Are Credit Score Quick Fixes Fact or Fantasy?

The world of credit repair is filled with promises of fast fixes. Some of them are an exaggeration at best and criminal at the worst. There are a few ways to fix your credit score immediately, but nothing remedies poor debt management. Practice good borrowing habits now, however, and your score will rise eventually.

Fixing Your Credit in Hours

Quick credit scores fixes are not entirely a fantasy. Rapid re-scoring can clean up a credit report within 72 hours, but only if you have mistakes. If you can prove a negative item on your report is false, such as a collections account that belongs to someone else, a rapid re-scoring company can verify it and update your report far faster than the 90-day turnaround on most credit report dispute cases.

Other Quick Fixes

Paying down as much credit card debt as possible reduces your credit utilization ratio -- the proportion of your credit used compared to the amount available -- immediately. Adding a new type of loan boosts your credit mix. If you have a mortgage, for instance, you should have a credit card and retail card. These "fixes" won't show up immediately. The credit rating agencies can update their reports whenever they please, but they usually only do so quarterly.

Watch Out for Scams

No credit counselor or repair company should guarantee to remove negative items from your report -- legitimate negative items stay for 7 to 10 years. Fraudulent credit repair companies may claim to have a in with the credit bureaus or a foolproof tactic to convince creditors you do not owe a certain debt. Also, some ask for money up front, which is illegal as of 2011. An honest credit repair company will meet with you face-to-face and offer some type of financial education.

Tip

Do not ask creditors to lower your credit card limit. Actually, you should inquire about an increase to reduce your credit utilization ratio as long as it does not involve a credit check. Only apply for a loan when you need to improve your mix of credit. Adding a loan to try to increase your number of "good" accounts only adds the risk of a missed payment.

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10 Best Ways to Fix Your Credit Score

The higher your credit score, the more likely your chances of being approved for loans, credit cards and discounts from your bank. Many people strive to keep their credit score within a particular high range, but variables often influence the ability to accomplish this. If your credit score drops below a point of comfort, bringing it back up is not impossible. Fixing your credit score takes time and effort, but is doable.

Get Organized

Keep your finances organized so that bills do not get lost -- either physically lost within the regular mail or digitally lost in your email in-box, if you use electronic banking. Misplacing your bill due to disorganization leads to late payments, which hurt your credit score. It is important to identify one place in your home for keeping financial statements, account balances and transaction receipts organized so that you can access information when you need it.

Know the Debt

It is smart financial management to know what you owe if you want to pay off debt and improve your credit score. If you are single, then make a list of all of your debt and come up with a grand total. For people who are married, work on this project as a couple so that you know your combined outstanding balance.

Make Timely Payments

A late payment on your mortgage, car loan or credit card brings your credit score down. It also causes you to endure penalty fees for late payments, which end up costing you more money -- on top of what you already pay in interest. If you keep an automated calendar of when to mail your payments, or sign up for automatic bill payments with your bank, then you'll pay your bills in a timely fashion, and subsequently bring up your credit score.

Overpay Bills

Many people over pay their minimum fees on loans and debt so that they may eliminate the balance faster. When your debt is paid off, your credit score improves, so overpaying your monthly bills is smart financial planning.

Stop Charging

If you can afford to pay for things out of pocket, then avoid charging purchases. Many people use credit cards out of convenience because taking out cash requires a trip to the bank. But every time you use your credit card, your balance increases, and it affects your credit score. The less you use your credit card, the more your score will improve.

Read Financial Statements

Financial institutions are not flawless, and they sometimes make mistakes. When you get a financial statement, read it over carefully to make sure the information is accurate. If you find a discrepancy between something that is on the statement versus what your receipts say, then dispute the difference. You want as much accuracy as possible when attempting to fix a credit score.

Check Credit History

Each year, get a copy of your credit report from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. Make sure no one opened any new accounts under your name. Make sure the accounts you paid off no longer show as active. Credit bureaus can make mistakes, and their mistakes work against your credit score.

Consolidate

Depending on the type of debt you have and who you bank with, you might qualify to consolidate your debt. Consolidating your debt rolls multiple debts into one, so that you pay off one sum as opposed to several smaller ones. This option is for consumers who needs help staying organized, and it may even provide consumers with a lower interest option so that they can apply more money toward the principal balance.

Build Credit

You might be one of those people who may have to build their credit in order to fix their credit score. This action is generally if you have zero to little debt. In such a circumstance, get a credit card and use it every now and then for things like gas and groceries. Pay off the total balance every billing cycle, then use the card again for similar items the next month. As long as you pay it off every billing cycle, the debt will strengthen your credit.

Negotiate

Since creditors want to get their money, they might strike a deal so that they get paid. If you are up for the challenge, then negotiate with your lender about erasing a late payment from your credit history, in exchange for paying off your current balance. It never hurts to try.

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How to Post Trade Lines

A trade line is an industry term which refers to any item listed on a credit report, including a mortgage, car note and credit card accounts. Each individual account on a credit report is referred to as a trade line. Getting trade lines posted to one's credit report can be vitally important, especially if it reflects on time payment history, as it helps improve one's overall credit score.

Instructions

1

Obtain your credit report from all three credit reporting agencies: Transunion, Equifax and Experian.

2

Take a look at all three credit reports and determine any active accounts you have which are not being reported and which could also help you build a better credit history and overall score.

3

Contact all three credit reporting companies and request they add any credit lines which are missing. Credit reporting companies can add any credit accounts they are able to verify, though they are not required to do so. Be prepared to provide proof of the positive credit line you have with the vendor.

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Answers for Credit Solutions

Knowing the various methods to improve your present credit situation can make you a good candidate for a low-rate auto loan, mortgage or credit card. Credit is imperative, and people with low or bad credit scores tend to receive more credit rejections than someone who shows creditworthy habits. Fix your credit now, and open the door to numerous financing opportunities.

Lateness and Payments

Solve credit problems with better payment habits. Your payment record influences your credit score, and building a stronger credit history starts with timely payments to your mortgage lender, auto loan lender, credit card company and other creditors. According to My FICO, timely payments make up 35 percent of personal credit ratings. Each payment received by the due date slowly increases your credit score. Stop late payments altogether, and you could significantly increase your FICO score.

Eliminate Balances

Another effective move to bolster a weak credit score includes paying down balances on credit cards. Credit scores factor in how much you owe, or your debt ratio. The less debt you carry, the better. MSN Money recommends paying down credit card balances to below 30 percent of the credit limit to help fix a low score. Getting rid of debt is often a slow process. But with increased monthly payments and limited credit card use, you can reduce the amount you owe and improve your credit.

Credit Reports and Accuracy

Outdated or completely inaccurate information on your credit file can bring down your FICO score. Avert problems when applying for loans and credit by regularly checking your credit report -- at least once a year. Annual Credit Report issues free reports to each consumer on an annual basis. Order reports online, and check the document to ensure the correctness of information. Dispute inaccuracies online or write your creditors.

Deleting Negative Information

Certain negative information can remain on credit reports for seven years. This includes collection accounts, credit judgments and charged-off accounts. Negative information on reports eventually age and fall off. But you can expedite the deletion of this information by negotiating the removal of negative items upon satisfying the debt. Contact creditors or collection agencies to see if this is an option. If so, schedule a plan to submit payments to pay off the old debt.

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How to Rebuild Your Credit With No Upfront Fees

Some credit repair companies ask for high upfront fees to wipe out bad credit, but the Federal Trade Commission (FTC) explains that this is illegal. A credit repairer cannot collect any money from a customer until it performs its job. Unscrupulous firms ignore this requirement and usually do not fulfill their promises. You can rebuild your own credit without paying anyone because you can use the same methods as legitimate repair companies and some financial actions of your own.

Instructions

1

Pay all of your current credit cards, loans and other accounts by the monthly deadlines. Timely payments play a big role in your credit score, according to the FICO scoring company. Your score goes up as you rebuild your on-time payment records and your account balances go down.

2

Request credit report copies from the federal website run by Experian, TransUnion and Equifax, AnnualCreditReport.com. The credit bureaus all sell reports, but the Fair Credit Reporting Act forces them to give consumers a free annual copy through the special site, the FTC explains. They will charge you or make you sign up for paid services like identity theft protection if you order reports through their direct websites.

3

Read the reports to make sure your current on-time payments are showing up. They do not help rebuild your credit score if they are not being reported by the creditors. Call any lenders who are not sharing positive information with the credit bureaus and ask them to do so.

4

Circle any harmful credit report items that contain mistaken information. Dayana Yochim of the Motley Fool financial education website warns that eight out of 10 reports have errors, most of which are tied into late payment dates. You can dispute any error, including general issues like misspellings, and it may get the item removed from your reports if the creditor does not cooperate with the credit bureau investigation of your challenge.

5

Fill out the online dispute forms on each credit bureau website to challenge the error-containing items. The FTC explains that they must try to verify each entry's accuracy with the reporting creditor. Some may not respond, which forces the bureaus to erase those entries, resulting in a higher credit score.

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The Definition of "Risk Based" Underwriting

Some borrowers are more creditworthy than others. That is why lenders are willing to offer the lowest interest rates to people who have the best record of repaying their bills and debts on time. Lenders and other financial institutions such as insurance companies use "risk-based" underwriting to either set or adjust the price and other credit conditions for a particular borrower or client based on that person's credit history. Anyone applying for an insurance policy or any type of loan, including mortgages, cars or credit cards, can expect that the rate they are offered is based on risk-based underwriting. In the age of advanced credit scoring systems and major credit bureaus, risk-based underwriting has become a standard practice in the financial industry.

Risk-Based Pricing Rule

As of Jan. 1, 2011, every creditor must send a risk-based pricing notice to any consumer who has either been turned down for credit or was offered a higher interest rate due to his credit history. The notice will explain why the institution made an adverse decision on the loan request, and lenders also are required to provide consumers with the three-digit credit score that was used to reached the credit decision. The rule, issued by the Federal Reserve and the Federal Trade Commission, is intended to shed more light on the loan approval process so consumers who are turned down for credit or receive poor terms have more information concerning how they can make improvements to their credit profile.

Other Factors

When financial institutions use risk-based underwriting to evaluate a credit application, the credit score is not the only factor considered. Underwriters also take a close look at a person's income, his occupation and his length of time on the job. Combining all those elements in the risk-based pricing process helps build a better picture of who the applicant is and what level of risk he may pose.

Housing Industry

Risk-based underwriting has become more important than even in the housing industry since the sub-prime collapse in 2007. Since then, the largest purchasers of residential mortgages, Fannie Mae and Freddie Mac, have made changes to their risk-based pricing criteria, which require borrowers to have higher credit scores and more equity in order to qualify for a loan. Home buyers with poor credit histories and less than 20 percent to put down will either be rejected for a mortgage or must pay additional fees. In this instance, risk-based underwriting has raised the standard for people to qualify for home purchases and caused many existing homeowners who do not meet the standard to be unable to refinance higher interest loans for a better rate.

Insurance Industry

Insurance companies use your credit score to determine how much you will pay for insurance, which is another form of risk-based underwriting. Missing payments on credit cards can lead to you paying higher premiums or even having a policy cancelled with an insurance company you've been with for a long time. Insurance companies also will use risk-based pricing to assess how certain perils might affect a customer's profile. A single homeowner's risk profile is always changing, and there are times when the premium is adjusted for perils such as fire risk, water damage and the potential for theft.

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The Advantages of Good Credit History

A person's credit history is a seven-year record of the positive and negative reports that creditors have made in regard to his payment patterns. A credit history that contains mostly positive reports results in a higher credit score, which in turn can open up further opportunities. Those with good credit histories can secure financing more easily at lower rates and will be more attractive prospects to employers and landlords.

Credit Cards

Credit cards are easier to get when you have a good credit history, since this indicates to card issuers that you are likely to make all of your payments on time. When applying for a new credit card, those with good credit histories are more likely to receive lower interest rates and higher credit limits.

Loans and Purchases

As with credit cards, people with good credit histories typically can borrow larger sums of money at lower interest rates than those with average or poor credit. When buying a car, for example, there may be restrictions on how low the interest rate can go. In this case, dealers may be willing to lower the selling price for those with good credit histories.

Rentals

When a tenant is renting a home, business location or vacation property, landlords and property management companies typically perform credit checks to determine whether potential renters are likely to make payments on time. A good credit history can help ensure that an individual's rental application is approved and may also persuade owners to lower or eliminate rental deposits as well.

Insurance

Insurance companies often check credit scores to evaluate whether applicants are likely to pay their premiums. Having a good credit history makes it easier to get insurance and typically reduces the amount that the insured has to pay each month.

Employment

Some employers check the credit of potential employees, especially if the employee will be working with money or other valuables. Those with low credit scores may not be hired as it shows that they are not dependable and that they may not be trustworthy. Having a good credit history can help an applicant to have an advantage over competitors also seeking a job.

Utility Deposits

Utility companies typically check credit scores before establishing service to determine whether an individual is likely to pay his bill on time. Those with good credit histories often receive a reduction on their utility deposit or may have the deposit waived completely.

Business Startups

When starting a new business, entrepreneurs typically have to secure funding based on personal connections and their ability to get loans or credit lines. Having a good credit history makes someone much more likely to receive a business loan with a favorable interest rate and may also allow him to apply for a larger loan amount than he would otherwise qualify for.

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How to Erase Negative Credit Report Entries

Negative credit report entries on a personal credit report are detrimental to your financial health. These negative entries will prevent you from obtaining low-interest loans (especially on mortgages and car loans), getting an apartment or even getting a job for which you are otherwise qualified. If you have a legitimate reason for credit bureaus to review your report, you can erase some of these entries. However, the process is quite challenging.

Instructions

1

Pull your credit report to assess the total damage. Visit Annual Credit Report for a free copy. Circle all the negative entries. Retrace your financial past and try to establish reasons for each negative mark. You will discuss these with the credit bureaus.

2

Collect any documents that will corroborate any claims you intend to make about delinquencies. For example, if you were laid off and could no longer afford your bills, collect the old unemployment papers. If you were disabled on the job, find your disability payments.

3

Make copies of all documents, including the circled credit report. Do not send original documents to the credit bureaus.

4

Write a goodwill letter. This is the only way to get credit bureaus to remove negative items. Address each negative mark you wish to have removed. Write the letter with candor and straightforwardness, appealing to the decision maker's human side.

5

Review the letter for accuracy, grammar and style. Include all related documents. Send this package to all three credit bureaus (Experian, Equifax and TransUnion).

6

Await a response. Legally, the credit bureaus have 30 days to acknowledge the request and 90 additional days to take action.

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Why Is a Good Credit Score Important for Students?

Credit scores are essential to financing some of the larger items in life. Though college students may think they're years away from buying a new home or car, many do not realize that even the smaller things in life come with a credit check--and even the smallest missed payments can make that number look disastrous. Smart college students begin building their good credit early, knowing full well the positive and negative repercussions that a bad or nonexisting credit score can have.

Function

Though most lenders know that college students will not have a tremendously long credit history, it is important to create your good credit early, which will allow you to qualify for large-ticket items such as homes and cars once you graduate. Many people make the mistake of thinking that adult life does not begin until after college. This is not true, however, since it can be difficult to lead that "adult" life without the proper credit to finance it.

Significance

Even while you're still in school, your credit score is important. Many students maintain a full course load throughout the school year, meaning that their earning potential can be limited. Because of this and the financial freedom that being in college allows, many students must obtain a credit card or two to finance everyday purchases as well as emergencies. However, to obtain a credit card with a low APR (annual percentage rate), you must have at least a short history of financial responsibility. Once that credit card is obtained, students can continue to build credit from there.

Benefits

Many students choose to live away from home and off campus for at least a year or two when they are in college. However, as in the case of the low-APR credit card, a student or group of students must show their financial responsibility to rent an apartment. This remains true once a student finishes school. Typically, once a graduate obtains his first full-time job and gains more financial independence, he will no doubt want to upgrade his quality of life. This could take the form of a larger apartment, nicer car or other luxury items. To qualify for such significant purchases, that graduate should produce a good credit score.

Features

To obtain that cushy post-graduate job that can lead to a better quality of life, many graduates find that potential employers research the credit score they accumulated while in school. Though most employers use your credit score to determine your level of responsibility, good judgment and ability to minimize your financial risk, employers within the financial, sales, investing and real estate sectors may judge it extremely harshly. This is because they are hiring you to make good financial decisions for both the firm you represent and that firm's clients. It is thought that if you cannot manage your own finances, you should not manage the finances of someone else, degree or no degree.

Prevention/Solution

Even if your credit is less than perfect, there are actions you can take, as a student, to improve your credit score. The first thing to do is obtain a copy of your credit score. Anything over 600 is usually acceptable. Consolidate and pay off any debt you currently have, giving priority to bills that are the most past due. After you've gotten these bills balanced, pay at least the minimum monthly amount due every month on every credit card. This will allow you to improve your credit score with time, hopefully resulting in a reasonably average score once you graduate.

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How to Re-Establish Your Credit After a Car Repo

Having your car repossessed is an embarrassing situation, but if you fall too far behind on your payments, it is the likely outcome. What you may not realize is that losing your car to the bank costs you more than just your freedom. It has a huge impact on your credit score, and bouncing back can be a challenge. If you are trying to rebuild your credit score after a car repo, take some time to learn about the steps you can take to raise your score while the repossession is still on it.

Instructions

1

Contact your lender about the repossession. You may be able to craft a repayment plan for the balance you owe. Once you pay this off, your credit history will be updated.

2

Get a copy of your credit history. You can get one for free from each of the three credit bureaus once a year through annualcreditreport.com.

3

Check the credit history for any errors. While fixing errors does not directly affect the impact of the car repossession on your credit history, it will raise your credit score overall. Remember, the car repossession is only one item on your credit history, and if everything else is good it will have far less of an impact.

4

Target accounts on your credit history that are listed as unfavorable. Accounts that have a balance that is close to the credit limit, for example, will count against you, as will accounts that you have fallen behind with paying. Do whatever you can to fix these.

5

Begin paying all debts on time, every month.

6

Check the credit limits listed on your report, and ask your credit card company to update the information if your credit limit is higher than what is listed on your credit report. Your debt to credit limit ratio impacts your score.

7

Open a secured line of credit or credit card if you cannot get a regular one, and use this to put positive information on your credit history.

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How Debt Consolidation Affects Credit Score

It's not uncommon for people to get into debt to a level where it becomes hard to keep up with payments. Once someone gets to that point, finding a way out can be difficult. It is easy to get further and further behind. Debt consolidation is one way to deal with out-of-control bills. Debt consolidation programs bundle together your debts and you make one payment instead of several. Understanding all the potential hazards and benefits of a debt consolidation program, including the effect on your credit score, is important before you choose this option.

Debt Consolidation Loans

One form of debt consolidation is a loan. In general, using money from a consolidation loan to pay off other debts doesn't have any affect on your credit score. However, closing the paid off accounts could negatively affect your score. Part of your credit score is based on the length of time your accounts are open, so keeping older accounts open with zero balance has a positive impact on your credit score.

Debt Management Programs

Another form of debt consolidation is a debt management program. This differs from a consolidation loan because you pay off the debts over time. Various independent companies manage these plans. These debt management groups can often negotiate lower interest rates on accounts and other concessions--lower minimum payments for example--because of deals they've worked out with the credit companies. You consolidate your bills in that you pay one bill--to the debt management administrators--and they make the payments to your creditors on your behalf. Your payment to the program covers both pay down amounts for your bills and fees charged for the administration of the plan.

On Time Payments

You need to pay your plan on time. If you get a late payment to the consolidation administrators, your creditors will be paid late. That will lower your credit score. In addition, check the reputation of debt management companies before signing onto a plan. Make sure there are no complaints against the firm. Late payments can be detrimental to your credit score, with or without a debt management program.

New Credit

Once you sign onto a debt consolidation program, a notation about the program appears on your credit report. Anyone getting a copy of the report will see that you are enrolled in a debt management program. Generally, this will make it very difficult to get new credit issued. Since most programs also prevent new charges on current accounts, it effectively stops any credit use during the term of the debt management program.

Credit Score

Other than the notation that shows on the report, credit scores should be relatively unaffected by enrollment in a debt management program. Of course, that is based on the on-time payment caveat. Once you complete the program, generally three to four years, a notation will be added to the report showing successful completion. The effect of various accounts getting paid off during the course of the program can lead to a rise in your credit score.

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How to Change Wrong Items on Credit Reports

You credit report is important and can easily be inaccurate. The credit reporting agencies aren't nearly as accurate as you would imagine. There are three agencies, and anything from perspective employers to utility companies to mortgage and car loan companies check this report before they decide how and if they will do business with you. Correcting mistakes on your credit report will save you money and headaches.

Instructions

1

Get a copy of your credit report. The three credit reporting agencies are Experian, Trans Union and Equifax. All three are used to monitor your credit; some creditors check only one report, but many use all three. You can buy a copy of your credit report from each company, or you can use services that give you copies of all three combined. Get a free copy of your credit report from all three agencies once a year at the Annual Credit Report website (see Resources).

2

Contact each agency about mistakes in your file. Send a letter by snail mail to the agency, clearly outlining the mistakes. Provide copies of documentation supporting your case. The agency should investigate and get back to you within about 30 days. Send the letter with return receipt requested so you have proof they received it.

3

Send the information about your dispute directly to the company reporting the problem. Include copies of your documentation, and let them know you are disputing the report.

4

Block identity theft portions of your report. If you have experienced identity theft, you can have those portions of your credit report blocked from viewing. You must fill out, notarize and file the ID theft report with the agency.

5

Check your credit report again several months later. If the error comes back, file a complaint again and include the corrected report. Also file a complaint about the creditor with the FTC.

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How to File a Complaint Against a Credit Reporting Agency

Credit reporting agencies like Equifax, TransUnion and Experian are required to follow a consumer-protection law called the Fair Credit Reporting Act. Unfortunately, there might be times when you feel credit reporting agencies are violating the FCRA, and they might be unresponsive to your complaints about the situation. The Federal Trade Commission monitors their compliance with the FCRA, so if you feel they are in violation, report them to the FTC using a simple process.

Instructions

1

Write up a detailed account of your complaint. Stick to the facts, leaving out any unfounded accusations or emotional words. Your complaint will be taken more seriously if it is objectively written.

2

Make copies of any evidence that will back up your complaint. This might include letters or emails you have sent to the credit bureau, proof that they have received your correspondence, and their replies. Doing this will allow you to include the information with your complaint while still keeping the original documents.

3

Mail your complaint to the Federal Trade Commission, the agency that regulates the credit bureaus. They do not take action on individual complaints, but they watch for patterns that indicate ongoing violations by the bureaus. If they notice a pattern of problems, they could decide to take action. You can also make complaints to the FTC by telephone, but doing so in writing gives you a chance to send your corroborating materials to back up your complaint.

4

Notify the credit bureau in writing that you have filed a complaint with the FTC. If your complaint concerns a situation you are trying to resolve, such as a dispute about incorrect information on your report, the credit bureau might be more willing to take care of it if they know you have escalated the situation.

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Fastest Way to Repair Bad Credit

Consumers who have gone through a bankruptcy, fallen behind on bills or who have otherwise seen their credit score decrease can improved their scores almost immediately by taking the proper steps. Though long-term credit repair usually requires a credit repayment plan, there are some fixes available to consumers who need to improve their score quickly.

Obtain Credit

When you apply for a loan, the creditor wants to know that the money it gives you will be repaid. To satisfy itself that this will happen, a creditor will look at your credit history to determine how you have used credit in the past. If you do not have a credit history, potential creditors have no way of judging how risky a borrower you are. One simple way to establish a positive credit history is to apply for a credit card, such as a gas station or department store card.

Pay Credit Card Balances

If you already have credit cards but carry a balance on them from month to month, you can quickly raise your score by making payments on the cards with high balances. Typically, carrying a monthly balance in excess of 25 percent to 30 percent of your card's credit limit will lower your score. Paying off any balance so that it is below this percentage will have a positive affect on your credit score.

Diversify Credit Types

Part of your credit score is based on not only the number of loans you have, but also the variety. While having a positive history with multiple credit cards is good, having a positive history with a car loan, mortgage and a credit card is even better because it shows you can manage multiple forms of debt. If you have only one form of credit, consider obtaining another kind of loan to diversify your accounts.

Use Unused Accounts

Another factor in your credit score is the average length of the credit items you use. If, for example, you've had a credit card for 10 years but have not used it in several years, that card may not appear on your credit report. If this is the case, you can quickly raise your score by using an old unused credit card with which you have a positive credit history.

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Do Child Support Judgments Affect a Credit Score?

Your Credit Scores

Your credit scores are made up from algorithms that determine how likely a person is to default on an obligation. The theory is the higher the score, the less likely a person is to default on something. You are a low credit risk if you have scores in the 750 range; a score in the 500 range would be a higher risk to a creditor who is asked to grant a credit request..

How Judgments Affect Your Scores

If your divorce has you obligated to pay child support for your children, and you are in default, it is possible that your ex-spouse may report you to the court, and a judgment for the past due child support may result. This is very negative. It is filed in public records within your county, and the information will be sent to the credit bureaus.

How the Credit Bureaus React to a Judgment

When the credit bureaus receive the information that a judgment has been filed against you, the negative reporting will cause your scores to drop. How drastic the drop will depend on the dollar amount of the judgment. A large judgment will have a more negative effect than a small one. Even if the judgment is resolved and a "Satisfaction of Judgment" is reported, the fact that it happened will continue to injure your scores until time passes and it is considered too old to be relevant to your current credit activities..

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What Hurts Your Credit?

Fair Isaac Corporation (FICO) determines your credit score based on a formula that applies a percentage to each item. When you apply for a loan or a mortgage, the lender checks your credit. Often prospective employers and landlords also check credit. Your auto insurance company bases the rate you pay on your credit score. Because your FICO score is important to many areas of your life, you must avoid anything that hurts your credit.

Delinquent Payment History

The My Fico website shows that fully 35 percent of your credit score results from your payment history. Another 15 percent comes from the length of your credit history. Your credit history includes payment information on credit cards, mortgages, car loans and retail accounts. Delinquent payments and accounts turned over for collection hurt your credit score.

Too Much Money Owed

The percentage of available credit used determines another 30 percent of your credit score. Maxing out credit cards and carrying balances on several cards hurts your credit. FICO looks at the proportion of the balance owed in relation to the original loan, when checking installment loans, including car loans and mortgages. Borrowing too much money on installment loans hurts your credit.

Credit History

Your credit score considers the length of your credit history. If you handle credit well for several years, your credit score will reflect that. A credit card account with a good payment history stays on your report as long as the account is open. However, once the account is paid off and closed, the history drops from your report after seven years and may drop from your report earlier. Closing older credit card accounts with good payment history or paying off a loan early can hurt your credit.

New Credit

Your FICO score considers any recently opened accounts. It also looks at recent credit inquiries. Although new credit only accounts for about 10 percent of your score, when you apply for a new credit card, car loan or mortgage, you can hurt your credit score.

Credit Report Errors

The Federal Trade Commission warns against credit card fraud. You should check your credit report every year and check your account statements regularly. Although difficult, you can have mistakes on your report corrected. Fraudulent charges or identity theft can hurt your credit score.

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Does Closing Credit Cards Affect Credit Scores?

You may think that closing a few credit cards makes you more attractive to lenders, because it lowers the amount of debt you can carry, but it can sometimes have the opposite effect. Instead of eliminating history on the account from your report, closing cards hurts your score mostly by reducing a key component of any score: credit utilization ratio.

Identification

The most important thing you lose from closing your credit card is available credit. The FICO score formula factors in your debt to credit limit ratio. If, for example, you have $500 in credit card debt and a limit of $5,000 across your cards, you have a relatively low utilization ratio of 10 percent. Close a few cards and bring that limit down to $1,000 and your utilization shoots up to 50 percent---very high in most financial expert's eyes. Maxing out your credit limit could take up to 45 points off of your score.

Misconception

Closing a card does not delete its history---which counts for 15 percent under the FICO formula---from your credit report. The credit agencies report positive data for 10 years on closed accounts. You will, however, lose future history on the account and lower the average age on your account---another factor in credit history---when you open new accounts.

Benefit to Score

Downsizing your credit card accounts could have a positive effect on your score if you have too many accounts overall. The FICO model starts to harm your score a bit when you acquire more than seven cards, according to the Motley Fool. It could boost your significantly over time if you have a card on which you constantly miss the minimum payment or cannot resist the temptation to spend.

Tip

Instead of closing your credit card accounts, pay down existing credit card debt and avoid further spending charge on the accounts other a few small charges to keep the card active. Credit card accounts can stay on your report forever, because the agencies report the entire history of current accounts.

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Do Free Credit Reports Hurt Your Record?

Even some people who work in the lending industry mistakenly believe that obtaining a free credit report hurts a person's credit score. This stems from the fact that certain types of inquiries will damage your score. Whether you receive a free report or pay for one, checking your score won't hurt; only applying for a loan can.

Misconception

Receiving a free credit report through AnnualCreditReport does not hurt your score because personal credit checks are considered a "soft inquiry," according to the BCS Alliance. Soft inquiries do not count against you, because they are initiated for a reason other than a need for credit. On the flip side, "hard inquiries" hurt your score and occur when you apply for a loan or a creditable account, such as a utility.

Benefits

Pulling your report may not benefit your FICO score calculation, but it does make you a more responsible borrower. Just the act of looking at your report is associated with higher scores and better financial literacy, according to the Consumer Federation of America. Without checking your score, you may not know of accounts that are in default or errors on your report, such as a collections account belonging to someone else.

Considerations

Lenders cannot see how many times you pull your report or know the number of other soft inquiries. Therefore, you do not have to worry that checking your report may make you appear concerned about your credit. Should you apply for credit or have a hard inquiry, this likely has almost no noticeable effect on your credit; a single inquiry counts for no more than five points. Only a lot of inquiries will start to affect your score.

Tip

Credit monitoring services do not hurt your credit score, even if your report is pulled by a third party. When you pull your report through a credit monitoring service, your action still shows up as a personal inquiry, according to Experian. Do not just assume, however, that a check counts as a soft pull. Ask the creditor or service provider how an inquiry shows up on your report.

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What Is the Penalty for Walking Away From a Mortgage?

Walking away from your mortgage usually results in a voluntary foreclosure, with the lender taking possession of the home and eventually selling it. It is not illegal to walk away, but the penalties can be numerous, sometimes causing devastating consequences that can last for years.

Judgments

The bank will eventually foreclose on your home after you stop paying the mortgage. The house will eventually be sold at auction to the highest bidder, according to Consumer Credit Counseling Services, or CCCS, of Roanoke, Va. The bank will apply the proceeds to the mortgage balance.

If the sale amount is not enough to cover the balance, the bank could sue you for the difference and win what is called a deficiency judgment. Thus, you could end up walking away from the mortgage but still be forced to pay a portion of the balance.

Taxes

Walking away could also cause tax problems if the mortgage is for a vacation home or secondary residence. In those instances, the entire amount you default on--the mortgage balance before foreclosure--could be treated as income by the Internal Revenue Service, adding to your tax bill.

However, most consumers facing foreclosure will be protected by the Mortgage Debt Relief Act of 2007. According to the IRS, the act usually allows taxpayers to exclude income from the discharge of debt on a principal residence.

Credit

You credit scores are likely to plummet after the foreclosure, which can remain on your credit reports for up to seven years, according to CCCS. A foreclosure can also make it difficult to purchase another home. The Federal Housing Administration, which insures home loans, will not consider applicants who have gone through foreclosure until at least three years have passed. In 2008, FHA-backed loans totaled $429 billion, according to The Wall Street Journal--nearly a quarter of all loans in existence.

Stress

Walking away could also create an emotional burden. You could develop additional stress as you struggled with finding somewhere else to stay, and as you dealt with the embarrassment of possibly having to leave your neighbors and community behind. There's also the stress of fearing more legal and financial burdens as the bank auctions off the house.

Prevention/Solution

You might be able to walk away from your mortgage without incurring penalties. One alternative to foreclosure is called a deed in lieu of foreclosure. It allows you to walk away voluntarily with the lender agreeing not to initiate foreclosure proceedings, and to cancel any that are already under way. The lender also can agree to to forgive any deficiency balance resulting from the sale of the property. Under that scenario, your credit reports would not reflect a foreclosure and you would not face any tax liabilities, allowing you to get a jump-start on repairing your credit and buying a new house.

The FHA and others recommend a deed in lieu of foreclosure as a viable alternative to simply walking away.

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Guide to the Credit Bureaus

Credit bureaus are companies that collect information about the lending history of individuals and small business. These credit bureaus process this information and issue a number rating for each consumer that has taken out some form of credit. This number, known as a credit score, is a calculation by the bureaus of the likelihood that a person will pay back a loan. The higher the score a person receives, the more faith a bureau has that the person will pay back the loan.

Purpose

The main purpose of credit bureaus is to offer an impartial rating of an individual's creditworthiness to lenders and other people considering offering the individual some form of credit. Lenders can use this rating to determine how risky a bet an individual is in regards to borrowing money, and can set interest rates according; generally, to secure credit, people with lower credit scores have to pay higher interest rates on the principal of a loan.

Business Model

Credit bureaus make money by charging lenders and other businesses to access these credit scores. Companies will either pay annual subscription rates to view credit scores or purchase these reports individually. Some bureaus also charge consumers for services related to these reports. Credit scores are not public information, although an individual has the right to check his own score once a year, free of charge. By law, companies must have a legitimate business interest in checking a person's credit scores.

The Big Three

The three largest credit bureaus---known colloquially as The Big Three---are TransUnion, Equifax, and Experian. All perform essential the same task, but do so in different ways. An individual usually has three different credit scores---one for each company---as each company uses it own methods of gathering lending information and scoring it. However, while each company may score a single individually different, these scores are often closely related.

Credit Rating Agencies

Whereas credit bureaus provide measurements of the creditworthiness of individuals and some small businesses, credit rating agencies measure the creditworthiness of large companies, particularly those that issue bonds. The factors used to determine the credit rating of these companies, such as income and credit history, is much the same. However, instead of issuing ratings in the form of a number, credit rating agencies issue scores in the form of letter grades.

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How to Reference Credit History

Credit history documents a business or individual's paid and unpaid debts over a certain amount of time and may list information pertaining to credit cards, mortgages, car loans, and medical billing. This official information is used by lenders to assess the likelihood that a person will pay bills in a timely manner. Credit score is also a key factor in credit-history information. The score, typically ranging from 300-900, is calculated using a mathematical algorithm that takes into account if bills are paid on time, the amount of money owed, length of credit history, and type of credit that is being used.

Instructions

1

Visit AnnualCreditReport.com to obtain a free copy of your credit history so you can properly reference your credit information. Select your state and fill out all requested information including your name, birth date, and social security number. Choose which credit bureau you would like to run the report. Verify that the information included on the credit-bureau file is correct and answer the security questions. Submit the order and wait for the credit history to populate.

2

Review your credit history including potential negative items and accounts in good standing. Make sure all of the information included in the report is accurate. You will see a list your current creditors, how much is owed on each account, monthly payments, and any past-due reports.

3

Print a copy of your credit report so you can easily reference your credit history when speaking with potential lenders. Refer to specific points in your history by revealing the creditor's name and if the account has been paid in a timely fashion. Explain any blips on the credit history because of financial hardship such as loss of job or medical issues.

4

Obtain similar reports from the other two credit-reporting agencies as you are allowed one free report from each per year. Each agency collects slightly different information, and data can be correct from one agency and incorrect from another. Use the online tool to point out errors and have them corrected.

5

Consider purchasing your credit score once you have reviewed your credit history. Often when referencing credit, it helps to provide your personal credit score which gives an immediate number value to your credit worthiness.

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Does it Hurt Your Credit to Apply for a Credit Card?

Your three-digit FICO score is key to obtaining a credit card at the best possible rate, but the act of applying for one can hurt your score. Fortunately, the bruising from a credit card application is slight as long as it does not look like you are trying to prepare for a financial meltdown.

Identification

Applying for credit hurts a credit score by one to five points, according to the website Bankrate. A credit card application does not qualify as rate shopping. The credit rating agencies count the inquiries for most loans -- such as education, auto and mortgages -- that occur within a short period as a single inquiry, because these types of credit are traditionally associated with several applications to get the best rate.

Potential for Harm

If you have too many hard inquiries on your credit report, the damage from an inquiry increases exponentially. A hard inquiry occurs when a credit checks your file because you have applied for credit. Consumers with an excessive number of hard inquiries -- usually six or more -- have an eight times greater chance of declaring bankruptcy, according to the Fair Isaac Corp. Inquiries stay on a report for 24 months, but the FICO model only factors them into credit scores during the first 12 months.

Pre-Approved Offers

Credit card offers do not hurt your credit score if you do not apply for one. Promotional offers, also called "pre-approved credit cards," are a common loan that comes with a "soft inquiry." Lenders cannot see how many soft inquiries you have, but once you accept a promotional offer it will count as a hard inquiry.

Tip

Try to apply for a credit card when you are not looking for other loans. Good borrowers usually have no more than one hard inquiry every six to 12 months. If you want to avoid losing any points on your credit report, you could get a credit card without ever putting in an application by finding someone willing to put you down as a joint account holder.

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How to Raise Your Credit Score While Keeping an Eye on Your Credit

When you undertake credit repair on your own, monitoring the changes in your credit helps you to see the effect your efforts are having on your credit score. Credit scores are affected by many different aspects of your credit accounts and overall debt. Your credit is also affected by on-time payments and collection accounts listed on your credit report.

Instructions

1

Sign up for a credit monitoring service. All three major credit reporting agencies offer credit monitoring services, as does MyFICO and a number of third party companies. Credit monitoring services vary in price and the specific services offered. Generally, the monitoring service allows you to update your credit report at a set interval of time. Any changes detected on your report are sent to your email.

2

Pay down your credit card balances. The updated credit card balances will not be displayed immediately on your credit monitor. Credit card companies report balances at specific times of the month. Reducing your overall credit card utilization has a major effect on your credit score.

3

Search your credit report for negative accounts, such as collection accounts. Contact the collection companies for the open collection accounts. Confirm where the debt is from and ask the company which options you have to settle the debt. Open collection accounts negatively impact your credit

4

Check your credit report one to two months after completing major credit repair efforts to see if the changes are reflected. Some credit monitoring services offer their own versions of your credit score, and you can also use the monitoring service offered by FICO to keep track of your reports and scores at the same time.

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Steps to Rebuild Credit

Many people have to contend with falling credit scores due to a bankruptcy, foreclosure, job loss or other major event. When credit scores fall, people have to pay more to borrow money and in some instances people become ineligible to borrow at all. Additionally, insurance premiums are higher for people with low credit scores, which means it costs more to get health coverage or to protect your property. There are several things people with low scores can do to improve their credit rating.

Check Your Credit Report

The major credit bureaus rely on creditors to provide information about the credit practices of individual consumers. Generally records are accurate but on occasion a creditor or credit bureau can make a mistake that could cause someone's credit score to decrease. People with bad credit often do not check their credit reports because they know they have charged-off debts. However, alongside legitimate debts there are sometimes balances being reported as owed that are incorrect. People have a legal right to a free annual free credit report from each major bureau and checking it can often expose errors that are impacting credit scores.

Settling Debts

Creditors can report charged-off or delinquent debts to the credit bureaus and these late payments and abandoned accounts remain on record for seven years. However, settling a debt can improve your score. The occurrence of the late pay remains on the report but reported debts that have been paid do not damage scores as much as reported debts that are outstanding. Major debts such as mortgages are hard to payoff but settling minor debts such as hospital co-pays or unpaid taxes can help improve a credit score.

Pay Bills On Time

Credit reports examine the payment habits of people and someone with a charged-off debt or foreclosure can slowly rebuild their score by paying their other bills on time. A timely credit card payment does not offset a car repossession but it can show that an individual has got their finances back on track. Applying for a secured credit card or cash secured loan also helps to rebuild credit. Secured loans are reported to credit bureaus in the same way as unsecured loans and these are often the only forms of credit open to people with low credit scores.

Do Not Close Accounts

Some people believe that reducing their credit helps their score. Many people pay off credit cards and then close the cards thinking that they have helped to raise their score. In fact, credit scores are partly based on an individual's average length of account history. Closing a card reduces the average account length and lowers the score. Closing a card with no balance also raises the overall debt utilization so keeping open zero balance credit lines helps rather than hinders people trying to rebuild their credit.

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Does It Affect Credit Scores to Withdraw a CD Early?

A certificate of deposit, or CD, is a deposit account in a bank or other financial institution. The CD has a specific interest rate, dollar amount and redemption period that determines long the money must remain in the account to avoid a penalty for early withdrawal. If you withdraw funds from the account early, it's a good idea to understand if this will affect your credit score.

Significance

According to myFICO, a FICO credit score is a numerical representation of your credit history based upon the credit information from Equifax, Experian and TransUnion. The lowest score is 300 and the highest is 850. Credit scores are not static but change based upon the changes that occur within your credit report. The score looks at your payment history, amount of debt, length of credit history, mix of credit types on your report and the amount of new credit inquiries on the report.

Considerations

A FICO credit score is a reflection of your usage of credit. A certificate of deposit is not a credit-based item. The bank does not extend credit when opening a certificate of deposit. It is a form of savings account and therefore, it is not considered as part of your FICO credit score. If you withdraw a certificate of deposit early, you may have to pay a penalty for that withdrawal, but the bank will not report the information to Equifax, Experian or TransUnion.

ChexSystems

Banks use a different credit reporting agency when it comes to bank accounts. Consumers who mishandle checking accounts or other bank accounts are reported to ChexSystems. The bureau maintains a database of bank accounts closed because of bounced checks, unpaid negative balances and other negative occurrences. It is not affiliated with Equifax, Experian or TransUnion. ChexSystems issues its own consumer credit score to financial institutions that ranges from 100 to 899. The higher the score, the lower the risk. The early withdrawal of a certificate of deposit is not considered a mishandled account by the bank and isn't reported to ChexSystems.

Your Rights

If you want to check your banking credit score from ChexSystems whether you have or have not withdrawn a CD early, you have the right under the Fair Credit Reporting Act to request it. ChexSystems only accepts such requests by mail. Print out the Score Order Form from its website, fill it out and include the applicable fee. You can request a free credit report from ChexSystems, but you must pay for the credit score. Once it receives your request, ChexSystems will mail the score to you within five business days.

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Defining Credit Scores

Credit scores are calculated using information from your credit report to determine how much of a risk you pose to potential lenders. The five categories used to calculate your credit score are your payment history, the amount of debt you carry and how much credit is available to you, the length of your credit history, how many recent credit applications you have submitted and the types of credit you use.

Payment History

Payment history accounts for 35 percent of your credit score. This category looks at whether you have paid your bills on time, missed payments and defaulted on any loans.

Debt Levels

Your level of debt counts for 30 percent of your credit score and factors in how much you owe as well as how much credit you have available to use.

Length of Credit History

The amount of time you have had credit accounts for 15 percent of your score. The longer you have used your credit well, the more trustworthy you appear to lenders.

Applications for New Credit

The number of applications for new credit counts for 10 percent of your score. This includes applications for credit cards, auto loans and home mortgages.

Types of Credit Used

The variety of credit types that you use counts for 10 percent of your score. Individuals who have had experiences with multiple types of credit are seen as less risky than people who have used only one type of credit.

Advantages of a Higher Score

A higher score will make you more likely to be approved for new credit, such as a mortgage or credit card. A score of 720 or higher is usually good enough to qualify for the best interest rates.

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Credit Reporting Agencies in the United States

Credit reporting agencies, also known as credit bureaus, are companies that keep records on how well individuals pay their bills. Companies who lend money will check the credit reports of individuals who apply for loans so lenders can determine how creditworthy the applicant is. If a person has a history of not paying back money, the company will see that on the credit report and be protected against making a loan to that person. There are three major credit bureaus--Equifax, TransUnion and Experian--in the United States that are used by consumers and lenders. A fourth, CBCInnovis, works mostly with business transactions rather than individual consumers.

Equifax

Equifax is the oldest of the major credit bureaus in the United States, having been opened in 1899 in Georgia. It was originally named the Retail Credit Company and wasn't known as Equifax until 1975. Equifax works with individuals and companies and provides credit information to help lenders manage default risks. In the United States, Equifax is the biggest credit bureau. It has more than 7,000 employees in the Americas and Europe.

TransUnion

The Union Tank Car Co. founded TransUnion in 1969 when it bought the Credit Bureau of Cook County. It was the first of many acquisitions that helped TransUnion develop a nationwide network of credit reporting bureaus so the company could give accurate reports on the credit risks posed by individuals across the country. By 1988, TransUnion had achieved its goal of nationwide coverage. In 2009, the company had expanded to more than 20 countries.

Experian

Experian was the only one of the three main bureaus that was not founded in the United States. The company opened in Nottingham, England, in 1980 and moved across the Atlantic in 1996 when it bought TRW Information Systems. The company is active in almost 40 countries as of 2009.

CBCInnovis

A fourth national credit bureau is CBCInnovis. CBCInnovis was founded in 1948 as the Credit Bureau of Columbus. This credit bureau focuses on government, business and other nonprofit sectors. CBCInnovis provides a variety of credit reports, including business credit reports, employment credit reports and property management history reports.

Credit Report Agencies Responsibilities

Credit bureaus have come under increasing government regulations that restrict who they can give credit reports to and the rights of consumers. Credit bureaus can only release your credit report to companies with a legitimate business interest, such as a bank you've applied for a loan at or an employer who is considering hiring you. Credit bureaus must also provide you with a free credit report, but not a free credit score, once per year, if you request it.

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How Long Does a Closed Account Remain on a Credit Report?

Closed credit accounts may be forgotten by their former owners once the bill is paid in full, but they are not forgotten by the credit bureaus. Credit cards, loans and other account types show up on credit reports for many years. The exact time frame depends on whether they were paid on time or closed under negative circumstances.

Definition

A credit report is a document compiled by the three dominant credit reporting agencies, according to the Federal Reserve Bank of San Francisco. TransUnion, Equifax and Experian all gather demographic and financial records on consumers and sell the information to lenders, insurance companies and others who need to assess risk before doing business with a person or making a hiring decision. Different types of information stay on credit reports for different time frames.

Time Frame

Closed accounts that were paid as agreed stay on a credit report for up to 10 years, according to the Equifax credit bureau. Accounts that were paid late, charged off or sent to a collection agency remain for seven years from the last activity date, which Equifax explains is the day the account first became delinquent.

Types

Closed accounts are not the only credit report entries that may disappear after a set time frame. Equifax explains that court judgments on unpaid credit accounts stay for seven years, whether or not they are ever paid off. Bankruptcies remain for 10 years. Tax liens remain forever unless they are paid. Satisfied tax liens drop off in seven years. California and New York have their own guidelines for reporting periods, so residents of those states will have certain negative items drop off their reports more quickly. Closed accounts in good standing still remain for 10 years.

Benefits

The reporting system is beneficial because it erases negative items more quickly than positive ones. The negative accounts lose their influence when they drop off a credit report. The good items are helpful, although they loose their impact over time because creditors look most closely at recent transactions. Delinquencies and other negative items within the past year or two offset good records several years in the past.

Considerations

Closing accounts can hurt a credit score because FICO looks favorably on long-term credit. Consumer radio show host Clark Howard recommends keeping credit cards open and using them only twice a year instead of closing them and letting them eventually get erased from credit reports. Buy something small and pay it off within a month or two so the reports reflect current positive activity.

The Federal Trade Commission advises consumers to consider other avenues before filing bankruptcy because it stays on credit reports for so long. People who create tight budgets and get their accounts back on track have clean records within seven years, while bankruptcies haunt them for a decade.

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