What Happens to My Credit If I Marry Someone With Bad Credit?

Although marrying someone with bad credit may cause a degree of financial strife, your personal credit will not be affected as long as you keep your finances separate. There are several steps that you can take to minimize the impact of a partner's bad credit and maximize your financial opportunities, both as an individual and as a couple.

Separate Credit Histories

As a single, you started to build your credit the first time you used a credit card or took out a loan. Hopefully you managed your finances well and were able to earn a good credit score. Then you met "the one" and they were perfect in every way -- except for their credit score. While you will not have the same financial power as you would if you were married to someone with a good credit score, a partner with a bad credit history will not impact your personal credit score. This is because even after you are married, your financial transactions are recorded separately from your spouse's. However, to keep your credit score high it is best to take certain steps to maintain separate finances.

Keeping Your Credit Score High

To prevent your partner's low credit from impacting yours, keep your finances as separate as possible. Do not create a shared bank account or take out a loan together, if at all possible. This will ensure that you are viewed as a separate financial entity and it give you a wider range of opportunities. It will also protect you from the debt and financial issues that your partner has created and may continue to struggle with.

Assuming Debt

So long as you keep your finances separate, your spouse's debt will not become yours. However, if you choose to take out a loan to pay off the debt or add your name to an account that is past due, then you will assume equal responsibility with your partner in paying it off. If you don't want this, do not mingle your finances. However, if you trust that your partner will make only responsible financial choices, sharing the debt can actually make it easier to pay it off and will rebuild the low credit score at a quicker rate.

Preparing for Conflict

If your future spouse has bad credit, it may make sense to both of you to keep your finances separate until your spouse has improved his score. However, money is a source of power in relationships and can become a serious source of conflict. Your partner may come to resent that you have the control over all credit lines and accounts, even if she initially agreed that this was the best option. To avoid this, it is a good idea to establish clear guidelines about how much input you each will have regarding money and when you will combine your finances.

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Credit Monitoring Programs

The Federal Trade Commission (FTC) warns that identity theft is a devastating crime, both financially and emotionally. Victims are often turned down for credit cards, loans and other financial transactions and job opportunities while they try to fix the damage. Many turn to services like credit monitoring programs to protect themselves without realizing that such services help in certain ways but do not stop theft.

Definition

Credit monitoring programs track a person's credit records on a regular schedule, such as monthly or bimonthly, according to the FTC. They send alerts when there is activity like a creditor inquiry or a new account opening. This alerts subscribers to the service of potential identity theft if they are notified about an account they did not authorize. Some programs also guarantee their service and help customers resolve issues if identity theft occurs, and some remove their subscribers from prescreened credit card offers and similar mailings.

Cost

Consumer Reports states that credit monitoring services have a monthly cost or annual fee that adds up to anywhere from $60 to $180 per year. Credit bureaus often enroll customers in an automatic billing program that continues monitoring indefinitely unless the person cancels. The FTC explains that more expensive services generally monitor reports more frequently and have added benefits, like helping repair identity theft damage.

Benefits

Many consumers do not realize they are identity-theft victims until bill collectors call or they get turned down for new accounts even though they believe their credit score is high, the FTC warns. Credit monitoring does not keep a thief from stealing personal information, but it alerts the victim of suspicious activity. Catching problems like unauthorized accounts early minimizes the damage because they can be immediately closed and fraud alerts can be quickly placed on credit reports to halt further activity.

Drawbacks

Some credit monitoring programs only watch reports from one credit bureau. TransUnion, Equifax and Experian may have different information in their records, so fraud signals could go undetected. Some do not provide good service, so the FTC recommends checking with the Better Business Bureau and local attorney general's office for complaints before signing up with any credit monitoring firm.

Alternatives

The FTC recommends self-credit monitoring as an alternative to paid programs. Everyone is allowed to get one free credit report from each bureau every year via annualcreditreport.com. The Privacy Rights Clearinghouse explains that monitoring is maximized by ordering a report from one bureau every four months. Consumers who want to check their records more frequently can purchase additional reports.

Credit freezes stop identity theft by halting credit report access unless the application provides a password. The FTC explains that each bureau does its own separate freeze.

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Credible Credit Reporting Companies

A credit report is a comprehensive set of information that shows your loans, balances and payment behavior for those accounts. It is used by lenders to determine your credibility and interest rates when applying for loans and credit cards. There are many companies out there that promise free credit reports but lack credibility. With identity theft and fraud on the rise, it is important to know who you can trust with your credit reporting needs.

AnnualCreditReport.com

By law each person is entitled to one annual free credit report from the only valid yearly source, which is AnnualCreditReport.com. AnnualCreditReport.com is only used by those who have not yet received their free yearly report. Once you receive it, you have to use other credible companies for monthly reports. To request a credit report from AnnualCreditReport.com, navigate to the website. On the main page, select your state and follow the guided directions to order a free credit report. Upon request, you will receive a copy of your credit report within seven days.

Equifax

Equifax (see Resources) is one of the major credible credit reporting agencies. If you have already received your free yearly credit report and are looking for month-to-month credit monitoring, Equifax is one of the companies you can sign up with. It provides 3 in 1 and a free FICO score. It also provides identity theft insurance called ID Patrol, which can pay you up to $1 million depending on the insurance package that you choose. In addition to its many features, Equifax also includes a 24/7 customer care line.

Experian

Experian (see Resources) is another credible reporting agency. Like Equifax, it offers you options on month-to-month credit monitoring and reporting in addition to a free PLUS score. Experian also provides an additional service called "VantageScore," which uses a simpler, single formula to evaluate your credit risk profile. While it costs extra, it is an advantage for those who are not proficient in reading credit reports. Experian also provides you with an identity theft insurance known as Protect My ID, which monitors suspicious changes and provides solutions to rectify problems.

TransUnion

TransUnion is the last of the credible credit reporting agencies. Like the others, it provides a free comprehensive credit report at least once a year and additional reports for certain fees. New users are eligible for a free 30-day trial period that includes full credit monitoring and a credit score. TransUnion provides a 24-hour notification of any critical changes to your report so you can dispute anything that seems questionable. The TransUnion Fraud Victim Assistance Department works to solve issues pertaining to fraud and identity theft.

Warnings

Do not subscribe to companies that promise free credit scores and monitoring because more likely than not there is a catch to it. Most of these companies scam you with false reports and make it difficult to cancel the subscription once you become a member. Do not use personal information on a credit reporting website that is not secure. Always check for the "Lock" icon on the browser's status bar so you are confident personal information will not fall into the wrong hands.

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Does Being Denied For a Mortgage Loan Affect My Credit?

Credit rating agencies collect everything about your financial history, so it seems reasonable that a denial would be a piece of information they want to know about. Being denied for a mortgage probably won't hurt your credit rating that much, but a denial is a sign of poor credit. You can mitigate the damage to your score, when applying for a mortgage, by consolidating your inquiries into a short period of time.

Identification

A mortgage denial has no impact on your credit score. Rather, it is the application for credit that hurts your credit score, according to Bills.com. Every time you apply for credit, the FICO scoring formula takes three to five points off your rating. Expect damage closer to five points if you have a good credit score.

Considerations

Although five points on a 300 to 850 scale have little effect, hard inquiries -- where a lender runs a report because you asked for credit -- can add up to significant damage. If you have several hard inquiries on your record, usually more than five, the FICO score will reflect this because several applications in a short period of time are the sign of someone under financial duress, according to Bankrate.com.

Reducing the Impact of Hard Inquiries

The FICO score has an exception to the impact of inquiries if you shop around for rates. Put in all of your applications to lenders within a short period of time and it will look like you are trying to find the best rate -- the sign of a good borrower. The newest FICO score model, as of 2010, extends the rate shopping window to 45 days.

Tip

You usually need a score of at least 620 to get a mortgage from the Federal Housing Administration. If you are denied, you probably have some serious red flags on your score. A lender that denies you credit must furnish you a copy of the credit report it used to make the determination. Review the report and look for possible incorrect items, such as a collections account that does not belong to you. Also, reduce your debt obligation as much as possible applying again.

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Do Garnishments Affect Your Credit?

Wage garnishments mark the end of the long, painful road of debt repayment. To be garnished, a creditor must file a lawsuit, obtain an order of judgment then seek an additional court order that forces a debtor's employer to withhold a certain amount of the debtor's paycheck. By the time a debt gets to the garnishment phase, a significant amount of credit damage has already been done -- but a garnishment itself represents a mixed blessing for the debtor's credit rating.

Garnishments and Credit Reports

An order of garnishment will never appear on a person's credit report, so the garnishment itself has no credit impact. However, the judgment that authorizes the garnishment will appear on a credit report and can significantly impair a person's access to future unsecured credit. Also, depending on how the debt aged, it's possible that the original debt remains on the credit record as a write-off.

Income Reduction

Although the percentage of income that can be deducted by a garnishment order varies by state, in general, the debtor can only evade a garnishment by being unemployed. Assuming that the garnishment takes effect, the debtor will be left with less disposable income. For debtors who are already financially strapped, this loss of wages can destabilize an already fragile financial position, leading to slower payments on other credit accounts or even defaults on other loans. This cascade effect could lead to negative credit references on accounts unrelated to the garnishment.

Avoiding Garnishment

The only way to avoid a garnishment is to pay a debt to the creditor's satisfaction. The most significant credit hit in this process comes with the court's order of judgment, so reaching an out-of-court settlement is preferable to settling after the creditor obtains the court order. Some consumers hope to run out the clock on a debt by ignoring collectors and hoping the debt will simply be written off. Although this strategy does work in some cases, the write-off has a credit hit. But if the creditor is serious, the credit hit for a judgment is far worse -- so the sound strategy is avoiding judgments in the first place.

Silver Lining

All hope is not lost, however. By forcing repayment of an existing debt, garnishments lead to the satisfaction of outstanding credit accounts that, in the long run, may have less of a credit hit than if the account were merely written off as a loss. For example, if a credit card company wrote off a $1,000 balance and never collected on the debt, then the debtor will have a $1,000 unpaid charge-off on his credit for up to seven years. By obtaining a judgment and garnishment, that charge-off will eventually be listed as "paid in full."

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How to Change My Credit Score in One Week

Improving your credit score can be a long process involving dedication and hard work. There are things you can do right away to help improve your credit score in just one week. With a clear picture of your finances and credit score, and a dedication to paying bills on time and making smart decisions, you can improve your credit score starting today.

Instructions

1

Order a copy of your credit report and credit score for free (see Resource). If your score is below 630, you're usually considered "high risk" and often have multiple negative reports, including late payments, a short credit history and low credit limits. The report lists the positive and negative factors affecting your credit score. Take a careful look at them and figure out which ones you can deal with right now. This probably includes paying your bills, having erroneous reports removed, paying down credit cards to decrease your credit-to-limit ratio, and in most cases, not opening any new loans or credit cards right now.

2

Pay any due or overdue bills immediately. Some companies report late bills every 30 days, so even if you haven't received a final notice, you may see a decrease in your credit score. If the bills you're paying are more than two weeks late, try calling the company and making a payment over the phone to see if they'll avoid making a negative report.

3

Attempt to remove negative reports by calling companies listed as "paid late" on your credit report. Be friendly and calmly say that you're working to pay your bills on time and improve your credit, and ask them to remove the mark on your credit report. Even if only one company removes it, your credit score can improve as soon as the reporting goes through.

4

Pay your credit card balances down with a goal of maintaining only 20 percent of your total credit limit. The lower your balances, the higher your credit score. Start with the card or cards with the highest interest rates to save money.

5

Avoid applying for any new loans or credit cards until your credit score has gone up. When you apply, the company makes a "hard request" on your report, and multiple hard requests in a short span of time can decrease your credits score.

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How Canceling a Lease Affects Credit

A lease is a contractual obligation for you to make regular payments in exchange for the reasonable use of a piece of real estate or property. Once you have agreed to the conditions of the lease, breaking or canceling it will usually result in notification of credit agencies as well as penalties or other fees. There are, however, legitimate reasons for canceling a lease, as defined in the leasing contract.

Leases are Contracts

The purpose of a lease is to give you permission to use or occupy property and to provide the rules under which you can do so, typically by paying your regular lease payments. The property owner is protected because the lease specifies how long she can expect to receive payments, how much those payments will be and when they are due. If you default on any of these items, the lease can be terminated by the property owner, and the penalties for breaking the lease as defined in the contract will go into effect, including making a report to credit reporting agencies.

Ramifications of Broken Leases

Lease cancellation terms specify that a portion of the remaining lease amount must be paid and may include maintaining payments on the property until the property is delivered to a new lessee. Canceling the lease for reasons other than those defined in the contract may include a report to credit agencies which translates into having a detrimental effect on your credit score.

Early Lease Termination

Most leases include clauses that specify how a lease can be terminated early without affecting your credit score. They normally include not only paying a percentage of the remaining lease balance but restocking, cleaning or other incidental fees. Your deposit will be forfeited, but the termination will not be reported to credit agencies and will have no affect on your credit score. It is imperative that you follow the exact guidelines for early termination as defined in the lease contract, or the cancellation could be posted against your credit record.

Canceling a Lease Legally

There are a limited number of reasons that a lease can be broken. Insect infestations and structural problems that are ignored after making written complaints are two such reasons, while loud neighbors or the property turning out not to be what you expected are not. Research the item being leased carefully before you sign the contract, because you are financially obligated afterward, regardless of whether the property meets your original expectations.

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How Often Do Collection Updates Get Updated on Credit Reports?

Your credit reports are updated continually and reflect your credit use, including open and closed accounts, credit lines and balances. Perhaps most importantly, the reports show whether you pay bills on time and if you have ever let an obligation lapse until it was charged off or sent to a collection agency. Collection accounts and other delinquencies make it very difficult to open new accounts.

Definition

A collection account is a bill that gets turned over to a debt collector because the original creditor is unsuccessful in getting you to pay. Credit card issuers and other lenders usually attempt to collect their money for up to six months. Sometimes your creditor will sue you, but often your bill gets written off, which gives the lender some tax benefits. Many lenders then sell their noncollectable accounts to professional collection agencies, which buy them cheaply and profit by collecting the full owed amount or as much as they can.

Credit Report Impact

Your lender reports account activity, including charge-offs, to the Equifax, TransUnion and Experian credit bureaus, where it gets added to your credit reports. Debt collectors are also allowed to put their accounts on your records, which further hurts your credit score. The credit bureaus continually update their data through computerized systems, so collection accounts appear on your records shortly after being turned over to debt collectors. Their negative impact begins as soon as they show up on your credit reports.

Updates

Your three credit reports are updated whenever the collection agency reports new information on your account. For example, if you make payment arrangements, the entry should reflect a falling balance as you send in your money. You get a judgment added to your records if the debt collector successfully sues you. The information remains static if you do not pay and the collection agency does not take legal action, and the account is automatically removed from your reports in seven years.

Considerations

Collection accounts inhibit your ability to get credit, even if they reflect payments or a paid-in-full balance. Negotiate with debt collectors for complete removal of such accounts when you make payment arrangements. This erasure is the only way to salvage your credit before the seven-year reporting period ends. Agree to pay either a lump sum or to make payments for a mutually agreeable amount and duration. Most debt collectors will accept less than your original balance because they still make money on the account. Get a written promise that your credit reports will be updated with complete removal of the account when you fulfill your part of the bargain. Erasure should happen within a month or two of that time.

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Does Opting Out of Credit Offers Help Your Credit Score?

Many credit card companies find potential customers by sending credit card offers in the mail to select people. The companies use the credit bureaus to find prescreened individuals who meet specific credit criteria and are likely to be approved for the card if they apply. If you do not want to receive offers, you can opt out without affecting your credit score at all.

Soft Inquiry

When a company sends you a credit offer, it usually prescreens you by accessing your credit report. However, this does not affect your credit score at all. This is because the credit-reporting companies differentiate between soft inquiries and hard inquiries. Soft inquiries are those that are not related to credit or that you do not initiate, such as prescreened credit offers. These appear on the credit report you see, but do not affect your score at all. Only hard inquiries, which are those that you initiate by applying for credit, hurt your credit score. Therefore, opting out of getting prescreened credit offers will not help your score because they weren't doing anything to your score when you were receiving them.

Remove Temptation

The only way that opting out of prescreened credit offers can help you is if you had been getting more credit than you would have if you were not receiving offers. Every time you respond to an offer and apply for a credit card, this generates a hard inquiry that lowers your credit score. In addition, the new account temporarily lowers your credit score. Therefore, if you stop getting offers and stop getting credit you don't need, that can help your score.

Benefits and Drawbacks

Although credit score is not a consideration when deciding whether to opt out, there are some other factors that come into play. Opting out reduces the clutter in your mailbox, saves paper and reduces the number of personal documents you need to shred. It also reduces the chance of identity theft due to someone stealing your mail and responding to one of the offers. However, opting out also reduces the availability of special credit card offers. Companies often send out prescreened offers that are not available to the general public. Therefore, if you are in the market for a new credit card, you will get the best offers if you stay on the mailing list.

How to Opt Out

If you are still interested in opting out of prescreened credit offers, it is a simple process. The easiest way to opt out is to go to OptOutPrescreen.com and fill out the online form to remove yourself from mailing lists for five years (see Resource). You also can opt out for five years over the phone by calling 888-567-8688. If you would like to opt out permanently, you must complete a preliminary request online and then print and mail a form to complete the process. Regardless of the method you use, you must provide your full name, Social Security number and current address.

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How to Request a Copy of My Credit Report & Score Online

Your credit score, which is based on your credit report, is a very important number because it can determine whether you can rent an apartment, whether you can get a mortgage to buy a house, whether you will be approved for a car loan, and whether you can get a credit card. Credit reports are valuable not only for monitoring your creditworthiness but also for making sure you have not been a victim of identity theft. Requesting a credit report and score on the Internet is a relatively quick process.

Instructions

1

Locate a credit report website on the Internet that is reputable and secure, because you will be required to submit very important personal information. The website annualcreditreport.com, sponsored by Equifax, Experian and TransUnion and authorized by the Federal Trade Commission, will direct you to the free report to which you are entitled by law to receive once every 12 months from each of these leading compilers of consumer credit reports. There are other reputable services, but they will charge for the report.

2

Create an account with the credit report website. You will have to provide your full name, date of birth, current address, previous address, and Social Security number.

3

Provide your billing information. While the reports from Equifax, Experian and TransUnion are free, the actual credit scores are not. Other companies will charge for the credit report too.

4

Choose the reports and score that you wish to receive and submit your order. You will be given a confirmation number and receive a confirmation e-mail at the e-mail address you provided.

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Does Having a Job Increase Your Credit Score?

If you have a job and have adequate income you may be able to pay your debts. Having a job does not increase your credit score. Other factors will help increase your credit score.

Misconceptions

Having a job and a reliable, consistent, and better than average income will increase your chance of being approved for a loan but it will not help your credit score.

Expert Insight

Your credit score can be helped by paying your debts on time. Approximately 34 percent of your score is based on how you pay your debts, according to MyFICO.com.

Significance

Paying down your credit cards can also help contribute to a higher credit score. Having too much debt can increase your credit usage and lower your credit availability.

Effects

If you lose your job, your income will be reduced sufficiently. You may not have enough money to pay your debts, which could lead to a reduction in your credit score.

Inquiries

If you have too many credit inquiries, it can lower your credit score. Every time someone pulls your credit score, when you apply for credit, your credit score can be lowered. One inquiry, on average, can lower your credit less than 5 points.

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How to Rebuild One's Credit Fast

Problems managing credit are reflected on your credit report, which determines your credit score. Having a bad credit score can make it difficult for you to obtain credit. Unfortunately, there is no guaranteed way to rebuild your credit right away. The time it takes depends on what sorts of credit problems you have had and whether you are in the financial position to fix them. There are a few ways you might be able to boost your credit score significantly within a month or two, but otherwise, rebuilding your credit will take time.

Instructions

1

Obtain copies of all three of your credit reports by visiting the Annual Credit Report website for free copies of the reports. You are legally entitled to only one free report per bureau per year. Therefore, if you have gotten your reports from the site in the past year, you will have to buy your reports instead by visiting the Experian, TransUnion and Equifax websites.

2

Look at every negative item on your credit report and file a dispute with each credit bureau for the items that do not belong to you. These might be collection accounts you don't recognize, public records that are not yours or late payments reported when you paid on time. The process for the disputes varies slightly among bureaus, but all of them provide instructions printed on the credit report.

3

Write a letter to any creditor that has listed just one late payment. Ask for a "goodwill adjustment" to remove that late payment from your credit report. This will boost your score because you won't see the negative effects of that late payment anymore.

4

Write to any creditors with which you are currently late on your payments. Explain that you have been suffering financial difficulties but are getting back on your feet and would like to start making payments again. Ask if your account can be re-aged. In this process, the creditor will delete the late payment notice from your credit report, usually after you make three on-time payments in a row.

5

Lower your utilization on your credit cards. The utilization is the ratio of the balance to the credit limit. High utilization, especially if the balance is at or very close to the limit, hurts your credit. The two ways to lower your utilization are to pay down your balance or to increase your credit limit by calling the credit card company and asking for a higher limit. For example, if you have a balance of $5,218 and a credit limit of $9,000, your utilization is $5,218/$9,000, or 58 percent. If you pay your balance down to $2,218, your utilization suddenly drops to $2,218/$9,000, or 25 percent, which should boost your credit score.

6

Ask someone with excellent credit to add you as an authorized user on one of his credit cards. The positive account history will appear on your credit report as well, boosting your score. This move will only affect the other person's credit if you use the card to make purchases, which will increase the credit utilization ratio for both of you on that card.

7

Get a credit card if you do not currently have one. If your credit accounts were closed due to bankruptcy or debt management, you will want to start using one to rebuild your credit. A secured credit card, which requires a deposit, is the easiest type to get. Your score will drop slightly when you apply for and get the new card, but using the card lightly and making payments on-time will begin rebuilding your credit over the coming year.

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What Is Considered Excellent Credit Scoring?

To qualify for the best rates on loans and credit cards, it's important to keep your credit score as high as possible. Currently, two credit scoring models are on the market, and while the Fair Isaac Corporation is the leader in credit scoring, VantageScore may also be used by lenders to determine your creditworthiness.

Fair Isaac Score

When most people think of their credit score, they are thinking of the scoring system put out by the Fair Isaac Corporation. FICO scores range from 300 to 850. According to Bankrate, very good FICO scores come in the mid-700s. Michael Feldman, co-founder of MortgageIT.com, explains that lender pricing is better-than-average with a score of 720, and those above 750 may see even-better offers from lenders. Scores between 750 and 850 are considered excellent.

VantageScore

VantageScore uses the same information as FICO to calculate a score reflective of your creditworthiness; however, the ranges are different. The new scoring system was created by the three major credit reporting agencies---Experian, Equifax and TransUnion---to eliminate the need for FICO scoring, according to MSN Money writer Liz Pulliam Weston. The VantageScore system ranges from 500 to 990, and some find the ranges easier to follow because they break down like school grading systems, with scores between 901 and 990 giving an A credit---the best possible scores; 801-900 giving a B credit, and so on.

Calculation

Your credit score is calculated using a combination of factors that reflect your levels of financial responsibility. It is used by lenders to determine how risky it is to lend you money. Payment history accounts for 35 percent of your credit score, focusing on revolving loans (such as credit cards) as well as installment loans (such as student loans and mortgages). The amount of debt you have, including your debt utilization ratio, makes up 30 percent of your score. The length of your credit history makes up 15 percent of your score. The last 10 percent is based on your amount of new credit, and the mix of credit types.

Calculation

Each year, you are entitled to a free copy of your credit report from each of the credit reporting agencies through the Annual Credit Report website (see Resources). If you find any discrepancies on your credit report, you must report them in writing to the creditor and the credit reporting bureau, along with documentation of the error. Catching errors is one way to boost your credit score.

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Credit Rating & Employment

Job seekers who have poor credit histories may have a hard time finding employment as companies use credit checks to weed out job applicants. A potential employer is supposed to tell applicants if their credit histories prevented them from being hired. Job seekers have little recourse if they're rejected due to negative credit histories, but they can dispute negative credit information if it's incorrect.

Credit Checks

A 2010 MSNBC article titled "Bad Credit Sidelines Some Jobless Workers" notes that a survey by the Society of Human Resource Management found 60 percent of 350 employers who responded to the survey check credit histories for some or all of their job applicants. Employers' inability to rely on applicants' references may be one reason companies are doing credit checks. The MSNBC article says employers avoid giving bad references because they're concerned they might be sued by former employees. Therefore, credit histories may be used as a measure of people's character. It's assumed that applicants who manage their credit well will be better employees.

Employee Theft

The value of checking people's credit to determine whether they'll be good employees is in dispute. According to a 2010 "New York Times" article titled "As a Hiring Filter, Credit Checks Draw Questions," researchers indicate there's no evidence that job applicants with poor credit ratings make unsuitable employees or that they steal from their workplace due to financial troubles. Still, employers' concerns about personnel thefts are valid. The "New York Times" says retailers link $30 billion in annual losses to employee thefts.

Background Checks

Certain occupations draw more credit checks than others. Finance executives, bank tellers, cashiers, jewelers and other people who handle cash and valuables are likely to be subjected to credit checks by employers. Nonetheless, MSN Money's "How Bad Credit Can Cost You a Job" indicates some employment-industry professionals say job seekers shouldn't be overly concerned about credit checks because employers are often more focused on background checks. They use background checks to verify people's identities and to determine if job applicants have a criminal history.

Fair Credit Reporting Act

The U.S. Fair Credit Reporting Act requires employers to get job applicants' written permission for credit and background checks. Therefore, job seekers can refuse to give their permission. People who don't want potential employers to do credit and background checks should pay close attention to what they're signing when they fill out a job application. The small print at the bottom of some applications grants an employer permission to do those checks, and you may unwittingly go along with the practice if you sign an application without reading all of the details .

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Credit Rating Consequences of Debt Relief Consolidation Programs

Paying down multiple credit lines with steep interest rates can be a daunting prospect, which is why some people turn to debt relief consolidation programs for help in managing and simplifying these payments.



Debt relief consolidation programs help consumers by consolidating different bills into one monthly payment, according to Debt Consolidation Care. This consolidation frequently lowers the monthly payment for consumers, making it easier for people to eventually pay down their debt in a shorter amount of time. Reducing debt is a key way to improve credit ratings.



However, consumers should be aware that participating in debt relief consolidation programs can initially have a negative effect on your credit rating. These negative consequences may be counteracted by paying down debt, but consumers should expect an initial ding.

Initial Reduction of Credit Score

Enrolling in debt relief programs negatively impacts credit scores at the outset, according to Debt Consolidation Care. Because many people struggling to pay large outstanding debts already carry low credit scores, this can be especially damaging.

Drastic debt relief consolidation programs have a greater negative impact on credit scores than more moderate options, according to Debt Steps.

Settlements

Debt settlement programs, which involve negotiating settlements rather than continuing to make monthly payments, also negatively impact credit ratings, according to an article published by Bills.com entitled "Advice on Debt Consolidation and Credit Rating." But because settlements can significantly reduce the amount owed to creditors, some consumers may consider the lowered credit rating worth the risk.

Comparison to Impact of Bankruptcy

Although credit rating consequences of participating in debt relief consolidation programs are negative, consumers should keep in mind that if their other options include declaring bankruptcy, this may be the lesser of two evils, according to Debt Consolidation Care. Bankruptcy can have a devastating and lasting impact on credit scores, while the effects of debt relief programs are less permanent.

Gradual Improvement

Consumers participating in debt relief consolidation programs who continue making monthly payments and don't add to their debt by continuing to use credit lines may expect a gradual increase in their credit scores, according to Debt Consolidation Care.

Cases of No Impact

Not all elements of debt relief tools negatively impact credit ratings, according to "Advice on Debt Consolidation and Credit Rating." Some credit card companies occasionally offer balance transfers from other accounts at 0 percent interest or other low interest rates. Taking advantage of these offers does not negatively impact credit ratings. Debt consolidation loans, or loans that are used to pay down one or more credit accounts, are not taken into consideration for credit ratings, according to the article.

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How to Explain to an Employer Why Your Credit Is So Poor?

While banks and credit card companies routinely check applicants' credit reports, some employers do so as well. According to Bankrate, in 2004, over a third of all employers conducted credit checks before hiring. If you suffer from poor credit, it doesn't have to cost you a dream job. You can make yourself appear more desirable to a potential employer by properly explaining your past credit mishaps.

Instructions

1

Request your free annual credit reports from all three bureaus, Experian, Equifax and TransUnion, on the AnnualCreditReport.com website and identify any errors present that lower your credit score (see the Resources section). Formally dispute the errors with the credit bureaus.

2

Notify your potential employer of your damaged credit history as soon as you grant your permission to conduct a credit check. Own up to your mistakes or explain any errors on your reports and the actions that you've taken to correct them. Provide your potential employer with valid reasons for your poor credit reports, such as identity theft or financial circumstances beyond your control.

3

Write a formal letter of explanation outlining the reasons that you previously provided for your poor credit rating and send it to your employer. Explain how you've learned from your past mistakes and how your financial situation has improved. If the position you're applying for has numerous applicants, this also helps your employer remember you and take your explanation into consideration when reviewing your credit files.

4

Provide your employer with evidence that you will make a good employee despite your damaged credit history. Letters of recommendation from previous employers or evidence of employment awards are ways in which you can demonstrate your value as an employee.

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If You Pay a Collection Agency, Will It Mess Up Your Credit?

Unpaid debts often end up being sent to collection agencies. If a collection agency inserts a collection account on your credit report, your credit will suffer. While paying old debts demonstrates responsible financial behavior, it is imperative that you do so carefully to avoid additional credit damage.

Facts

Many consumers pay off collection agencies believing that doing so will improve their credit. While submitting payment on an account that is in collections won't result in the account being removed from your credit report and won't improve your credit score, doing so won't directly damage your credit score either. The account will simply update as "paid" on your credit report.

History

Prior to the release of the Fair Isaac Corporation's FICO '08 credit scoring system in February 2009, paying old collection accounts could lower your credit score. The old credit scoring system placed an emphasis on recent account activity. Accounts that displayed recent activity carried a greater weight with the scoring system than dormant accounts.

Thus, by submitting a payment on a collection account, an individual was essentially updating the account. When this occurred, the computerized scoring system assigned greater importance to the derogatory notation -- damaging the debtor's credit rating. As of 2010, Fair Isaac's credit scoring system no longer penalizes consumers for paying off old debts.

Considerations

If you settle your debt with a collection agency rather than paying it off in full, the collection agency may then sell the remaining unpaid balance to another debt collection company. Provided the credit reporting period of seven years has not already expired, the new collection agency can add yet another derogatory tradeline to your credit report and further damage your credit score -- an event that would not have occurred had you not attempted to pay a portion of the debt.

Warning

While paying a collection agency doesn't directly impact your credit score, paying only a portion of what you owe on an old debt places your credit in jeopardy. Each state has a statute of limitations regulating debt collection lawsuits. Making a payment -- no matter how small -- restarts the clock on the statute of limitations. This can give a collection agency that did not previously have the right to sue you a fresh opportunity to take legal action.

Should the company file suit against you and win, a judgment will appear on your credit report. Judgments, like collection accounts, are negative entries that damage your credit rating considerably. The Fair Credit Reporting Act notes that, depending on your state's statute of limitations, a judgment can appear on your credit report for longer than seven years.

Prevention/Solution

If you settle a debt with a collection agency, you can protect yourself from additional credit damage by obtaining a written agreement from the company not to sell the remaining balance to another company. If you submit payment in full, ask for a statement from the company reflecting that your account now carries a zero balance to serve as proof of your payment in the event your paid off debt ends up in the hands of yet another debt collection firm.

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Does Paying Rent Affect Credit?

Paying rent can affect your credit rating if your landlord reports the payments. Commercial rental agencies typically file monthly reports to at least one credit reporting agency TransUnion, Experian or Equifax. Independent property owners may not report the rental payments to a consumer credit reporting agency. If the payments are not reported, they will not affect your credit.

What is a Credit Rating?

A consumer credit rating, also known as a credit score and a FICO score, is a numerical representation of financial health at a certain point in time. Credit reporting agencies compile payment information, outstanding debt and available credit information for consumers based on the monthly reports of lenders and other creditors. Signing a lease agreement obligates the renter to fulfill the terms of the agreement by making timely monthly payments to the landlord who is, in effect, a creditor. If the landlord reports the payments, timely payments positively affect a credit rating and delinquent payments negatively affect credit.

Credit Rating Calculations

Payment history, including reported rental payments, affects 35 percent of a consumers overall credit rating. The payment history category is the single most important element of the calculation. Credit rating calculations also include a consumers ratio of credit to debt, which is 30 percent of the score. The mix of different credit account types weighs in at 10 percent, credit history is 15 percent and length of credit accounts equals 10 percent of the calculation. Other factors that affect credit are judgments, bankruptcies and foreclosures.

Delinquent Rent Payments

Rental agreements typically spell out the time frame after which a rent payment is considered delinquent. Unlike other credit agreements where payments are not considered delinquent unless they are past due for more than 30 days, a lease may only allow a renter up to 15 days before the payment is classified as delinquent. The time between the due date and the delinquent date is often called a grace period. Paying rent after the specified grace period will negatively affect a credit rating, if the landlord reports the payment.

Credit Reporting Laws

Credit reporting agencies have a responsibility to list accurate account information on a consumers credit report. If an agency reports a rent payment as delinquent, but the payment was actually made on time, the consumer has the right to file a dispute to have the negative information corrected. Each credit reporting agency maintains a website where consumers can file disputes according to The Fair Credit Reporting Act.

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Simple Ways to Fix Your Credit Score

Prior to applying for a home loan or vehicle loan, it helps to check your credit score to see if you're eligible for a loan. The criteria and minimum credit score requirement for a loan varies amongst lenders. However, a score of 650 or higher can help you qualify. Fortunately, even if you have a low credit score, simple measures can help boost a low score and help you qualify for financing.

Stay Organized

Forgetting due dates or losing credit card statements can wreck havoc on your credit score, especially if you forget to mail payments by the due date. Late arrivals result in additional fees, and if you're 30 or more days behind on payments, lenders can justifiably report the delinquency to the credit bureaus. Each negative remark on your report lowers your credit score. But you can avoid negative statements by writing due dates on a calender or day planner, and paying statements as they arrive in the mail.

Pay Attention to Balances

Credit cards offer a convenient way to shop or pay for essentials such as fuel or groceries. But if you're not careful, you can easily acquire a ton of debt, which can reduce your available credit and decrease your credit score. There's nothing wrong with using credit. In fact, using credit and paying off the debt is a surefire way to add points to your credit score. Before pulling out your plastic to make a purchase, ask yourself if you can pay off the purchase by the next billing cycle Having a debt elimination plan in mind alleviates high balances and helps you keep a good credit rating.

Dispute Mistakes

Credit reports are not error-proof. Creditors do make mistakes and they may accidentally place another person's negative information on your credit file. Having an erroneous lien, judgment, collection account or late payment can bring down your credit score, and if applying for loans, lenders may hold this information against you and refuse your application. Getting a copy of your credit report at least once a year and checking the contents for accuracy is a key way to stay on top of your credit history. Annual Credit Reports gives each consumer one free report a year.

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Do Pre-Approval Checks Show Up on Your Credit Score?

Your FICO credit score ranges from 300 to 850, according to myFICO. Lenders and other credit issuers often offer pre-approvals to consumers as a way to market their products and attract new customers. Such pre-approvals may require lenders to access information in your credit report, so it's beneficial to understand whether such inquiries impact your credit score.

Inquiries

When you apply for credit, the lender will often check your credit by viewing your credit report. This check appears as a hard inquiry on your credit report. According to myFICO, how much new credit you apply for accounts for 10 percent of your FICO score. Hard inquiries remain on your credit report for up to two years and are included in the calculation of your FICO credit score for one year. The more credit you apply for in a short period of time, the more it can damage your credit score. How much inquiries impact your score depends upon the number of inquiries you have and the other data contained in your report.

Significance

A pre-approval is not an application for credit. It occurs when a lender checks your credit to ascertain if you meet their credit criteria. Pre-approvals are often soft inquiries, which means the lender viewed your credit but the inquiry does not impact your credit in any way since FICO does not include soft inquiries in the calculation of your credit score. Credit reports list hard inquiries for credit separately on the credit report from soft inquiries.

Considerations

Under the Fair Credit Reporting Act, insurers and credit card issuers can access your credit reports without your permission. These are considered soft inquiries and are used by the companies to extend you firm offers of credit for their products. You can prevent such companies from viewing your credit file, however. The FCRA allows you to opt out permanently or temporarily for five years. You can do so online at OptOutPrescreen.com, a site established by the credit bureaus in compliance with the FCRA.

Identity Theft

Whenever anyone accesses the data contained within your credit report, either a soft or hard inquiry is left behind. If you notice unauthorized inquiries on your credit report or unfamiliar accounts, this could indicate that your identity has been compromised. If you suspect identity theft, you can contact the credit bureaus and place a fraud alert on your file and dispute any erroneous data. You can also place a credit freeze on the the file, which blocks access to your credit information. You can order one free copy of your credit report each year at AnnualCreditReport.com.

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How to Tell If There Is a Judgment Against You for Credit Debt?

Checking your credit report twice a year is prudent and free in most states. If you have access to the Internet, you can see the complete report from the three main credit reporting agencies online in just minutes. You'll be able to check for inaccuracies and dispute incorrect information. If you have a judgment against you, it will appear in the Public Records section of your credit report.

Instructions

1

Go online to AnnualCreditReport.com, or click the link below to access all three credit reports at the same time (Equifax, Experian, TransUnion).

2

Select your state and click "request report." Complete the required information and click "continue." Verify your identification and continue.

3

Select the credit reports you wish to access. View and print your report.

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Do Credit Checks Hurt Your Credit

A credit check is when a potential lender, landlord or employer obtains a copy of your credit report to see if your credit is good enough to qualify. Some types of credit checks lower your credit score slightly, so you should apply for credit only when you need it.

Types of Inquiries

Credit inquiries fall into two major categories: hard inquiries and soft inquiries. Hard inquiries are made after you apply for any type of credit, such as a mortgage, auto loan, student loan, credit card or charge card. These affect your credit score. A soft inquiry, on the other hand, does not hurt your credit at all. This includes inquiries not related to credit, such as a credit check by a potential employer, inquiries by companies pre-screening you for credit card offers, inquiries by companies with which you already hold an account and inquiries you make on your own credit file.

Effects

In most cases, one credit inquiry will only hurt your credit score by five points or fewer, according to myFICO. However, if you do not have many accounts in your credit file or have only been managing credit for a short time, an inquiry can have a larger effect. Multiple inquiries also add up to significant damage. The logic behind this is that people who apply for lots of credit during a short time period are often experiencing financial difficulty and therefore, pose a higher risk to lenders.

Rate Shopping Effects

When you are in the market for a mortgage, auto loan or private student loan, you often contact multiple lenders to get interest rate quotes so you can choose the lender with the best rate and terms. The formula that calculates your FICO credit score considers multiple inquiries for the same type of loan as just one inquiry if they are made in a short time period. The time period is either 14 days or 45 days, depending on which version of the FICO formula is being used. In addition, the credit scoring formula ignores inquiries made for the same type of loan during the previous 30 days. For example, if you have one lender pull your credit report for a mortgage rate quote and you visit another lender for another mortgage rate quote a few days later, the first lender's inquiry will not affect your score. This allows you to compare rates on equal footing.

Time Frame

Inquiries stay on your credit report for two years, but the credit score formula only considers inquiries from the past year. Therefore, if you have not applied for credit during the previous 12 months, you will not have any negative effects from credit inquiries.

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How to Estimate Your FICO

Your FICO score is your credit score; which is one of the most important numbers you need to know. Lenders look at your FICO score when you want to rent a home or apartment, buy a home, buy a car, apply for credit or make any other major purchase. The score was developed by Fair Isaac Corporation and ranges from 300 to 850. The higher your FICO score, the better your credit. Lenders can buy your score from three major credit reporting agencies: Experian, TransUnion and Equifax. Estimating your FICO score can help you know where you stand financially.

Instructions

1

Go to a FICO score estimator. You can find one at Myfico.com. Once on the website, search for FICO Score Estimator.

2

Answer the first two questions about number of credit cards and credit length, then click next. After you answer question one, it will also ask how long ago you received your first credit card.

3

Check the correct circles for the next five questions about your credit, then move on to the next page. After question seven, it may also ask you to answer how far past due you have paid on a credit card or loan.

4

Go through the final three questions and click next.

5

Read the estimated FICO score the website provides. It will give you a range. A score above 700 is good and lenders would most likely not consider you a financial risk. A score below 600 would lead most lenders to consider you a financial risk.

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How Do I Request My Credit Reports From a Legitimate Site?

Knowing your credit score is vital to being able to obtain the best interest rates on car loans, home loans, school loans, and any future credit cards. There are many sites out there touting free credit reports. However, there is only one site that will offer you free annual scores from the credit rating companies.

Free credit report

Under the Fair Credit Reporting Act, you are entitled to one free credit report every 12 months. The three nationwide credit reporting companies--Equifax, Experian and TransUnion--must provide you with a copy of your credit report at your request. This law is backed by the Federal Trade Commission and guarantees consumers' right to access their credit scores.

Make sure that you have a good reason for looking up your credit scores, as you can only do so for free every 12 months. A good time to look up your scores is when you are planning to make large purchases or apply for loans. Knowing your score ahead of time will give you a leg up in the bargaining process, and will allow you to know your options.

Requesting your report

The only authorized site for free credit reports is annualcreditreport.com. Visit the site and fill out the forms. Or call 1-877-322-8228 and request your forms by providing valid and current information. You can also fill out the Annual Credit Request Form and send it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You can request an individual score from Equifax, Experian or TransUnion, or ask that all three scores be sent together. This site explicitly deals with the three credit reporting companies.

Information you must provide

When using annualcreditreport.com, you will have to provide your full name, date of birth, Social Security number and, on occasion, other specific information. This data is used to verify your identity and to make sure no one is trying to fraudulently obtain your credit information.

Be cautious with other sites

Other sites may offer free credit reports, but they will charge you a monthly fee to view your credit score. They should be used only if you're willing to pay for their services. They're also useful if you wish to continually keep track of your credit over a shorter period of time than the 12 months specified by the Fair Credit Reporting Act. These sites generally opt you into their systems and you have to ask to be removed.

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How to Establish First-Time Unsecured Credit

Establishing credit from scratch can prove challenging because creditors prefer a credit history when reviewing your application. But even if you don't have a credit card or other type of credit line, you can establish credit and receive an unsecured account. Secured credit like an auto loan is easier to acquire with no credit history because the car serves as collateral. But if looking to attain an unsecured credit line, consider your options.

Instructions

1

Get a bank account. Credit applications ask and request information pertaining to your personal bank account. Open an account first and then apply for a credit line.

2

Get your finances in order. Secure steady employment prior to requesting an unsecured credit account. Applications also inquire about employment and yearly income. Lack of income can stop your efforts to establish first-time credit.

3

Select a nonbank unsecured credit card. Apply for credit with a department store or gasoline company to begin establishing your credit history. You're issued a credit card if approved for the account. Nonbank credit cards are easier to acquire with no prior credit record.

4

Attach your name to someone's major credit card. Ask your parents or another person with a good credit history to help you establish first-time credit. If agreed, they'll call up their credit card company and add your name and personal information to the account. You become a joint or authorized user on the account. In return, you receive an unsecured credit card in your name.

5

Pay on time and manage your debts well. Stay aware of your payment due dates and never charge more than what you can pay off in a given month. Timely payments and low debts help you build and maintain a good rating.

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What Is an Equifax Credit Rating?

Equifax is a credit reporting company. An Equifax credit rating is a numerical representation of a borrower's credit history. Lenders use the credit rating, or score, to determine a borrower's creditworthiness to repay a new debt.

Significance

A credit rating, or score, reflects a borrower's debt repayment history. The higher the credit score, the more likely a borrower is to repay the debt.

Function

Not only do lenders use a credit rating to determine likelihood of repayment, but potential employers use it to determine if a potential employee would manage their business and personal affairs properly.

Types

There are three credit bureaus, Equifax, Experian and TransUnion. The credit scores issued by the bureaus for each borrower are different, because their calculation techniques are different.

Considerations

Borrowers should review their credit ratings before making major purchases to ensure that errors in reporting do not negatively impact their credit rating.

Warning

Borrowers need to immediately report any errors found in their credit rating. Some errors are easy to remove, while others may require the assistance of a lawyer.

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How Low Is Too Low for a Credit Score?

Although in theory there is no credit score that is too low, the reality is that there is usually an area in the credit score spectrum that even the loosest lender won't touch. And even if you can get credit, a low score might mean your terms will be less accommodating.

Identification

The credit reporting agencies and the companies that create credit scoring algorithms have nothing to do with any lending decision, so the floor for what is too "low" for a credit score has no definite answer. One lender may refuse to approve anyone with a FICO score lower than 600, while another might find 500 acceptable. It all depends on how much risk the lending institution feels comfortable taking.

Considerations

Usually, anything below a score of 500 to 550 is too low for just about any lender, according to Credit Scoring. Scores below 550 comprise only 6 percent of all borrowers with a credit score and the default on loans for these consumers tops 70 percent, according to Score Truth. Thus, interest rates would have to be astronomical to make most of these loans profitable.

Getting the Best

Lenders reserve their best rates for borrowers in the upper echelon of credit scores. In 2010, most borrowers needed a score higher than 760 to have an elite credit score. This is a significant change from before 2007, when the housing bubble burst and a 720 usually was good enough to get the lowest rate, according to Wallet Pop.

Tip

Improve your credit score before shopping for a loan; paying down debt and sending in bills on time are the best ways to raise your score. You can overcome some shortfall in your credit profile by shopping around. The FICO scoring model counts all inquiries related to a mortgage, student or auto loan within a 45-day period as a single inquiry, so it does not hurt to see what as many lenders as possible think of your credit situation.

Other Scoring Models

When you purchase your credit score make sure you buy a FICO score; that's the industry standard. Other scoring models such as the VantageScore use a different range of scores. A FICO score of 700, for example, would be a good score in the FICO system but a a very poor score under the VantageScore model.

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How to Rebuild Credit After Making Late Payments

Your credit history is the fundamental key to getting a loan for an automobile, a house and, in some cases, getting a better job. Consistent late payments an greatly damage your credit history and, in turn, damage your chances of receiving that loan. There are several steps you can take to turn your credit around. Remember, though, it will take time and some patience.

Instructions

1

Start paying your debts on time. It sounds simple, but make sure that you understand the terms of your debts. If a bill is due on the 15th of each month, you need to pay the bill by the15th, not the 16th or 17th. Use online or telephone bill paying for immediate credit of your payments. If you mail in your payments, do it at least a week ahead of time.

2

Communicate with your creditors. The first step to repairing bad credit is to repair your relationship with those that you owe money. Pick up the phone and review the terms of your debt. Find out if you can lower your payments if you are having trouble paying your debts at the original terms on time.

3

Try to pay off outstanding debts in full. If you cannot, pay a little extra each month on accounts that carry interest rates. This technique will draw down the debt quicker since less interest will accrue.

4

Pay off high-interest loans and debt first. This technique will save you money in the long run since less interest will accrue.

5

Close credit-card accounts you are not using. Creditors look at the number of accounts a person has open. The more accounts open, the more debt you can accrue. This has a negative effect on your perceived creditworthiness. Close more-recently-opened cards first. Credit-rating agencies like to see a history of on-time payments and responsible credit behavior.

6

Analyze your credit, debt and income. The key to good credit is a strong debt-to-income ratio. The more you make and the less you spend on bills, such as credit cards and debt, the better credit you will have. Also, there is good debt and bad debt. Debt due to a purchase of a house is better on a credit report than a revolving line of credit at a department store that never gets paid off in full.

7

Negotiate with your creditors. After paying on time for a few months, call them and ask if they would be willing to remove a late payment mark on your credit history or reduce the total amount owed if you pay your debt in full.

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Can You Delete Bankruptcy Off a Credit Report?

If a bankruptcy appears on your credit report, it has a strong negative impact on your credit score, especially if the bankruptcy was recent. Although many companies advertise that they can repair your credit and delete the bankruptcy, there are only a couple of situations in which you can legally delete a bankruptcy from your credit report.

Incorrect Report

If your credit report states that you filed bankruptcy but you never actually did, you can dispute this item and have it removed from your credit report. Write a letter that states that you have not filed bankruptcy and asks the credit bureau to remove the inaccurate information from your report. The credit bureau will investigate the dispute and either correct the error or let you know what information you need to provide to back your claim.

Old Bankruptcy

If your bankruptcy was discharged over 10 years ago, you have the legal right to remove the bankruptcy from the public records section of your credit report. Write a letter that states the discharge date of your bankruptcy and asks the credit bureau to remove the bankruptcy from your credit report because it has been more than 10 years since that date. Include a photocopy of your discharge notification with the letter. Mail letters to Experian, Equifax and TransUnion so each credit bureau removes the bankruptcy from its version of your credit report.

Improve Your Credit

Although bankruptcy remains on your credit report for 10 years, you can start improving your credit score right after you declare bankruptcy. Re-establish credit accounts and make consistent monthly payments on these accounts. If you cannot qualify for a credit card because your credit score is too low, apply for a secured credit card with a bank or credit union. Another technique is to get somebody with a good credit score to co-sign on your application for a loan or credit card. You should also obtain a copy of your credit report and ensure that all of the accounts that were included in your bankruptcy are reported accurately. If the accounts still show that they are past due, contact the credit bureaus and ask that the status be changed to "included in bankruptcy."

Warning

If you have actually filed bankruptcy in the last 10 years and the information on your credit report is accurate, any technique to try to delete the bankruptcy from your credit report is illegal. Do not pay any company that claims to be able to delete the bankruptcy for you. You can be prosecuted if you commit fraud in an effort to repair your credit.

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How to Contest a Debt With the Credit Bureau

Your credit report can contain many inaccurate pieces of information, which may affect your credit score negatively. Credit scores are used by lenders to determine your level of risk. Therefore, you should take the necessary steps to contest any erroneous debts you find on your report. You can request a free copy of your credit report, once a year, for all three credit-reporting agencies, including Equifax, Experian, and TransUnion.

Instructions

1

Determine which information should be disputed. Review your credit file to see if any information has been reported in error. You can contest information on your credit report that is inaccurate or incomplete. For example, certain debt information should be removed from your credit file after a period of seven years.

2

Send a letter to the credit-reporting agency. Once you determine which credit-reporting agency has the inaccurate information, send them a letter stating why you think the information regarding your debt is inaccurate or incomplete. It is advisable to send your letter and all other documentation by certified mail return receipt requested.

3

Wait for the review process. The credit-reporting agency has approximately 30 days to correct the information on your report. The agency will contact the lender that reported the information as part of its investigation. According to FTC.gov, the credit-reporting agency will provide you with the details of its investigation approximately five days after the process has been completed. If there were any changes made to your credit report as a result of the investigation, the agency will send you a copy of your updated report reflecting the changes.

4

Compare the old and new reports. Always keep a copy of the original credit report that includes the inaccurate information. This is your way of ensuring that any disputed information has been removed from your credit file. Sometimes the credit-reporting agency will remove information from your file to meet the mandated 30-day investigation period. If it turns out the information is accurate, based on information submitted by the creditor, it could be placed back on your credit report.

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Changes That Affect Your Credit Score

Your credit score determines credit approval with lenders, insurance rates and may even affect employment. Higher scores mean better lending opportunities and lower interest rates. While creditors base lending on various pieces of information on your credit report, your credit score provides a picture of your overall financial responsibility. Your credit report adjusts over time as you pay down debt and acquire new loans. A range of financial changes affects your credit score.

Payment History

At 35 percent of your credit score, your payment history affects your score more than any other information. Payment history includes accounts paid as agreed, delinquencies, debt liens and lawsuits, bankruptcies and payment timeframes. Positive information on open accounts remains indefinitely. Positive payment information on closed accounts remains for 10 years. Most negative information remains for seven to 10 years. The further back negative information is on your credit report, the less likely creditors are to use the information to determine lending.

Amounts Owed

Your total debt accounts for 30 percent of your credit score. The number of accounts and how close you are to credit limits factor into this score. The lower your debt to available credit ratio is, the higher your score. Adversely, having high balances near the maximum credit limit on revolving lines of credit or owing a lot on other loans lowers your credit score. Consumers nearer to paying off debt are less of a credit risk.

Credit Inquiries

Credit inquires from potential lenders for credit cards, mortgages and other loans are called hard inquiries while soft inquires involve checking your own report or when current lenders pull your report periodically. Hard inquires require your authorization and remain visible to all lenders for two years. Hard inquiries do affect your credit score. Soft inquiries do not affect your score and are invisible to everyone but you. While the negative affect of sporadic hard inquiries is minimal, numerous inquiries over a short period may hurt your score. Actual scoring methods and the length of time an inquiry affects your credit score varies by reporting agency.

Account Types and Timeframe

The length of consumer credit history and types of credit used affect 15 and 10 percent of your credit score respectively. As the account ages and time between account activities fluctuates, so does your score. Older accounts with positive information increase credit ratings. Adversely, closing a longtime account potentially shortens your history and alters your available credit-to-debt ratio. Credit reporting agencies look for a mix of credit types when determining your credit score to help lenders establish your experience with different loans. Different types of credit may include mortgages, car loans, unsecured credit lines and revolving credit accounts such as credit cards.

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The Average Interest Rate on Cars for People With Average Credit

Auto loans make it more affordable to own the car of your dreams, but not without a price. Interest can add thousands to the cost of your car, so it's your financial responsibility to shop for the lowest rate. As with any loan, your credit score can raise or lower the interest rates available to you.

Average Credit

According to National Score Index, a website by Experian, as of 2011 the average credit score in the United States is 692. Since lenders prefer scores of 700 or higher, this is fairly high. Credit score averages vary between states, though, so your credit may be normal compared to your peers even if it's lower than the national average. For instance, the average credit score in Mississippi is 672; it's 719 in North Dakota.

Rate Variations

Your credit score can affect the rates lenders offer you on auto loans by as many as 3 percentage points, according to CreditReport.com. In addition, rates vary weekly and between locations. Bankrate provides tools on its website for you to check the average auto loan interest rates in your area and across the nation on a weekly basis. Compare rates in your ZIP code to those in nearby areas to determine whether it's worth driving farther for a better deal.

Prime Rate

While interest rates vary by location, they are all based on the prime rate as reported by "The Wall Street Journal." The prime rate is based on the federal funds rate, set by the Federal Reserve. Unless you have above-average credit, the interest rate you receive on an auto loan will likely be higher than the prime rate.

Getting Lower Rates

Aside from shopping around, your greatest chance of getting a low interest rate on an auto loan is to improve your credit. CBS's "The Early Show" suggests raising your score to at least 720 to get the lowest rates. Since credit scores only go as high as about 850, lenders treat a 720 the same as they would a higher score. Making timely payments on your credit accounts is the single most helpful thing you can do to improve your credit.

Get a free copy of your credit report from AnnualCreditReport.com, or buy your report and score from one of the leading credit reporting agencies, to see where you stand. You can buy your report and score from TransUnion, Equifax or Experian for less than $20 as of 2011.

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Understanding a Credit Rating

When you apply for credit, whether it is for a car, a home, a credit card or any other type of loan, the lender will order your credit report to determine your credit rating before making a decision. This is also known as a FICO score. The rating or score is a number that estimates how likely you are to repay the loan and use credit and ultimately helps determine your credit worthiness.

How Are Credit Ratings Developed?

Credit ratings typically range from 300 (high risk) to 850 (low risk), and the higher your score, the more likely it is that the lender will grant your request. For example, a score of 700 or higher shows the lender that you have excellent credit, while a score below 600 indicates that you probably had trouble repaying credit in the past. Late payments on loans or credit cards lower your rating, but reestablishing a good record of making payments on time will raise your rating.

Credit ratings are developed using thousands of consumer profiles. FICO, one of the nation's most widely recognized names in credit rating development, works with three companies--Equifax, TransUnion and Experian--to develop ratings. Tens of thousands of pairs of credit reports are studied and placed into two groups: those with good payment behavior and those with poor payment behavior. The objective is to predict which of the two groups a particular record is likely to be in 2 years down the road. These reports act as the standard that your credit report is compared to, which determines your score.

What Characteristics Does a Rating Take Into Consideration?

The characteristics used to determine a rating are found on a person's credit report, but credit history is only one of the factors used to establish a rating. Other characteristics include the length of your credit history, the amount of debt you have, the number of credit inquiries recently made and the types of credit you have, to name a few.

It is important to know what your credit rating is before you apply for credit. You can do so by visiting Myfico.com (see Resources). That way you won't be surprised by the lender's decision, and if necessary, you can take the proper steps to repair your credit.

If you are turned down for credit, it may be beneficial to seek help with an outside credit agency to try improve your rating. Credit counseling is available for free. The National Foundation for Credit Counseling can help you find the address and phone number of an office closest to you (see Resources).

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Will Lowering Credit Limits Increase a FICO Score?

Your credit score is a measure of your financial health, and your scores can affect whether you will be approved for a mortgage or car loan, in addition to the interest rates you will pay on borrowed money. FICO scores reflect how effectively you manage your money and pay your bills. If you ever receive a recommendation to lower your credit limits to increase your credit score, be warned that this may not be the best advice.

Elected Credit Limit Decrease

There are several reasons why you may think it's a good idea to lower your total credit limit. If you have a history of good credit, many lenders will continue to increase your credit limit on credit cards throughout the years. When you choose not to access the total credit available to you, or if it seems too tempting to have that credit at your disposal, you may convince yourself that it makes more sense to ask for a decrease to your credit limits. In some cases, you may be advised to lower your credit limits to reduce your perceived risk when applying for a mortgage or other personal loan.

Lender-initiated Decreases

Many lenders are in the practice of involuntarily reducing consumer credit limits. Even if you don't request a credit limit decrease, and even if you have always paid your bill on time with a positive payment history, you many find your total credit limit inexplicably lowered one day. Some lenders have tightened their credit standards to reduce their total financial risks in the wake of the 2007 recession and subsequent credit crunch.

The Effects

Rather than increasing your FICO score, lowering your credit limits can actually have the opposite effect, and may lower your overall credit score. RepairBadCreditReport.com recommends keeping your total account balances anywhere between 20 to 50 percent of your total available credit for the best credit score. Utilizing a higher percentage of your available credit often results in lower FICO scores. Even when you follow this practice, if your available credit is lowered while you maintain a balance on the account, it may change your debt to available credit ratio. This change could negatively impact your FICO score.

What to Do

If you have a solid credit history with your lenders, and you are looking to increase your credit score, it may benefit you more to request a credit line increase rather than a reduction. Although you should not utilize all of the available credit, having a higher limit with a low balance can increase your FICO scores. U.S. News and World Report also indicates you can also increase your credit scores by paying down the balance on any credit accounts you currently maintain, so that the debt is less than 50 percent of the total credit line.

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Basic Credit Score

When people refer to your basic credit score, they are talking about a credit score calculated and reported by one of the three major credit bureaus: TransUnion, Experian and Equifax. Each of these credit bureaus use the FICO credit scoring system developed by Fair Isaac Corporation. Scores vary with each of these bureaus because of the differences and timeliness of information that is reported to them.

How Your FICO Score is Calculated

There are five elements that go into factoring your FICO credit score. Your payment history contributes around 35 percent and how much you owe accounts for 30 percent. The length of time your credit history has been active contributes to 15 percent, new credit counts for 10 percent, and other factors count for the remaining 10 percent. A variety of credit accounts, such as an auto loan, home mortgage, credit cards and personal lines of credit demonstrate normal credit activity, which is good for you.

How Your Credit Score is Used

Banks and other lenders, potential landlords, insurance companies, utility companies and potential employers all use your credit score and other information found on your credit report to make a decision about doing business with you. This may seem intrusive, but it is common practice. Employment applications, for example, often have a credit report release as part of the application.

How You Can Hurt Your Credit Scores

Late payments, balances higher than 30 percent of your credit limit and accounts closed by the creditor all damage your credit. A foreclosure, bankruptcy, judgment or an account closed by the creditor can have significant negative impact on your credit score. Credit scores range from 300, which is very bad, to 850, which is excellent. A score of 700 is very good, 620 is okay. Below 620 is generally considered the subprime range.

How You Can Improve Your Credit Scores

Review your credit reports every four to six months. You can request a free copy of your credit report once a year from AnnualCreditReport.com (see Resources). Check for accuracy in the amount and the date you made payments and report any errors immediately. Make sure your payments are all made on time. Set up automatic payments through your bank or create a system to help remind you when payments are due. Reducing the amount that you owe, will also help your scores.

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