Does Being a Week Late Affect Your Credit?

Your credit score ranges from 300 to 850, according to FICO. A higher score can qualify you for better rates on loans, credit cards and other credit-based products. Your FICO score can even make the difference between an employer hiring you versus another candidate or whether an insurer will issue a policy to you or not. Credit scores are important, so it's wise to understand if a one week late payment can impact your credit.

FICO Scores

According to FICO, certain factors are considered in the scoring model's computation of your score. The biggest factor in your score is how well you pay your bills, which accounts for 35 percent. The level of debt you have is the second-largest factor at 30 percent. The remaining three factors comprise the rest of the score. The length of your credit history is 15 percent. Ten percent is the mix of credit accounts one your credit report and the remaining 10 percent reflects how much new credit you've recently applied for.

Late Payments

A payment that's one week late is not reported to the credit bureau. Creditors report late payments to the credit bureaus in 30-day increments. A 30-day late means the payment is one month late, 60-day late means the payment is two months late and so forth. A payment that's one week late may incur a late fee from the creditor but will not appear on your report until it reaches the 30-day mark, and therefore, does not impact your credit.

Considerations

If the creditor charges a late fee for past due payments, these late fees are added to the balance of your debt. This can increase the overall amount of debt that you owe. How much debt you have is 30 percent of your score. FICO measures your credit utilization ratio. The more debt you have, the higher this ratio and therefore, the lower your credit score. Conversely, the less debt you have, the lower this ratio and the higher your credit score. For the best score, FICO suggests paying down the amount of debt that you have and keep balances low.

Prevention/Solution

To avoid or minimize late payments, consider setting up automatic payments on your bills. Once set up with your creditor, the amount of the bill is automatically deducted from whichever account you designate. This prevents you from accidentally forgetting to make a payment. If you do discover that you're late on a payment, pay the bill as quickly as possible so that the payment posts to your account before the bill reaches the 30-day cutoff.

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Why Has My Credit Score Gone Down?

Your credit score can change each month depending on the type of activity you have on your account. If you are noticing a dip in your score, you naturally want to determine what's decreasing it so that you can rectify the situation. Look at your recent financial behavior to see if you can find the reason.

New Credit

Opening a new credit account can cause a dip in your credit score and there are plenty of opportunities to start a new credit account. For example, you might not think twice about applying when a cashier offers you a 30 percent discount on your purchase if you open a new store credit card. Additionally, inquiries to your account -- such as when you're shopping for a home or auto loan -- can decrease your score.

Late Payments

When you pay your bills late -- especially more than 30 days late -- the company reports this to the credit company. Late payments will decrease your score and multiple late payments will have an even bigger effect. Occasionally, if you have a good history with the company and the late payment was a single occasion, the company may remove the negative remark from your credit file -- you simply have to call and ask.

Increased Debt-to-credit Ratio

If you've recently acquired a lot of debt, this increases your debt-to-credit ratio and decreases your credit score. The same thing may happen when you close an account that you're not using -- closing the account reduces your amount of available credit, which increases the debt-to-credit ratio. Try to keep all of your accounts open.

Closing Accounts

The longer you've had a relationship with a credit company, the better your credit score will be. If you've recently decided to close some accounts that you've had for a long time, this may decrease your credit score, as it shortens the credit history that you have.

Decreased Mix

The credit bureaus reward you for having a mix of types of credit, including revolving credit -- like your credit cards -- and term loans -- like an auto loan or mortgage. If you've recently paid off an auto loan and no longer have any term loans, this may temporarily decrease your score.

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How to Remove Negative Statements From Credit Report

Negative accounts on your credit report, often known as derogatory accounts, refer to collection accounts, accounts with late payments in the payment history, charge-offs, foreclosures, repossessions, judgments, bankruptcies and liens. Negative accounts generally can be reported on your credit report for seven years, although some account types extend to the 10-year mark. If a negative account is past the reporting date, you can dispute it for removal. If an account is not yours or the information is not reported accurately, you may also dispute it and potentially get a removal.

Instructions

TransUnion

1

From the TransUnion website, click the returning user link if you have ordered a credit report or other credit product from TransUnion before. Click "First Time? Click Here" to make a TransUnion account. Once the account is created, return to this page and use the returning user link.

2

Click "Credit Report" in the list of options on the main page. Click "Report Inaccuracy" when the link appears once you switch to the credit report tab. Press the "Submit Dispute" button underneath.

3

Scroll down the list and click "Request Investigation" on any negative accounts you want to dispute. A list of dispute reasons appear. Choose the ones that fit the problems with the account and click "Submit."

Equifax

4

Fill out the form on Equifax online dispute webpage, skipping the credit report number section if you have not recently requested an Equifax report. Click "Submit."

5

Answer all of the multiple choice identity questions on this page. These questions are used to verify your identity so that an unauthorized person cannot access your credit report. Click "Submit."

6

Choose "Start a new dispute." Enter the negative information section of your credit report and click each individual account you need to dispute. Click "Dispute this item" and specify the reason you're disputing the account. Choose "Add Dispute" to complete the process.

Experian

7

Request an Experian credit report. Experian does not process disputes without a credit report requested in the 90-day period prior to your dispute. Experian provides a number of ways to obtain a credit report on its website, from going to Annual Credit Report and getting your free report to paying for it from Experian.

8

Choose "Yes, I have a credit report number" on the dispute page. Find the report number on the main page of the report and enter this in the first field. Provide the requested information in all of the required fields on this form. Click "Submit."

9

Click "Dispute this item" next to any negative account that you feel is inaccurate or needs to be removed. Explain why you are disputing this item. Click "Submit your dispute."

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The Effects of a Foreclosure on a Credit Score

In December 2010, foreclosures were at some of the highest levels in years with 1 out of every 501 homes in foreclosure in the U.S., according to RealtyTrac. Foreclosure means your family will likely have to find a new place to live, but this could prove challenging, because your credit takes a massive hit after such a financial disaster.

Identification

The effect of foreclosure on a credit score depends in large part on where your credit was before the foreclosure. Average-to-poor scores tend to take less of a hit, because the credit history already has several negative items. The Fair Isaac Corporation looked at their data in 2010 and found that a foreclosure dropped a score of 780 to the 620-to-640 range and a score of 680 to the 575-to-595 range.

Time Frame

Like most bad items, foreclosure follows the seven-year reporting rule. Also, the foreclosure does the most damage during the first two years after the incident. After that, it is very possible to bring your score up enough to get a mortgage again. Some states allow lenders to go after a deficient balance---when the foreclosure sale does not pay for the original mortgage. The lender could pursue a public judgment and add yet another bad item to your report.

Misconception

Consumers often believe that a short-sale---where the borrower and bank agree to settle the mortgage for whatever the house can sell for---or giving the deed to the bank, called "deed in lieu of foreclosure," has a less noticeable impact on a credit score. This is not true. Although people that opt for a short-sale or "deed in lieu" may have good payment history leading up to this transaction, it is still a partial payment and a major mark on a credit report.

Tip

Before letting a foreclosure happen, consider getting help from the federal Making Home Affordable program. This program tries to modify a mortgage to fit the borrower's income and has no effect on a score as long as you enter the program current on your payments. You could also sell the house yourself if you have enough equity to pay back the mortgage. Commit yourself to paying bills on time, reducing credit card debt and building new credit, such as with a collateral-backed card known as a secured card, and you can probably get another mortgage in two to four years even with a foreclosure on your record.

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How to Define a Credit Check

A credit check is the act of obtaining a credit report. Credit reports provide detailed financial information about an individual, including past financial problems and information about employment history. Consumers can use a credit check to make sure they aren't victims of credit fraud or identity theft, which can harm a credit report by attributing poor behavior to the individual.

Purpose

The purpose of a credit check is to call to attention both good and bad points that make up an individual's financial history. While most of the items included in a credit report pertain to credit or borrowing, other sections cover income, employment and current debt. Credit checks can identify a consumer with a history of late payments or accounts in default. They also note bankruptcies and foreclosures. But they can also confirm a consumer's good credit by noting a history of timely payments and steady employment.

Requirements

There are several situations that may require a credit check. Applying for a major loan is one. Credit card issuers, mortgage lenders and auto loan companies all need to be able to identify customers who pose a higher degree of risk. Landlords also use credit checks to make sure tenants don't have a history of evictions and make enough money to be able to afford rent each month. Potential tenants and loan applicants need to provide basic information, including a name and Social Security Number, for a credit check to proceed. Depending on the institution, there may also be a fee for the credit check.

Credit Report vs. Credit Score

Credit checks result in a credit report, which offers a full list of financial activities in the past as well as the status of current accounts. This is not the same as a credit score, which is a single number that is a part of some credit reports or may be available separately. Credit scores, which range from 300 to 900, synthesize the information in a credit report into a single number for fast access and comparison. Lenders and landlords may use credit scores to determine which applicants should receive the lowest interest rates on a loan or to be allowed to rent a more expensive unit.

Sources

The Federal Trade Commission oversees credit reporting through three private reporting agencies. They are TransUnion, Equifax and Experian. According to the Fair Credit Reporting Act, every consumer is entitled to a free credit report from each of these agencies once a year. Additional reports within a one-year time period, or reports that include a credit score, may incur fees, but basic credit reports are a free way for consumers to monitor their own credit. Other companies that offer credit reporting services do so outside the jurisdiction of the federal government.

Improving Credit

In some cases a credit check may result in an individual being rejected for a loan, asked to pay a higher interest rate or denied an apartment. But credit reports change over time, and a future credit check may result in an improved report and score if the individual in question makes good financial choices. Paying bills on time and contacting lenders to arrange more affordable repayment schedules instead of skipping payments is a good start. Spending within one's means and only taking loans that can be paid back comfortably can also contribute to an improved credit report. Gradually, these positive items will replace negative items on the report.

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How Long Does a Late Payment Remain on Your Credit Report?

A single late payment on your credit report can make you too risky in the eyes of creditors, according to The Motley Fool. This can affect your credit for years after the late payment.

Identification

Negative information on a credit report, such as late payments, stays there for seven years, according to Credit Info Center. Credit reports list late payment accounts based on the date of the bill.

Considerations

If your late payment leads to a default, or if the creditor writes it off as non-collectable, the negative mark can stay on your record for as long as state law allows, according to the Credit Info Center. In New York, for example, a resolved collections account stays for five years.

Tip

Review your credit report to ensure the accuracy of the late payment, including the date and amount, suggests The Motley Fool. You might be able to have the late payment removed from your credit report if a dispute investigation finds it to be an error.

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How to Correct a Trans Union Credit Report

Trans Union is one of the three major United States credit bureaus. It compiles information on consumers and sells it to lenders and other companies where it is used to make financial and employment decisions. Trans Union, like the other bureaus, may make errors in the items it includes on its reports. The Fair Credit Reporting Act (FCRA) gives you the right to review your TransUnion report for free every year and ask that mistakes be corrected through a specific dispute process.

Instructions

1

Photocopy the pages of your TransUnion credit report that contain mistakes and highlight the relevant items. This should be included in the envelope when you send your dispute to TransUnion.

2

Write a detailed letter that describes the mistakes and explains exactly why the information is wrong. The letter should also specifically ask that your TransUnion report be corrected by fixing or removing the disputed items.

3

Photocopy any documents that prove your points. For example, you might have canceled checks or receipts to prove that payments being reported as delinquent were actually made promptly. You may have a statement that shows TransUnion is reporting an incorrect credit line on one of your credit card accounts. Circle or highlight the relevant proof on each document.

4

Mail your letter and documentation to TransUnion via certified mail and ask for a signed delivery receipt. The current address will be listed on the bureau's dispute information web page. TransUnion also accepts online disputes, but the Federal Trade Commission recommends a letter as the safest way to ask for corrections. You can send enclosures with it and the receipt proves that TransUnion actually received it.

5

Recheck your TransUnion credit report once you get a response listing the results of your dispute, Credit Infocenter.com advises. The response will tell you if the bureau is going to fix the items or if it believes it's already correct. You should get this response within 30 to 45 days as required by the FCRA, and you show see the corrections when you get a new report copy.

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Is Being Debt-Free Good for a Credit Score?

You need a track record of responsible debt management to establish a good credit score. That's why living without debts may not be helping you build a good credit rating. You may not even have a credit score if you've never accumulated debts that credit bureaus regularly track.

Credit History

Debt-free people may see themselves as financially responsible, but creditors and lenders judge financial responsibility by looking at people's credit histories. The information in your credit report affects your credit score. However, there isn't anything in your report to score if you don't have a credit card, car loan, mortgage, student loan or similar debt to show how you handle your finances. Credit-scoring models generally don't track utility payments and some other forms of debt, unless they appear on credit reports as collection accounts.

Lenders

Lenders tend to view people who don't have credit histories as risky borrowers. Some banks even consider lending to people who lack credit histories as risky as lending to consumers who have bad credit, according to SmartMoney writer Kelli Grant. As a result, people who are debt-free usually have to pay high interest rates if they decide to apply for a mortgage or credit card. You can avoid high interest charges by building a good credit score while remaining mostly debt-free if you get a credit card and pay off the balance each time you charge something.

Inactive Accounts

Some consumers open a credit card account that they only use for emergencies to remain debt-free. However, they may not be boosting their scores if they're maintaining thin credit histories that leave little account activity for credit bureaus to score. Creditors also may classify such accounts as inactive, since the cardholders rarely use their cards. Creditors have the right to cancel inactive accounts, and they aren't required to give their customers advance notice of the cancellation.

Considerations

Debt-free people may have trouble finding a place to live if they haven't established significant credit histories suitable for scoring. People who lack sufficient credit histories often need co-signers to get loans to buy homes. In such cases, a co-signer who has a good credit rating would have to be willing to guarantee repayment of another person's mortgage. You also may need a co-signer just to rent an apartment if you lack a significant credit history, unless you can pay several months of rent upfront.

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How to Fix and Restore My Credit Report

If you are the victim of identity theft or a credit card issuer has falsely reported delinquent accounts on your credit report, you'll need to fix and restore your report before obtaining new credit accounts. By documenting and reporting incorrect or fraudulent activity on your credit report, you make it easier for credit-reporting bureaus and creditors to correct your report and stop your credit score from plummeting as a result.

Instructions

1

Purchase a copy of your credit report from each of the three major credit-reporting bureaus (Equifax, Experian and TransUnion). Check the report for errors. File a dispute form with each credit-reporting bureau to fix errors in your payment history. For example, if an account is reported as "delinquent" but is actually "paid in full," use the dispute form to fix the error.

2

Place a fraud alert on your credit reports if you suspect an unauthorized third party has opened accounts in your name. Contact one of the three credit bureaus to place the alert. The bureau you notify will then notify the two other bureaus. While you cannot restore a credit report overnight, the credit bureaus investigate claims of fraud as quickly as possible.

3

File a police report if you find fraudulent accounts on your credit report. Filing this report makes it easier to fix your credit after identity theft. Send one copy of your police report to your credit card company's fraud department, along with a dispute letter stating you are the victim of identity theft. Also forward one copy of your police report and dispute letter to each of the three credit bureaus.

4

Close your accounts. Open new password-protected credit accounts in place of your old ones. Your new accounts will appear on your credit report and reflect your current payment history.

5

Minimize your delinquency rate by paying your credit accounts on time. Pay above the minimum balance to maintain a low card-utilization rate, which is the rate at which a line of credit is used. Keep your balance within 30 percent of your line of credit to boost your credit score.

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Can Charge-Offs on Credit Reports Be Reopened?

Charge-offs on credit reports are a top reason for denial of new account applications, according to Steve Bucci of the Bankrate financial site. These negative entries can be reopened and paid, but they must be handled correctly or it will not improve a person's credit score. Ideally, the charge-offs should be completely erased so they no longer influence the credit records.

Definition

A charge-off is an accounting procedure done by a credit card company or other lender so the amount owed is no longer viewed as an asset, according to Bucci. The account status on the debtor's credit reports changes from delinquent to charged off, which is a much more negative entry. It looks bad to other creditors and reduces the consumer's FICO credit score.

Time Frame

Charge-offs usually show up on credit reports after six months of non-payment on an account. The entries are reported on TransUnion, Equifax and Experian credit reports for seven years from the date the accountholder stopped making payments. The debt is still collectible until the state statute of limitations expires, and the original creditor may recoup some of its money by selling the account to a collection agency for less than the actual value.

Procedure

A charge-off is reopened by contacting the creditor and offering a settlement. Bucci advises offering less than the original amount due. Creditors often accept a reduced amount because they were already resigned to not receiving any payment. Tell the creditor that it must agree to stop reporting the account to TransUnion, Experian and Equifax or that it must alter the status to "paid as agreed" as part of the settlement. Otherwise there will not be much improvement in the credit score because a paid charge-off still looks bad.

Considerations

Do not give any payment to the creditor until it sends a copy of the settlement agreement in writing, including its promise to change the credit report entries. The creditor has no incentive to follow through once it receives the money. The written agreement forces it to keep its part of the bargain. Bucci recommends checking credit reports to make sure the account is removed or the status has changed to "paid as agreed." Consumers can order free yearly reports from the three bureaus through annualcreditreport.com.

Misconceptions

Charge-offs do not always have to be reopened and paid to significantly improve credit reports. The negative impact goes down over the years for people who manage their current accounts properly with on-time payments and controlled balances. Creditors pay the most attention to activity within the previous two years, Bucci explains. Charge-offs that are five or six years old may not be worth paying since they will drop off the credit reports within a year or two with no action on the consumer's part.

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How to Join Equifax

Equifax is a credit and money managing firm that has been serving personal customers and businesses for nearly 100 years. Equifax offers a variety of personal finance services that will keep you on track to managing your credit debt and paying off this debt in a timely fashion while protecting your identity. You should have peace of mind knowing that Equifax backs their products with a $25,000 or $1 million ID protection insurance, depending on your product package.

Instructions

How to Join Equifax

1

Type in equifax.com in your search bar. You will be directed to the Equifax homepage, which will list the services they provide.

2

Review the sections regarding their various services.

3

Click the "get started" button once you have picked a service suitable for your financial needs. Follow the directions and fill out the form with the required information.

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What Makes a Credit Inquiry Drop-Off on Your Credit Report?

Credit reports gather much of your financial information into one place, letting potential lenders, landlords or employers get a sense of your ability to handle credit wisely. Because of the complexity involved with collecting and reporting large volumes of information about your credit history, including individual loan accounts, earned income and payment history, what makes your credit report score drop off or improve might seem confusing. Consumers must sort through misconceptions to learn whether credit inquiries might damage their credit report.

Credit Scores

When people talk about their credit report "dropping off" or improving, they're usually referring to their credit score. Credit scores may appear as part of your credit report, but not all credit reports contain your score. Credit scores summarize various elements of your credit history into one number indicating your creditworthiness. High credit scores might indicate low debt levels compared with income, on-time payments, payments made over the minimum amount and long, reliable relationships with lenders. Low credit scores might indicate high debt levels compared with income, late payments, regular payments of just the minimum amount due and frequent account openings and closings.

Credit Inquiries

When you apply for credit (such as opening a new credit card) this authorizes lenders to run a credit inquiry into your credit history to determine whether they feel comfortable approving your application. These credit inquiries may appear on your report as part of your credit history, even if you do not end up taking out the loan for which you applied. Another type of credit inquiry, considered a "soft" inquiry, happens when credit card companies tap into your credit report to decide whether to offer you an account without approaching you first. You'll know this has happened when credit card offers arrive in the mail. Soft inquiries have no affect on your credit report; neither do inquiries that you run on your own credit report. In fact, it's recommended that you occasionally run your own credit report to find and correct errors and to help discover identity theft.

Dropping Credit

Credit inquiries can cause a small drop-off in your credit report score because excessive inquiries might indicate that you're frantically trying to increase credit availability. For most people, a credit inquiry may cause a five-point drop in their credit score, which has a scale that runs from 350 to 800 points. Last-ditch efforts to secure credit and stave off financial crises can indicate poor money and credit management skills. Creditors want to stay away from these types of situations, since they want to reduce the risk that you'll apply for credit, burn through the credit and never repay. It's true that opening several additional credit lines may hurt your credit, causing your score to drop more substantially.

Reality Check

It's understood that people will sometimes receive multiple inquiries into their credit during the process of taking out an auto loan, mortgage or student loans. When multiple inquiries arrive all at once for the same credit account within a certain amount of time, they're treated as a single inquiry and may have only an insignificant effect on your credit report. Typically, multiple inquiries occurring within 30 days are treated as one credit inquiry on the assumption that you're rate-shopping for loans.

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Components of Credit Scores

FICO is the major credit score provider in the United States. It bases its scores on five major areas of financial activity, each of which makes up a certain percentage of the total score. The information for each area is gathered from a consumer's credit reports. It continually changes as the consumer makes or skips payments, opens or closes accounts, pays down balances or makes more charges, and does similar financial and credit-related activities.

Payment History

Thirty-five percent of a consumer's FICO credit score is based on his payment history for his credit cards, installment loans, mortgage, finance company accounts, and retail accounts. This component carries the most influence on his credit score, and Mary Royston of Callahan & Associates, a credit union research firm, says payments made within the past 12 months have the most weight. This component also considers how long delinquent accounts have been unpaid; items that have been turned over to collection agencies; and court judgments like bankruptcies, charge-offs and repossessions.

Balances Owed (Capacity)

Thirty percent of a consumer's FICO score is influenced by how much money she owes on all her credit cards and other accounts in comparison to total credit available; balance owed compared to available revolving credit limit on an individual account basis; number of accounts with balances; and the amount still owed on installment loans as compared to the original loan amounts.

Credit History Length

The amount of time a person has had a credit history accounts for 15 percent of his credit score, according to FICO. This component includes the length of time since each account was opened as well as the date of last activity.

New Credit

A credit score is also influenced by the number of newly opened accounts and what proportion of total accounts they make up. This component makes up 10 percent of the total score, FICO explains. It includes the time since the new accounts were opened; the number of credit inquiries made by lenders and how recently they were made; and the establishment of a good credit history with new or reopened accounts following past credit problems.

Types of Accounts

Ten percent of a consumer's credit score considers what types of credit she is currently using. This component includes credit cards, mortgages, retail accounts, installment loans, student loans, and consumer finance accounts like car notes, boat loans and similar account types.

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Statute of Limitations on Closed Accounts on Credit Reports

The statute of limitations for closed accounts listed on credit reports is governed by the Fair Credit Reporting Act. The act covers the reporting of all items including unpaid obligations, good credit items, bankruptcy, legal judgments and tax liens.

Charge-Offs and Delinquent Debt

Any type of legal judgment or tax lien remains on the credit bureau reports for a period of seven years.

From the date of the last delinquent payment, 180 days must elapse regardless of whether the lender charges off the debt, transfers or sells it. Subsequent to the expiration of the required 180 days, credit bureaus are required to report the past due debt for seven years from the original date of delinquency.

Bankruptcies

Debts contained within a bankruptcy can be reported individually.

Bankruptcies are carried on credit reports for a period of seven or 10 years, depending upon the type of bankruptcy and the policy of the credit bureau. In general, Chapter 7 and 11 bankruptcies are carried for 10 years from the date of legal adjudication. Chapter 12 and 13 bankruptcies are carried for seven years from the date that the court's repayment program is satisfied.

Legal Judgments and Tax Liens

Tax liens are reported for seven years from the date paid rather than filed.

Any type of legal judgment or tax lien remains on the credit bureau reports for a period of seven years.

Good Credit

Good credit items remain on credit reports for a period of 10 years before being aged off.

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How Can I Remove CBCS From My Credit Report?

CBCS is a collections agency offering collection services to health care, financial, utility, communication, cable and satellite companies. Due to a high number of complaints, the Better Business Bureau graded CBCS with a "C" because of issues being linked to improper collection practices or unsubstantiated charges. Under the Fair Debt Collection Practices Act consumers have the right to question any debt listed on a credit report and to request that the debt be validated. Consumers believing that CBCS is trying to collect a nonexistent or previously paid debt, can take steps to have to remove CBCS from a credit report.

Instructions

Validating the debt

1

Request verification of the debt. This must be done U.S. Postal Service or or other traditional mail service, not through e-mail or over the phone. The letter must include your name, address, and the account information given by CBCS, such as the account number. It is a good idea to use one of the many free online debt verification letters available online and to mail the letter using registered mail with proof of signature upon receipt.

2

Wait 30 days for a response from CBCS. If CBCS responds with information verifying that the debt is legitimate then it is not possible to remove the debt from the credit report. If CBCS does not provide verification that the debt is legitimate, within 30 days, the next step in the process can be taken.

3

Mail a cease and desist letter to CBCS, using available online templates if desired, along with a copy of the receipt from the previous letter showing that the letter was signed for, and a copy of the previous letter. The cease and desist letter will state that the company has not complied with the Fair Debt Collection Practices Act and that they must remove the debt from the credit report.

4

Wait 20 days for a response from CBCS. If CBCS sends a letter agreeing to remove the listing the individual needs to submit copies of the letter to the three credit reporting agencies, Experian, Transunion, and Equifax. If CBCS does not respond or refuses to remove the debt without providing verification of the debt, the individual can take legal action by filing a lawsuit in small claims court against CBCS.

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How to Build a Better Credit Record

The first time you applied for a credit card, a car loan, an insurance policy or a personal loan, a credit report was opened under your name and Social Security number. This report contains your employers, addresses you have lived, your debt, how you pay your debt, bankruptcies, judgments and lawsuits in which you have been involved. Potential lenders, landlords, employers and insurers view your credit report. Having a good credit report is therefore an important part of your life. If your credit file needs some improvement to push it into the great category, there are some steps you can take that you may not even be aware of that can impact your score.

Instructions

Number of Accounts

1




Add two or three accounts of revolving and installment credit.

Apply for new credit. Your goal should be two to three revolving accounts such as credit cards and two to three installment accounts such as a car loan, mortgage or personal loan. If you already have these of credit lines, skip to section 2.

2

Make every payment on time with your new credit accounts. Setting your payments up to be automatically withdrawn from your bank account can be very helpful.

3

Refuse to charge more than 20 percent of your credit limit on your new credit cards. If you happen to charge more than 20 percent, pay it down as soon as possible.

4

Charge items to any revolving credit accounts that you have not used recently. Use each credit card at least one time per year.

Reduce Balances or Increase Limits

5




Reduce credit balances or increase credit limits

Plan to reduce the balances on all of your revolving credit card accounts until each balance is less than 20 percent of your credit limit. Reduce the balances as soon as possible.

6

Continue to keep the balance less than 20 percent of your credit limit. If at any point your balance goes above 20 percent, pay it down as soon as possible.

7

Call the creditor and ask for a credit limit increase if you are unable to pay your balance down. By raising the limit, you accomplish the same goal by lowering the percentage of credit line in play.

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About the Consumer Credit Reporting Reform Act of 1997

The Consumer Credit Reporting Reform Act, or CCRRA, of 1997 changed the way employers were able to gain access to credit reports dealing with the hiring process, promotions, and retention. How the law affects consumers depends on whether employers are requesting credit reports for consumer reporting or for investigative reporting.

Consumer Reports

Knowing your rights will help protect you and your credit.

A consumer report covers the individual's credit history, giving future employers a look into creditworthiness, character, and even lifestyle. However, before an employer can pull the report of an applicant or employee, he must inform the individual in writing that considerations are being made based on his credit score. The consent must also be in writing, and a signature usually "seals the deal."

That is the beginning of the process. With the reform, no adverse actions can be made by the employer until the employee (or future employee) receives a copy of the report and is notified of his right to contest information found on it.

Investigative Consumer Reports

Knowing the "heads up" of your consumer report can smooth the process.

An investigative consumer report is almost the same as a consumer report, except that the information is mostly found and confirmed through those who best know the person (family, friends, and neighbors). The same prerequisites apply. However, with the Consumer Credit Reporting Reform Act, the employer must inform the employee or applicant of the usage of an investigative consumer report. This gives the employee/applicant a chance to request the nature and extent of the report.

Penalties

Consumers have more rights under the reform act.

According to the Consumer Credit Reporting Reform Act of 1997, penalties are issued if an employer fails to comply with the act. Failure to comply can result in punitive damages, attorney's fees, and actual damage costs to be awarded to the employee or applicant if he can prove negligent non-compliance or willful non-compliance.

Protecting Consumers

Not only does the CCRRA affect employers, employees and job applicants, it makes clearing credit reports easier for everyday consumers. When consumers apply for credit and are declined, they have the right to a free credit report, which they can evaluate it to find any discrepancies. Those mistakes can be removed and any multiple entries can be deleted as well.

Changes in the Fair Credit Reporting Act

Guaranteed approvals and pre-approvals from banks must now take heed.

The initiation of the Consumer Credit Reporting Act of 1997 also called for amendments in the Fair Credit Reporting Act. It was amended in 2003 to make credit regulations stronger and avoid what might just be legislation loopholes. Marketing offers were given stronger regulations to their so-called pre-approvals and were made to uphold these offers when taken advantage of by consumers.

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Letter to Repair Credit

Credit repair is accomplished in several different ways, including debt reduction and rebuilding of timely payments records. These efforts can take many months, but quick repair is possible for people with mistakes on their credit reports. The Federal Trade Commission cites letters as the best method for cleaning off bad report entries by filing disputes.

Purpose

Credit repair letters are used to dispute credit report mistakes. The Experian, TransUnion and Equifax credit unions compile financial information, but they do not audit its accuracy. The FTC explains that consumers are allowed to check their credit bureau records once per year through a government mandated website (see Resources). People who notice mistakes on any of their reports can write dispute letters to the appropriate bureaus to repair the bad information.

Reason

The three big credit bureaus encourage people to use their online forms for dispute filing. The FTC advises against this because credit repair letters have advantages over online submissions. Each bureau lists a postal address for disputes on its website. Letters can be formatted in an efficient way that lists each mistake and a detailed explanation of the problem. Consumers can enclose copies of their own records for proof, like bank or credit card statements and canceled checks. The postal office will send the letters through certified mail for an extra charge and provide proof of delivery. Credit bureaus have 30 days from the receipt date to handle disputes.

Contents

Experian, TransUnion and Equifax are not required to follow up on letters for disputes that appear to be frivolous or unfounded, the Divorcenet.com legal website warns. A credit repair letter lends credibility to claims if it is customized for each credit bureau. The three bureaus sometimes have different information in their records, so referring specifically to the contents of each credit report shows that the claims are well researched. Every bit of corroborating evidence enclosed with the letter strengthens the credit repair case, too. The letter should list the consumer's name, address, telephone number and Social Security number. It should clearly request that the listed items checked and removed.

Responses

The U.S. Fair Credit Reporting Act obligates the credit bureaus to reply to disputes once they are investigated, which must be done within 30 days, according to the FTC. The bureaus then send response letters explaining if the disputed items were verified or if they were removed from the reports. Erasure is required when a lender does not verify the questionable entry. Every removed entry helps the credit repair effort because the negative information no longer figures into credit scores or gets considered by creditors.

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How to Determine FICO

Invented by the Fair Isaac Corporation, FICO is a numerical snapshot of a consumer's credit worthiness. Based on payment history and debt-to-credit limit ratio, a credit score will determine how good a consumer is at paying his bills on time. If you want to determine your FICO score, read on to learn what a FICO score can mean for you and your family as well as how you can increase your FICO score.

Instructions

1

Understand what a FICO credit score is and why it matters to you and your family. The three nationwide credit bureaus, Equifax, Experian and TransUnion each have a file that details how good you are at paying your bills and how much debt you owe. Using a sophisticated mathematical formula, each bureau designates a credit score based on the credit information that it has received from your creditors. That score is known as your credit score and is used to provide lenders with a snapshot ranking of your credit worthiness. This information will determine credit card, home and auto interest rates you are assigned as a consumer.

2

Request your credit score at myfico.com, annualcreditreport.com or at any of the three nationwide credit bureaus for a nominal fee. That fee can range from $5.95 to $15.95 dollars. Because your score may vary from bureau to bureau, it is best to request your credit score from each bureau.

3

Understand how FICO is scored. FICO scores range from 300 to 850; the higher the score the better the standing. Generally, a score of over 750 will qualify you for lower interest rates and mortgage loans. The FICO credit ranking is as follows: 330 to 619 (poor credit); 620 to 659 (low to average credit); 660 to 720 (average credit); 721 750 (good credit); 751+ (excellent credit).

4

Understand what factors contribute to your FICO score. The factors include payment history, debt-to-credit limit ratio, length of credit history, type of credit and inquiries made for new credit.

5

Get on the road to a higher FICO score. Add your total unpaid balance (debt) and divide by the total amount available on the credit account (credit limit). That number will determine if you have a high or low debt-to-credit limit ratio. To raise your FICO score, you need to lower your debt-to-credit limit ratio. To do this, start to pay beyond the monthly minimum payment, eliminate or reduce high interest credit cards, and pay each creditor on time.

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Credit Report Score Range & Meanings

Your credit score uses information from your financial history to predict how likely you are to default on your future loan payments. When you apply for credit, such as a credit card or loan, one of the first criteria lenders look at will be your credit score. The most widely used credit score is the FICO score, which is calculated using an algorithm developed by the Fair Isaac Corp. The Fair Isaac Corp. licenses this algorithm to the credit bureaus that then calculate your credit score.

Score Range

Your FICO credit score has a range from 300 to 850. The higher your score, the less likely you are to default on your future loan payments, which makes you a more appealing borrower to lenders. According to the Kiplinger website, the median credit score is 723 and only 13 percent of borrowers have credit scores that exceed 800.

Misconceptions

Your credit score may differ between the three major credit bureaus--Experian, Equifax and TransUnion--even though they all use the same formula for calculating the score. This is because each bureau may have information about your credit history that the others do not. For example, if one of your credit cards only reports your account activity to Experian and you have missed several payments, your Experian score may be lower than your other scores.

Significance

Your credit score, while not the only factor, is very important in determining if you get credit and, if so, how much interest you will pay on the loan. According to Bankrate.com, lenders typically offer their lowest interest rates to people who have credit scores over 760. If your credit score drops below 620, you will likely be considered a subprime borrower and be offered higher interest rates. Bankrate also states that a score below 500 will most likely not qualify for a mortgage at all.

Considerations

Your credit score takes into consideration five factors, with each factor being weighted differently. Whether or not you've paid as agreed in the past, including defaults and delinquencies, accounts for 35 percent of your score. The amount you currently owe and the amount of credit that you have available to you counts for another 30 percent of your score. Fifteen percent of your score comes from how long you've had credit. The remaining 20 percent of your score is split evenly between the variety of credit types that you've made use of and the amount of credit you've applied for within the past two years.

Effects

A small change in your interest rate can result in significant additional costs or savings depending on the size of the loan. The larger the loan, the more significant the change. For example, according to the Fair Isaac loan savings calculator, if you took out a 30-year, $250,000 mortgage with a credit score of 690, you would pay an annual percentage rate of about 5.142 percent. If your credit score increased to more than 760, you would save almost $22,000 over the life of the loan. However, if your credit score dropped to 650, you could see the total cost of the loan increase by over $36,000. However, these calculations are based solely on your credit score. The interest rate you actually pay will also take into consideration other factors such as your employment history and debt-to-income ratios.

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The Best Way to Get Your Credit Score

Knowing your credit score in today's economy is crucial. Every credit repair and credit enhancement company knows this and will bombard you with offers about how to obtain your free credit score. Here are the best and cheapest ways to obtain your credit score.

Free Credit Report

The best and cheapest way to obtain your credit score is through annualcreditreport.com. The Fair Credit Reporting Act (FCRA) entitles you to one free credit report per year from each of the three credit reporting bureaus: Experian, Equifax and Transunion. You can visit the website and fill out the forms, or call its number at 1 (877) 322-8228, where you can request the forms be sent to your home.
This site is the only site authorized to give you the free report under FCRA. You can choose to receive all three scores at once or, for example, receive a score from Experian now and one from Transunion three months later.

Directly from the credit bureaus

Experian, Transunion and Equifax each has its own websites, where it will offer you a free credit report for 30 days. After the 30 days expires, you will be paying a monthly fee for continuous access to your credit scores, including support from credit monitoring experts and online support. Myfico.com also offers a similar package. These deals are best for those looking to keep continuous track of their credit, or for those who have already used their three free credit reports under FCRA.

Promotional offers for credit scores

There are many websites and companies that offer you a free credit report. Except for annualcreditreport.com, these sites usually come with some price tag. Sites such as creditchecktotal.com will offer you a free credit report but will automatically sign you up for the service of around $29.95 per month. For sites like these, you have one month to call and ask to be taken off their billing list. If you don't, you will receive monthly billings. These sites do give you a credit report from the three bureaus approximately every two weeks, oftentimes including access to credit experts. But be aware of the billings and hidden charges.

Paying monthly for scores

There are some situations in which paying monthly will benefit you, like apartment searches. Oftentimes brokers will ask for a fee to do a background check on your credit. If you are there with them, they will waive the fee provided that you pull up your information on one of the various sites like freecreditreport.com or experian.com. These fees can total several hundred dollars. For a flat of $14.95 to $29.95, you can eliminate the extra cost of apartment hunting.
If you are looking into making several large purchases, having an up-to-date copy of your credit report might come in handy, including access to a credit expert.

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Do Judgments Count on a Credit Report?

A legal judgment is serious business. Both private parties and commercial creditors have a right to sue when you have debts you either will not or cannot repay. The result of a successful nonpayment lawsuit is a court order, commonly called a judgment, which not only orders you to pay, but also gives your creditor additional ways to collect on the debt. In addition, once the court files a judgment against you, it will affect your credit report for many years to come.

The Facts

A judgment not only counts on a credit report, but Equifax, Experian and TransUnion, the three major credit reporting agencies, have public records sections in your reports that contains only this type of information. Whether you pay in full today or in the future, once a judgment is in your credit report, it stays there for seven years from the date of filing.

Effects

The effect a judgment will have on your credit report depends on how soon you pay the judgment in full, the overall state of your credit report and time. If the judgment is valid and you have no legal reason to dispute the amount, the sooner you pay in full, the better. A judgment adds to your total debt load, which counts for 30 percent of your credit score. In addition, although credit reporting agencies list judgments in a special section, they count as part of your payment history, which, according to the Fair Isaac Corporation, makes up 35 percent of your credit score. If your payment history is otherwise good, a judgment will still have an effect but not as much as if your credit report also lists late payments on other accounts. The effect a judgment has will lessen over time, especially if you take care of the balance due immediately.

Solution

No one can remove a judgment, paid or unpaid, from your credit report -- Not you and not a credit repair agency, no matter what it's advertisements may say. Under certain circumstances, however, you can attempt to vacate the judgment, and if you are successful, the court will order credit reporting agencies to remove it from your credit report. If you can give the court a reasonable excuse as to why you did not appear in court, such as not receiving a summons notice, or if you can provide a proper explanation as to why you do not owe the debt, such as a debt resulting from identity theft, the court may vacate the judgment. Otherwise, your only option is to wait the seven years and monitor your credit report to ensure credit reporting agencies delete this information at the appropriate time.

Considerations

A good reason to consider paying a judgment in full as soon as possible is that, in addition to the original amount of the debt, you will also be responsible for paying court costs the creditor incurs. In addition, creditors can add interest to an unpaid judgment. While the amount varies depending on the state in which you live, an average is about 10 to 12 percent. The longer you wait, the more you will owe, the more difficult it will be to pay, and the greater effect it will have on your credit report.

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How to Get Your Free Credit Report Online Now

As a consumer, keeping track of your credit report plays an critical role in your continued ability to qualify for credit, including business loans, mortgages, auto financing and credit cards. Because the details are so important, the federal government requires credit reporting agencies to provide everyone with one free credit report per year. Although you can access your credit report from any company of your choice, Annualcreditreport.com is the only Federal Trade Commission-approved free credit report provider in the U.S. You can use the service to access one or all three of your credit bureau reports.

Instructions

1

Navigate to annualcreditreport.com. Select the state in which you currently live to activate the free credit report application.

2

Enter your personal information into the application. To pull up an accurate credit report, you must provide your full legal name, date of birth and Social Security number. You also must provide your current address and a previous address if you have not lived in your current home for more than two years.

3

Check the appropriate boxes to indicate which free credit report you wish to access: Equifax, Experian or Transunion. Answer the security questions used to verify your identity, which could include previous addresses and names of family members. View your credit reports accordingly.

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How to Correct Wrong Information on a Credit Report

Lenders look at your credit report to evaluate your risk related to becoming a potential borrower. If your credit report shows you pay your bills on time and don't max out your credit cards, you will likely qualify for better interest rates than others who are not as diligent with their personal finances. It is important to look over your credit report thoroughly to check for any errors. Name misspellings, address errors, and mistakes regarding delinquent or negative accounts can all affect a lender's decision on lending you money. If you find a mistake on your credit report, it is important to take the appropriate steps to correct it.

Instructions

1

Confirm which credit bureau you received your credit report from. Three main credit bureaus exist in the United States: Equifax, Experian and TransUnion. You will need to dispute incorrect information with the appropriate credit bureau.

2

Call the number for the appropriate credit bureau. For TransUnion, call 1-800-916-8800. For Equifax and Experian, call the number on your credit report for disputes; they do not provide numbers to the general public about disputing information. Have your credit report in front of you when you call.

3

Point out the incorrect information to the customer service agent. If you are disputing a ding on your credit report, be prepared to provide the name of the company, the relevant account number, and the reason for the dispute. If you are correcting personal information such as a name misspelling, an incorrect address or social security number, you will need to mail supporting documentation to the credit bureau. The credit bureau will provide you with the exact documentation you need to send, as well as the specific address to which to mail it.

4

Wait 30 to 45 days for the credit bureau to contact you by phone regarding your corrections. The time frame for correcting information on your credit report will vary depending on the nature of the dispute.

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Are Past Due Phone Bills Reported to the Credit Bureaus?

Some cell phone users purposely miss payments, because providers often do not report late payments to the credit bureaus. In 2011, however, this plan could backfire, because some cell phone providers have the ability to report payment history to the credit bureaus. Consumers should pay their bill on time either way, because delinquent accounts can be referred to collection agencies.

Identification

Traditionally, the major cell phone providers have not reported customer payment histories to the credit bureaus, because of the added expense and consumer privacy laws. Some providers, such as Verizon, report late payments to the credit bureaus in states that allow it to get slow paying customers to pay on time every month.

Collections Account

Regardless of whether the cell phone provider can or will report late payments to the credit bureaus, delinquent payments can still show up on a credit report if the account is referred to a collection agency. Collection accounts are almost always reported to the major bureaus, so expect to see one if you do not pay your bill for several months.

Effect

If you have excellent credit, a past due cell phone bill or an account referred to a collection agency can drag you down to good to average credit and increase the cost of future loans and ability to get a job and apartment. CNN reports that a single late payment can cost 40 to 110 points and a 90-day late payment 70 to 135 points.

Tip

Consumers who are chronically late on their cell phone bills should monitor their usage more closely to reduce their payment, suggests Becky Worley of ABC News. You could honor the rest of your contract, decline to renew and go for a cheaper plan. Using a prepaid cellphone eliminates late payments all together, because you can only use as many minutes as you purchase in advance.

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Does My Credit Get Lower if I Close an Account?

Closing a credit account can lower your credit rating, no matter who initiates the closure. Whether you close the account to eliminate unnecessary statements or if the creditor closes the account for inactivity, your credit score can take a hit. If the account information is positive and it's not costing you anything, keep it open to give your credit a boost.

Revolving Accounts

Credit scores are mathematical computations based on several factors that indicate your financial well-being at a given point. If you or the creditor close an account, your credit rating is affected immediately and over time. Installment accounts, such as mortgages and car payments, must be closed when the account is paid off, but revolving accounts can remain open indefinitely. Revolving credit accounts include consumer, bank and retail store credit cards. In addition to the payment history notations, these accounts have an available balance entry that affects your overall credit score.

Credit Impact

The five primary considerations in a credit rating calculation are payment history, credit history, credit type, outstanding debt and new credit. Of these five factors, closing an account impacts the outstanding debt and the credit history portions of the calculation the most. These two categories combined affect 45 percent of the overall score. The outstanding debt factor takes an immediate hit, but the impact to the credit history factor is long term. Credit reporting agencies delete closed accounts quicker from your credit report if the creditor closes the account, but the agencies may wait up to 10 years before deleting it if you close it. If the account you plan to close has a positive payment history, keeping it open helps elevate the most important aspect of the credit score calculation. Payment history is 35 percent of the credit rating calculation.

Outstanding Debt

Closing an account can lower your credit rating quickly because the outstanding debt factor is affected. Outstanding debt calculations are based on the total amount of available credit in relation to the total amount that you owe. Even though the account you plan to close has a zero debt balance, the available credit is still factored into the equation as long as the account remains open. Removing that portion of the available credit from the overall calculation will cause your outstanding debt to rise, which will lower your score. If the closed account had a minimal available balance, the credit rating will be less affected.

Credit History

Closing an old account has less of an impact on the credit history portion of your credit calculation if you have other open accounts around the same age. Credit history is different from payment history; credit history indicates how long you have maintained credit accounts. Long-term credit accounts with a positive payment history will raise your credit rating, while long-term credit accounts with a negative listing will lower the score.

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How to Add a Seasoned Trade Line

The term "seasoned trade line" is credit industry jargon for a credit line or credit account with a longstanding history of on-time payments, typically over three to five years in age. Credit-responsible parents who add their children as authorized users engage in the practice of adding a seasoned trade line or what is known as "piggybacking." The authorized user is afforded the benefit of good credit without having to build her own. Adding a seasoned trade line to improve your credit score is simple.

Instructions

1

Add your name as an authorized user to another person's credit card. This can be a friend, neighbor, co-worker or family member. The only stipulation is that the person has an excellent credit score and impeccable payment history for that particular account. Have this person phone the credit issuer and request to add you as an authorized user.

2

Use the card sparingly for a period of three to six months. Make only nominal, small-ticket item purchases. This can be a purse, a shirt, shoes, movie tickets, gas, game tickets or meals.

3

Repay the purchases before the due date. Give the money equaling the entire purchase or purchases to the person who added you as an authorized user. Have them him regular payments that will post to the account three to five business days prior to the due date to establish an on-time payment history.

4

Check your credit report in three to six month's time to confirm the seasoned trade line was added to your credit file. Get a free copy of your credit report from all three reporting bureaus by visiting annualcreditreport.com (see Resources).

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How to Obtain Your Credit Score Numbers

Every loan you take out, credit card you apply for, apartment you rent and many purchases you make depend on the strength of your credit, which is determined by your credit score. You don't receive a credit score in the mail every month, and you can't get it from your bank either. You can obtain your credit score for free once a year from the AnnualCreditReport website. You can also obtain your credit score by visiting a third-party credit report website or from one of the three major credit-reporting bureaus: TransUnion, Experian and Equifax.

Instructions

1

Go to AnnualCreditReport.com. Choose your state from the drop-down box and click "Request Report." Fill out all of the required information, such as your name, address, ZIP code, phone number and Social Security number. Once you submit your information, you can choose to view your score from any of the three major credit bureaus. Once you select one, the bureau's website will open and your score for that bureau will appear. Click "Return to AnnualCreditReport.com" to see your scores for the other two bureaus.

2

Sign up for a free trial through a third-party credit report website or through one of the three major credit bureau websites. If you have already accessed your free credit report in the past year, you'll have to sign up through a third-party website or through the three bureaus. Most third-party websites and the three bureaus offer free trials for their products, ranging from seven to 14 days. Depending on the website and the free trial product you sign up for, you'll receive your score from one, two or all three bureaus.

3

Cancel your free trial. Unless you wish to continually monitor your credit score every month, you'll have to cancel your free trial before it ends. Otherwise, the company will charge your credit card for the regular price of the product you selected for your free trial. You usually cannot cancel your free trial online; you must call the company to do so.

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How Long Should I Save Credit Report Copies?

Your credit report contains the details of your financial history. Your ability to get good interest rates on loans, approved for credit cards or even an apartment can depend on your credit report. As such, not only must the information contained in the report be checked for accuracy, it must be checked regularly because creditors report information to the credit agencies to be included in credit reports.

Fair Credit Reporting Act

Under the Fair Credit Reporting Act you have a right to know the information contained in your credit report, but you have to request to see the information. You can receive a free annual copy of your credit report from the three credit reporting agencies: Equifax, TransUnion and Experian. You are also entitled to know who requested your report within the previous year or the past two years for employment-related requests.

Annual Review

At the very least, you should be reviewing your credit report annually for inaccuracies and to make sure older information that should have been removed is. You should also review who has been looking at your report to make sure it is only people who had a reason to do so. Compare your newest report to your previous one, but after that you can destroy the older report. Make sure to shred the old report so that it can't be recovered for use by identity thieves.

Other Checks

Some financial experts may recommend reviewing your credit report once a month, but that can be costly since all but one of your 12 reports would need to be paid for. As a compromise between once a month and once a year, consider reviewing your credit report before you apply for a loan, mortgage or credit card. Whenever you request a new credit report, you need to dispose of your older report. You only need to hold onto your most-recent report.

Requesting Your Report

You can order your credit reports online, by phone or by mail. The three major credit reporting agencies work together and use a single website, phone number and address to get your report from all three reports.

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Credit Report Rating Explanation

You're disappointed to learn that you have a low credit score. Or maybe you're surprised to learn how high your score is. You're not alone. The key to understanding why your score comes in at a certain level is to understand the information contained in your credit reports.

What They Track

Credit reports will list your missed payments.

Three national credit bureaus--Experian, Equifax and TransUnion--compile credit reports on you. These reports list your open credit-card accounts, your level of debt, any missed payments and late payments.

Credit History

If you mismanage your credit, it'll show up on your credit reports.

Much of your credit reports are devoted to charting your credit history. The reports list your open credit accounts, whether these accounts are installment or revolving credit, when you opened the accounts, how much you owe on these accounts, and how often you've paid late or missed payments entirely.

Public Records

Bankruptcies will be reported on your credit reports.

The public records sections of your credit reports list such financial data as bankruptcies, liens and judgments against you. These will lower your credit scores significantly.

FICO Score

Lenders rely on your FICO score.

The information on your credit reports is used to determine your credit score, commonly known as your FICO score. Lenders rely on this score to determine whether they will lend you money and what interest rates they'll charge. FICO scores of 720 or above will qualify borrowers for the best interest rates, while lenders consider borrowers with scores under 620 to be risky, according to Fair Isaac Corporation, originator of the FICO score.

Reviewing Your Credit Reports

You can order one free copy of each of your three credit reports every 12 months from AnnualCreditReport.com. Look the report over for mistakes. If you find any, report them in writing to the credit bureaus to help improve your credit score.

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How to Establish First Time Credit

Building a credit history is just as important as using credit responsibly. If banks don't have proof that you are a responsible borrower, they are more reluctant to issue loans to you at reasonable rates. This affects your ability to buy a car or a house or to make other large purchases. One of the best ways to establish your credit is to get a low limit credit card while you are young.

Instructions

1

Apply for a basic credit card through a bank. Getting credit on your own for the first time is difficult if you have no proof of income and no credit history. The lender wants to see that you can meet payment obligations. Parents with income and good credit can help their teens or young adults by serving as a joint applicant or co-signer on the application.

2

Ask for a low balance. You might not have another option anyway, but since your goal is to build credit, you want to reduce temptation. Some banks offer low balance cards specifically for teens or college students. You can ask for a balance of $300 to $500. This minimizes the potential of getting yourself into big trouble as you learn to use credit responsibly.

3

Make monthly purchases. Having credit is one thing, but you have to show you can use it wisely. A common recommendation is to make small purchases each month that you know you can easily pay off quickly. Fill up your gas tank or buy some groceries to use credit on essentials.

4

Make your payments on time every time. Payment history accounts for 35 percent of your credit score. Debt-to-limit ratios also impact 30 percent of your score. This is the percentage of your available credit currently in use. One of the worst things you can do is make late payments. This defeats your purpose of trying to build good credit. What you want to do is show that you can make timely payments. This subsequently keeps your debt-to-limit level low, also helping your credit score.

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Do Employment Credit Checks Lower Your Score?

A consumer's credit score is made from computations relating to payment history, comparative credit and debt ratios, the timeline of credit maintenance and credit account types. Certain credit checks lower your credit score, but employment credit checks have no impact on the overall credit rating. Employment listings within your credit report provide information that potential creditors and employers may find interesting; inaccuracies in this area may affect employment or loan qualification.

Hard Inquiries

Experian, TransUnion and Equifax---the three primary credit reporting agencies---separate credit checks into two categories, hard and soft. Hard checks, also called pulls or inquiries, can lower your credit score by an average of five points for a six month time period. Consumers authorize hard inquiries during the qualification process for a new loan or to open a bank account. Hard checks are the only type of credit check that lowers a credit score, according to Experian.com

Employment Inquiries

Employment credit checks are considered soft inquiries and do not lower your credit score. Employers must have your written permission prior to performing a credit check. It is a violation of the Fair Credit Reporting Act, or FCRA, for credit reporting agencies to provide consumer credit reports to employers without express permission from the consumer. Other soft inquiries that do not impact your credit score are those from potential insurers and credit card lenders who are fishing for clients.

Employment Records

A consumer credit report contains employment listings from past and present employers. The credit reporting agencies compile this information from past credit applications that consumers have submitted to potential lenders. The employment listings on your credit report can support the information on an employment application or it can highlight discrepancies. Existing and potential employers make use of the employment listings on your credit report to determine eligibility for employment or promotions.

Accuracy

If a potential employer checks your credit and denies you employment based on the information in the report, you have the right to receive a free copy of your credit file. Contact each of the three credit reporting agencies to request your free copy. By checking the report for accuracy, you can determine if the employment information is listed incorrectly or credit accounts listed contain inaccurate, negative information. Dispute inaccurate information with the agencies; they must validate the account and remove inaccuracies within 30 days. In addition, the FCRA requires credit reporting agencies to provide consumers with a two-year history of each employer credit check.

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Free Information on Cleaning Up Your Credit

You may have seen ads for companies offering to clean up your credit. The truth is that you can do it yourself at little or no cost, but it takes diligent effort and patience. Expect to spend a lot of time combing over statements and credit reports, as well as disputing information when necessary. Afterward, you will need to improve your borrowing habits. However, the time and energy you expend will more than pay for itself.

Get Your Credit Report

If you haven't already received a free copy of your credit report within the last year, visit the annual credit report site. You are eligible to receive a copy of your report from each of the three credit bureaus: Experian, Transunion and Equifax. Your credit score is not included in these reports, but can be purchased through the credit bureaus when you receive your free credit reports. The myFICO site also makes your score available for a fee (or at no cost when you join its credit monitoring program).

Examine Your Credit Report

Check your credit reports for errors. These can include unreported balance payoffs, incorrect balances or payment amounts and negative items reported past the legal deadline (10 years for chapter 7 bankruptcies and 7 years for chapter 13 bankruptcies and most other delinquencies). Go over account statements to verify payment amounts, balances and payoff dates and check them against your credit reports. If you filed for bankruptcy, check for notations indicating that accounts were included or discharged in the bankruptcy where applicable.

Dispute Errors

Contact the credit bureau reporting the incorrect information. Each bureau has dispute instructions on its website, and the three credit bureaus may not report the same information. Allow 30 to 45 days for corrections to be made. If you are dissatisfied with the results of the dispute, you may add a statement to your credit report explaining why.

Debt-to-Credit Ratio

Lower your credit utilization ratio, or the ratio of current debt to available credit. Ask your lender for an increase in your credit limit, or start paying off your balance so you have more available credit. Try to keep your balance at 30 percent or less of of your credit limit. Home equity lines of credit, or HELOCs, do not affect your credit utilization ratio.

Rebuild Your Credit

Apply for credit sparingly. Avoid the temptation to snap up every offer in an attempt to rebuild your credit. You might think it will help your credit utilization ratio to take on new lines of credit. However, it may be unrealistic to plan to keep new credit cards only for "emergencies" and pay them off every month. Your credit report will also suffer from constant inquiries by potential creditors. Concentrate instead on paying off your current debt.

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Fair Credit Reporting Act Requirements

For a society to function, the banking system needs to be fair and accurate. Mistakes can cost both the individual and the system as a whole, if the information provided in inaccurate. Public trust gets undermined. The credit reporting agency system is a massive network designed, with the aid of the Fair Credit Reporting Act, to run efficiently and honestly. A series of requirements are in place to keep the reporting agencies operating at high trust levels.

Restrictions

One of the requirements of the Fair Credit Reporting Act is restricting access to a person's credit reports. Court orders can require any of the three major agencies to provide the credit history, but in most other circumstances, permission has to be given by the individual. This is why when a person fills out a job application, he usually also signs a document authorizing the potential employer to gain access to his credit history.

Identity Theft

With identity theft becoming a worldwide problem, one requirement of the Fair Credit Reporting Act that isn't widely known is the "one call" notification to the credit bureaus. If a person (or someone working on his behalf) suspects that either identity theft or potential identity theft is taking place, calling any of the three major bureaus gets a flag put into the file for a period of 90 days. This will act as a means of keeping inaccurate or false information from being put into someone's credit report.

Free Report

Another requirement found within the Fair Credit Reporting Act is for each of the three major credit bureaus to provide (at no charge) a copy of a person's credit report every 12 months. The person requesting the report can either obtain all three reports at the same time or he can space them out however he wishes. Upon reviewing the credit reports, if any inaccuracies are found, the three agencies are required to correct those mistakes and to provide updated credit reports to the individual and anyone who had requested the credit history of that person within the past two years.

Adverse Action

If any information in a credit report causes a damaging action to be taken against a person, that person must be notified by the credit reporting agency. Adverse action consists of more than simply being denied credit. It also includes being denied employment or being denied insurance. The person has the right to contest any wrong information provided by the reporting agencies.

Pre-screening Offers

Consumers who do not want to have any companies be given access to their credit histories in order to get "pre-screened" offers for credit cards, insurance and similar products can call the National Opt-Out Hotline (1-888-567-8688). All three credit bureaus are required to keep the consumer's information from being used for solicitation purposes.

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Does Getting an Auto Loan Raise Your Credit?

Paying your bills on time, disputing negative or inaccurate information on your credit report and keeping your account balances low -- all these ideas can potentially raise your credit score. Simply getting an auto loan won't raise your credit score; in fact, it may lower it slightly at first since it will be a new account on your credit report. The way in which you approach the auto loan process, however, and your overall management of the loan are what counts.

Before the Auto Loan

Banks and financial institutions that make auto loans do so on the basis of your creditworthiness. In other words, they look at your credit history and score to decide whether or not to approve you for a car loan. Some of the issues that the bank looks at include your repayment history, whether you have charged-off accounts or any accounts in collection or with past due statuses. Once the bank decides to extend an auto loan to you, your credit score often determines the interest rate you'll pay. It's often wiser to clean up or improve your credit history before you seek an auto loan.

Applying for an Auto Loan

A common practice when buying an automobile is to find the car you want and then apply to your bank or different lenders to determine who will make the auto loan for the amount you need. If your goal is to raise your credit score, you must be able to afford the monthly auto loan payment. It's more beneficial to apply for an auto loan before you go car shopping. The bank can tell you the maximum line of credit for which it will approve you and the interest rate for the loan. The bank may even be able to figure your maximum monthly payment. Once you have these preliminary details, you can find a vehicle with a price that matches your auto loan budget.

Raising Your Credit Score

To raise your credit score with your auto loan, you must make the loan payment on time each month and let the bank know as soon as you see any impending financial troubles. For example, the bank may be able to grant you a forbearance for a short one-to-two month period to prevent missed payments and past due balances. Also, if you do happen to get stuck paying a higher-than-average interest rate, you may be able to refinance your auto loan with a lower rate after a year or two of building a satisfactory repayment history with the current lender.

Effects on Credit

Assuming you handle your auto loan responsibly, creditors and lenders may be more apt to extend you credit in the future. For example, if you've only ever used revolving credit (i.e. credit cards), having an installment loan -- the auto loan -- on your credit report shows lenders that you can be responsible with both types of accounts. This diversity of credit lines also accounts for about 10 percent of your FICO score. Even though your account is technically closed after you successfully pay off your auto loan, it remains as a positive mark on your credit report and may boost your score.

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How to Clear Outdated Information on a Credit Report

The Fair Credit Reporting Act prohibits creditors and debt collectors from reporting negative information that is outdated. Negative information, such as charge-offs and collection items, can be listed on your credit reports for seven years. Bankruptcies and foreclosures can be reported for 10 years. Getting them removed from your credit reports is easy--once the proper amount of time has passed.

Instructions

1

Get a copy of your credit report from the AnnualCreditReport Web site (see Resources)--a Web site established by the nationwide credit bureaus to provide free credit reports as required by law.

2

Find the accounts that you want removed. Confirm that at least seven years have passed since the last payment on your credit accounts. Or confirm that at least 10 years have passed since the date of your discharge from bankruptcy and seven years have passed since a foreclosure.

3

Write a letter to the credit bureaus requesting that the information be deleted because it is outdated. Send the letter to the address on the credit report. Alternatively, you can enter the dispute online (see Resources). Wait for a response by standard mail or e-mail, depending on how you challenged the information.

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5 Biggest Factors That Affect Your Credit Score

Companies that issue credit to customers such as automobile lenders, credit card companies and banks use a scoring system to evaluate a consumer's creditworthiness. Organizations that compile credit scores use statistics of existing customers to determine the factors that contribute to the risk for nonpayment. Companies may not use factors such as race, gender, national origin, religion or marital status to determine credit risk. Insurance companies use credit score to determine a consumer's likelihood of filing claims and the expense of insurance losses. The insurance company considers consumers with a lower credit score more likely to file a claim for a costly loss.

History

The consumer's payment history is a factor in determining the credit score. Those who pay bills late, have filed for bankruptcy or have accounts in collections will have a negative effect on their credit score. The payment history has a positive effect on the credit score for those who pay bills on time, have never filed for bankruptcy and do not have any accounts in collections Payment history has the highest rank for importance, at 35 percent, when calculating a credit score, according to My FICO.

Debt

Creditors consider the amount of debt a consumer has in relation to the available credit when calculating the score. Consumers with multiple credit accounts near the maximum limit will factor into a lower score, according to the Federal Trade Commission. Future Teaching Physicians recommends keeping credit card balances at 25 percent of the credit limit on all accounts.

Number of Credit Accounts

The number of credit accounts a consumer has available is a negative factor when calculating a credit score. Even if consumers use the credit accounts infrequently, the sheer number of accounts can lower a score. According to Experian, consumers without credit history will not generate a credit score at all.

Length of Credit History

Consumers with a short history of paying accounts can have a lower score. Younger credit consumers have not established a history for paying accounts on time, but creditors will consider the timeliness of payments for the accounts that are available. When calculating credit score, the algorithm considers the length of time the consumer has been paying debt. According to Bankrate.com, more points are given to consumers with longstanding accounts with the same credit issuer.

Credit Inquiries

Consumers that apply for multiple accounts will have inquiries on the credit history report. The multiple inquiries can lower the credit score in some scoring calculations. Some inquiries do not appear on the credit history such as current creditors who evaluate a customer's account and companies conducting a pre-screening inquiry to extend an offer. Hard inquiries can lower a credit score. A hard inquiry occurs when an organization checks the consumer's credit history when making a lending decision. Soft inquiries do not lower the credit score and occur when an organization checks a credit score without the intent to make a lending decision. Hard inquiries temporarily lower the credit score for six months, according to The Consumerist.

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