owe the debt, the creditor most likely will receive a judgment, so you end up paying the debt anyway. Collection agencies and creditors prefer to avoid court because of the legal costs involved. They might agree to a deal that allows you to satisfy the debt by paying less than you owe. One way to avoid a court case is to work out a payment plan with your creditor.

Friday, February 29, 2008

Credit Reporting

FICO Scores

Weighting

Calculating FICO

Adverse Public Records

Eliminate Debt

Payment Record

New Accounts

Additional Accounts

Credit Reports

Settling Old Accounts

Personal Comment

Rebuild after Bankruptcy

Thursday, February 28, 2008

Credit Reporting

Responsible Use

Time Frame

Considerations

Withholding Payments

Settling Debt

Creditor Obligations

Considerations

Instructions

Monday, February 25, 2008

Features

Types

Warning

Other Considerations

Effects

Sunday, February 24, 2008

What Goes Into a FICO Score?

Factors That Improve a FICO Score

Length of Time Needed to Improve a FICO Score

Tips

Friday, February 22, 2008

Range

Payment History

Debt Owed

Longevity

New Accounts

Variety

Thursday, February 21, 2008

Instructions

Dispute Incorrect Information

Lower Your Utilization

Unsecured Credit

Avoid Excessive Applications

Monday, February 18, 2008

Pay Your Bills On Time

Keep Balances At Manageable Levels

Don't Apply For Unnecessary Credit

Other Methods

Sunday, February 17, 2008

Identification

Watch Out for Charge Cards

Credit Utilization Ratio

Tip

Instructions

Credit Reporting

Payments

Time Frame

Credit Removal

Automatic Erasure

Saturday, February 16, 2008

Instructions

Instructions

Credit Reports Containing Mistakes

Other Ways to Raise Credit

Instructions

Wednesday, February 13, 2008

Soft Credit Checks

Reasons for Soft Credit Checks

Effects of Hard Credit Checks

Precautions and Alternatives

Instructions

Credit Score Uses

FICO Credit Scores

The VantageScore

Tips