If I Finance a Car Using a Co-Signer, Will My Credit Score Go Down?

Your credit score, also known as your FICO score, is one method that a creditor may use to determine how much risk is involved in lending money to you. Your score can fluctuate over time because of a number of factors. Using a co-signer to qualify for financing will not affect your score. It will, however, influence the co-signer's score.

Determining Your Credit Score

Credit scores are determined by factors including your payment history, the amount of debt you have and how long your accounts have been open. Each of the three major credit bureaus may have a different score for you, depending on what information is included in your credit reports with them.

Why You May Need a Co-Signer

If your credit is less than perfect or you have a short credit history, you may need a co-signer on your car loan application to get financing. Co-signers generally need to have good credit. They are responsible for repaying the loan if you don't.

Co-Signing and the Effects on Credit

Whenever you open a new credit account, it reduces your credit score because it increases your potential debt burden. If you have a co-signer for your loan, that loan will also appear on his credit report and affect his credit score, because it will be considered part of his overall debt as well. If you make late payments or default on the loan, your co-signer's credit will be damaged.

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Does a Credit Card in a Husband's Name Affect the Wife's Credit?

Marriage often has a huge impact on both spouse's credit ratings, despite the fact that the credit bureaus do not track the marital status of individuals. This happens because couples often join their financial accounts. However, keeping accounts separate can still affect both spouses in some states.

Joint Accounts

A credit card in your husband's name can affect your credit if you co-sign on the account. When you merge accounts, you take on the credit history of that account. This might improve your credit history, or if your husband misses payments in the future, damage it. You might also become an authorized user---an account holder with no liability to repay the debt. Authorized users receive the same payment history on the account as the primary borrower.

Community Property

Some states, such as Arizona, have community property laws. In a community property state, both spouses have liability to pay debts accrued during marriage regardless of which name appears on an account. Thus, a lender can pursue you and your husband in court for a civil judgment, which would negatively impact your credit score.

Considerations

Your husband's accounts can appear on your credit history long after you divorce because of errors with the credit reporting bureaus. Sometimes, the bureaus mix up files, especially when two people share the same address, last name or have similar Social Security numbers. Although you can dispute the accounts with the bureaus, you may need the cooperation of your husband to prove the error to expedite the dispute process.

Tip

Ideally, you and your husband should keep separate accounts through marriage so you can determine whom owes what bills in case of a divorce. If a credit card account erroneously appears on your credit history, you should meet the minimum payment first and then dispute the account. You have a liability to pay a debt as long as your name appears on an account, even if a judge orders your husband to pay. If your husband fails to a pay a debt given to him by the court, you have to go back to the judge to force payment on it.

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Credit Scores Explained

A good credit score is an essential financial resource in today's world. Your credit score can determine if you can finance a car, obtain a mortgage or open a credit card account. Banks check your credit score before opening a checking account. Many employers take credit scores into consideration when making hiring decisions.

Definition

Your credit score is a number that summarizes the contents of your credit report. Lenders rely on credit scores to quickly assess the risk a person presents as a borrower. Although there are several credit scoring systems, the FICO credit score is by far the most common. FICO stands for Fair Isaac & Co., the firm that markets the scoring system. The lowest FICO score is 300 and a score of 850 is perfect.

Components

Paying bills on time is the most important factor affecting your credit score. While a lender may not report an occasional delinquency of a few days, even one payment that is 30 days late can seriously reduce your credit score. Next in importance is your total debt load compared to your income. The composition of your debt obligations also matters. Excessive unsecured debt lowers your score. Constantly applying for new credit or closing old accounts also has a negative effect. An occasional change in your credit accounts is normal. What looks bad is making frequent changes. Finally, time makes a difference. The longer your credit history, the more effective it is as a predictor of your future handling of credit. A long record of responsible use of credit raises your credit score.

Good Scores

The average FICO credit score in the United States is around 720, according to CreditScoring.com. A score above 700 is considered a good score. FICO scores in the high 700s get the best interest rates from lenders. A score of 620 to 690 is regarded as acceptable by most lenders. However, you do present more risk with a credit score in this range and lenders usually charge higher interest to compensate. A score of less than 620 is referred to as subprime, or poor. Many lenders won't extend credit to a person with a subprime FICO score. Those who do loan money to subprime borrowers charge even higher interest rates.

Protect Your Credit Score

Your credit report determines your credit score. If the information on your report is incorrect, it can lower your score. Under the Fair Credit Reporting Act, you can order a free copy of your credit report from each major credit bureau once a year through the Federal Trade Commission's authorized provider, AnnualCreditReports.com. You also have the right to dispute any errors you find by going to the credit bureau's website or writing a letter. Once the credit bureau corrects the information on your credit report, your credit score will quickly reflect the change.

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How to Establish an Excellent Credit Rating

Having an excellent credit rating comes with a range of benefits. People with strong credit ratings have an easier time getting a loan, buying a car or getting a mortgage. Bad credit can haunt consumers for seven years or more, according to the Federal Trade Commission. Therefore, the financial decision you make today can impact your credit rating for years to come. Make smart choices to establish an excellent credit rating.

Instructions

1

Pay your bills on time. Creditors look at whether you pay your bills--and pay them on time. Stay on top of your bills and make sure each payment processes on or before the bill's due date. Create a spreadsheet or calendar that lists each bill's due date. You can even use an online calendar to send yourself email reminders to pay your bills.

2

Manage your credit cards. Keep track of your spending, and don't run your credit card up to your limit. The Federal Trade Commission recommends carefully reviewing your credit card statement every month to make sure that double charges or incorrect charges are not on the bill. Do not charge more on your credit card than you can afford to pay off that month. A growing credit card balance can negatively impact your credit rating.

3

Limit the number of credit cards you have. The Federal Reserve System reports that some creditors look at the number and types of credit card amounts you have. Having too many credit cards can hurt your credit rating. Instead, keep a balance of installment loans and credit cards, which can improve your score, according to the Federal Reserve.

4

Reduce your debt. Creditors consider the amount of outstanding debt you have when determining your credit rating. Although some debt, like school loans, are inevitable and even worthwhile, work to pay down your debt every month. Avoid "bad debt" like credit cards.

5

Keep your identity safe. Identity theft can harm your credit rating because thieves can create fraudulent accounts using your personal information. The Federal Trade Commission suggests using passwords to protect your accounts, leaving identifying information like Social Security cards at home and guarding personal information.

6

Check your credit rating every year. The three major credit reporting agencies, Equifax, Experian and TransUnion, must provide a free copy of your credit rating once a year. Check it to make sure all of the activities reported on it are correct.

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Does Closing a Checking Account Lower Credit?

When you establish a checking account, you are loaning your deposit money to the financial institution that houses the account. Since your are not the recipient of credit in a checking account relationship, credit reporting agencies do not keep records of the account or the fact that you closed it. However, if a financial institution closes your account when the account has a negative balance, it may impact your credit score.

Credit Scores

Credit scores are a record of your credit history. The different types of credit you borrow, your payment habits and levels of debt are all factored into your credit scores. Timely payments and low levels of credit utilization improve your score whilst frequent credit inquiries and late payments lower your score. Other important credit score factors are the average length of credit history and delinquent accounts. Nonredit debts such as tax liens and charged-off checking accounts are often reported to credit bureaus and these events negatively impact your credit score.

Closing A Checking Account

When you choose to close a checking account with a positive balance, the financial institution disburses money held in the account to you. If you overdraw your account, your financial institution normally close it if it remains negative for more than 60 days. Having closed the account, the financial institution charges it off as an unpaid debt and gives your information to either an internal collections unit or an external collection agency. Generally, these collection agencies either report charged-off debts to the credit bureaus or to ChexSystems.

ChexSystems

Chexsystems Inc. provides information to banks about individuals attempting to open new accounts. ChexSystems receives consumer reports from banks that detail charged-off accounts, fraud activity and other instances of account abuse. ChexSystems creates files detailing the account history of individuals and sells this information to other banks. Banks can choose to use information provided by ChexSystems as a reason for refusing to open a bank account for a new customer. ChexSystems reports are a type of consumer report regulated under the terms of the Fair Credit Reporting Act but ChexSystems does not provide consumer credit reports.

Other Considerations

When you decide to close a checking account, you end your account history with that particular institution and while that does not hurt your credit score, it can make it more difficult for you to obtain a loan from that institution. Many banks provide preferential rates on home loans, car loans and other credit products to consumers who already have established checking accounts with the bank. Most lenders require all borrowers to have a checking account somewhere before writing a loan. Keeping a checking account open can therefore make borrowing cheaper and easier.

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FICO Score Advice

A FICO score is a three-digit number that informs lenders of the risk associated with giving credit to a specific individual. The three consumer reporting bureaus -- Equifax, Experian and TransUnion -- use the Fair Isaac Company's credit scoring software to calculate FICO scores, which they call BEACON Scores, Experian Risk Models or EMPIRICA Scores. These scores run on a scale from 300 to 850, with 300 representing terrible credit and 850 representing perfect credit. You can maintain a good FICO score by following a few guidelines.

Never Miss a Payment

Missed credit card, mortgage or loan payments will cause your FICO score to plummet, sometimes by as much as 100 points, according to an article from Dayana Yochim, a columnist for The Motley Fool, a consumer finance website. In addition to the short-term impact, late or missed payment information will stay on your credit report -- the file from which Fair Isaac's software calculates FICO scores -- for seven years. However, if you're a few days late, don't worry: a lender will not usually report late payment information to the consumer reporting bureaus until your bill is at least 30 days past due.

Keep Your Credit Cards Open

Quit using your credit cards to stay out of debt and reduce the temptation to spend more than you can afford. However, canceling your credit cards lowers your FICO score, says a 2008 article from Leslie McFadden, a columnist for the personal money management website Bankrate. This is because Fair Isaac's algorithm takes into account the total amount of credit you have on file. Closing your cards lowers this amount. Also, closing one of your oldest cards will shorten your credit history, causing your FICO score to drop.

Don't Max Out Your Cards

Fair Isaac's algorithm considers a factor called "amounts owed," which compares the debt you owe to how much available credit you have. Amounts owed accounts for 30 percent of your FICO score, according to Fair Isaac. Maxing out -- or spending more than 35 percent of your card's credit limit -- will cause your FICO score to drop. If you must carry a balance, spread it out to several of your credit cards, which will keep your FICO score from dropping.

Avoid Foreclosure and Bankruptcy

Fair Isaac's FICO-scoring algorithm also takes financial crises such as foreclosure and bankruptcy into account. Declaring bankruptcy will drop your FICO score by 160 to 220 points, while allowing your home to go into foreclosure can lower your score by a comparably large amount. In addition to foreclosure and bankruptcy, short-selling your home or completing a deed-in-lieu transaction with your bank will have an equally deleterious effect on your FICO score.

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Will Financing a TV Help Build Credit at All?

Financing a big-ticket item such as a television might seem like an easy way to build your credit, but it could destroy your credit rating instead. Also, financing is the most expensive way to purchase a depreciating good such as a TV. You could build some credit through financing a TV, but this is usually one of the worst ways to go about it.

In-store Financing Could Hurt You

If you want to finance a TV through in-store financing, just applying for credit with the retailer will hurt your credit score, because inquiries into your score due to an application you fill out hurt your score about five points, according to CreditNet. Credit inquiries affect your credit score for 12 months and stay on your report for two years.

Effects

When you opt for in-store financing, the retailer almost always opens a new credit card account. If you have never had a credit card, this starts your credit history, but on a bad note. Retail credit cards usually have the most lenient credit requirements but also very low limits. In the most likely scenario, the store will open a card for the exact amount of the TV and charge it immediately. This will lower your score because it maxes out your only credit card. The FICO score weighs how much of your credit to debt you use heavily. If you max out your card, you will have the highest credit utilization ratio possible: 100 percent.

Other Considerations

If you have other credit accounts, opening a new card will lower the average length of your credit history, which counts for 15 percent of your score, according to BNet. Even if you plan to pay off your purchases within the month, you might feel tempted to let the balance roll over, or some hardship might force you to hold off on payment. The longer you have a maxed-out credit limit, the more future lenders will consider you a high risk.

Alternative to Financing

Instead of financing a TV outright to build your credit history, put it on layaway and take out a secured card or get a retail card, but do not put the TV on it. Layaway won't affect your credit, but you will make payments every week until you pay it off. If you decide against the purchase you can always get a refund. You can apply for the retail card to start building credit, but only put small purchases on it and pay off the balance every month. You could also go for a secured credit card, which requires you to match the credit limit with collateral.

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Do Pre-Approved Offers Negatively Affect Your Credit Score?

Banks attempt to attract new customers through pre-approved credit card offers. These letters and phone calls advertise attractively low rates and generous rewards for a select few, yet people question how the bank found them in the first place. To find applicants, the credit bureau screens consumer reports for suitable names; many consumers believe there is a detrimental effect on their credit scores for such searches. But the truth is pre-approved credit offers do not dent your credit score; still, free remedies exist for those who would like to stop receiving pre-screened card applications.

What's a Pre-Approved Credit Card Offer?

In order to drum up business, credit card companies will often send out letters to eligible people that invite them to apply for a particular card or line of credit. Since the company only sends these letters to people who fit a set list of criteria, it's easier, and faster, to get a new credit card. If a person chooses not to accept the credit card offer, that's OK, too; she can simply destroy the mailer and go on with business as usual.

Screening Methods

The pre-screening process begins when the issuing bank purchases a mailing list from one of the big three credit reporting bureaus. The bureaus--Equifax, TransUnion and Experian--compile these lists according to specific criteria, including income level and credit score. After getting the information, the bank then creates a special offer to entice the customer into signing up for a card. If the list at hand is for 700-plus FICO score holders, the bank may offer a platinum card with a 0 percent interest rate for 18 months and double reward points. However, another list of bankruptcy filers holding a score below 525 might get a letter about rebuilding credit using a 10 percent APR credit card.

How Pre-Approved Offers Affect Credit

The pre-approved offer doesn't change the credit score at all. What happens is that the credit bureau reports the bank inquiry as a "promotional" hit. According to the Card Report, a consumer credit information website, "Since this type of inquiry was not initiated by [the consumer], it is not seen by other prospective creditors to whom you might apply and will not reduce your FICO credit score." Like any other credit card application, however, the bank requests what's known as a "hard pull" if a person actually returns the application in order to get the card. At that point, the inquiry shows up on the credit report. Too many of these a short window of time can negatively affect the FICO score.

How to Stop Pre-Approved Offers

If swamped with pre-approved credit card offers, the credit bureaus allow consumers to opt out of the mailing list system. Call (888) 5-OPTOUT to withdraw from all three bureaus at once, or write a letter to each separate credit bureau. The Fair Credit Reporting Act (FCRA) allows people to guard all personal information from third-party sales, so the bureaus have to act on each request in a timely fashion. If the offers keep coming after several months, contact the state attorney general's office for more help.

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How to Clear a Repo From Your Credit Score

Repossessions on your credit report can significantly lower your credit score. These negative records can remain for up to seven years. The most common repossessions are for automobiles, but other items such as motorcycles, boats, and recreational vehicles can also be repossessed. A repossession occurs whenever the owner defaults on paying the loan on an item and the lien holder chooses to seize the item.

Instructions

1

Negotiate with the lien holder to get your property back. You have 60 days before your property will be put up for sale after it's repossessed, so if you catch up on the loan within that period, you may be able to get your property back and avoid a repossession on your credit report. Ask the lien holder to agree in writing that they won't report your repossession before you pay the balance due.

2

Obtain a copy of your credit report from each of the three credit bureaus: Experian, TransUnion and Equifax. You can call and ask them to mail you a copy or obtain them from the Annual Credit Report website. Confirm that the repossession is listed on a credit report before you try to have it removed.

3

Look for inaccuracies in the information reported regarding the repossession. Items to look for are wrong dates, misreported payments and inaccurate balances. The credit bureaus are required by law to remove invalid listings from your credit report.

4

Dispute the repossession with each of the credit bureaus that lists it. If you found inaccuracies on your credit report, use these as the reasons for your dispute. Even if you don't find inaccuracies, dispute it anyway because if the lien holder doesn't verify the information within 30 days, the credit bureau will automatically remove it. Disputes can be taken over the phone or by completing dispute forms on the credit bureaus' websites.

5

Wait 30 days for your results. You'll be notified by mail if your repossession will be removed or if the information was verified.

6

Hire an attorney to represent you. There are lots of loopholes in the legal system that the average person isn't aware of. For example, an attorney may be able to point out problems with the loan, such misfiled or unsigned paperwork, or loan terms in violation of the law. In these types of cases, you may be able to take legal action to have the issues resolved.

7

Wait seven years for the repossession to drop off your credit report. If all else fails, you'll have to wait for the seven-year statute of limitations to expire on your repossession before it will be removed from your report.

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Does Looking Up Your Credit Score Hurt Your Credit?

Knowing what your credit report contains is an important part of maintaining your credit. You may have heard that too many credit inquiries lowers your credit score. This is true. However, you are able to pull your credit report without being penalized.

Soft Inquiries

Credit bureaus do not treat all inquiries the same. If you obtain a copy of your credit report, it is classified as a soft inquiry. Soft inquiries do not affect your score.

Hard Inquiries

A hard inquiry will bring down your credit score. Whenever you apply for credit, it will be reported by the bureau as a hard inquiry. Too many hard inquiries can be a red flag to potential lenders. A lender does not want to see a borrower who is trying to open numerous lines of credit.

Monitoring Your Report

Under the Fair Credit Reporting Act, you are entitled to a free copy of your credit report from Experian, Equifax and Trans Union each year. To get your copies, visit annualcreditreport.com. While credit reports are free, you will need to pay a fee if you want to obtain your credit score.

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How Does Cashing Your 401k Affect Your Credit Score?

Your credit score is widely used by banks and financial institutions to determine whether to issue you credit. Insurers, landlords and even cell phone companies may also require it before approving your application.

401k Facts

Your 401k plan is a retirement savings plan that you contribute to through your employer. Many people take advantage of the tax benefits from the Internal Revenue Service and employer matching contributions that some companies offer.

Function

Cashing out your 401k plan does not affect your credit score because your 401k is not a credit account like a credit card or mortgage.

Considerations

Even though the 401k cash-out does not directly impact your credit score, you may be able to improve your credit score depending on how you spend the money you take out.

Benefits

If you pay off old debts or reduce existing balances with the money you have taken out of your 401k account, your credit score may increase because you have improved your standing on your credit accounts.

Warning

If you withdraw money from your 401k account before you reach age 59 1/2 (if you are at least 55 when you have left your employer), you will owe a 10 percent early withdrawal penalty in addition to income taxes.

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Do it Yourself Credit Repair and Credit Restoration

Credit repair firms run banner ads promising to repair and restore tarnished credit for a price. They don't tell you that the Fair Credit Reporting Act (FCRA) lets you do the same thing yourself for free. You can't get rid of accurate negative information until the end of the legal reporting period, which is usually seven years. The Federal Trade Commission (FTC) states you can still repair your record by finding and eliminating harmful inaccuracies through the legal dispute process.

Instructions

1

Place an order for your TransUnion, Equifax and Experian credit reports through the phone number or form on annualcreditreport.com. The FTC warns against going through other websites that advertise free credit reports because they require purchases. Annualcreditreport.com is free--with no catches--and allows you to get a report from all three credit bureaus once every 12 months.

2

Read through the three reports and make a list of every questionable item. Credit Infocenter, a credit repair website, advises looking for minor mistakes like misspellings, inaccurate dates and amounts. You can challenge any inaccuracy on a negative entry, no matter how small.

3

Mail a letter to each individual credit bureau with a list of mistakes and demand an investigation within 30 days. Use the dispute addresses listed on each bureau's website. The FCRA states any items you challenge must be removed from your report if the creditors don't validate them. Many do not bother, so your dispute letters can significantly repair your credit.

4

Send a letter to creditors who validate items you believe are still incorrect, suggests Credit Infocenter. Ask for proof of accuracy, and demand that the creditors stop reporting the information to the credit bureaus if they cannot provide proof. The disputed item will drop off your records if it is not reported.

5

Review one credit report every four months to continually check for and repair new mistakes. Each bureau must give you one free report a year through annualcreditreport.com. You can monitor your records continually by spacing out your requests for copies.

6

Pay all your credit cards, loans and other bills on time. This continually restores your credit because prompt pays weigh heavily in your credit score. FICO, the biggest credit score company, explains that restoring a positive payment history is one of the best ways to improve your records.

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How to Unfreeze My Credit Report

A credit freeze locks up your credit, preventing criminals from opening new credit accounts in your name. Once you place the credit freeze, only existing lenders can access your credit. This means you cant get new credit without unfreezing your credit. There are two options for unfreezing your credit, a permanent unfreeze and a temporary unfreeze. A permanent unfreeze will lift your freeze for good. However, a temporary unfreeze will lift the freeze for the amount of time you specify. For example, you may lift the credit freeze for 24 hours. After this time, your credit report will freeze again.

Instructions

1

Request a temporary credit unfreeze. When a consumer freezes his credit, the reporting agency assigns a personal identification number. Unfreeze your credit report by contacting each reporting agency (TransUnion, Equifax and Experian) and providing the PIN. Each credit bureau will have assigned you a different PIN.

2

Request a permanent unfreeze. If you decide to unfreeze your credit permanently, youll need the same PIN as a temporary unfreeze. Contact all three credit bureaus and request an unfreeze. Each bureau will also send you confirmation in writing.

3

Review your credit report. Unfreezing your credit, even for a day, leaves your information unprotected. Safeguard yourself against additional crimes by reviewing your credit report after unfreezing your credit. Order a free credit report though Annual Credit Report (see Resources). You can also purchase monitoring services, which notify you of new credit opened in your name. Credit monitoring typically costs less than $20 a month, as of 2010. Credit bureaus typically offer this service.

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What Are the Three Credit Score Agencies?

Three consumer credit reporting agencies compile and retain information that makes up your credit report and which factors into your credit score. The Fair Credit Reporting Act requires each of the three agencies to maintain accurate information, protect your privacy and provide a free copy of your credit report at least once every 12 months upon request.

Experian

One of the three credit reporting agencies responsible for calculating your credit score is Experian. You can call, write or visit Experian.com to request a free credit report, place a freeze on your credit file or to report fraud. Experian's toll free number is 888-397-3742. Experian is the only credit reporting agency of the three that uses the same phone number to request a free credit report and to report fraud. You can also visit Experian online or write Experian at its Allen, Texas, address to dispute inaccuracies in your credit file. All three credit reporting agencies have online procedures for disputing incorrect information on your report.

Experian

P.O. Box 9554

Allen, Texas 75013

TransUnion

Lenders also may solicit your credit score at TransUnion. Visit the company online at transunion.com or call them toll free at 800-888-4213 to request your free credit report by phone. If you wish to place a fraud alert or freeze your credit file, contact TransUnion at 800-680-7289. Fraud alerts advise potential lenders that you may be the victim of identity theft. Freezing your credit file stops anyone but existing lenders from perusing your credit information.

TransUnion

P.O. Box 6790

Fullerton, CA 92834

Equifax

A national credit reporting agency also responsible for compiling your credit score is Equifax. Contact equifax.com or call 800-685-1111 to requests a free copy of your Equifax credit report. Aside from the free annual credit report, free credit reports are available to consumers who have been denied credit or insurance coverage due to the information contained in their credit file. Contact Equifax at 877-576-5734 or visit the company online to report fraud or to freeze your credit file. If you prefer to mail in your request for a free credit report to any of the three agencies, visit their website first to determine the correct procedure; printable request forms may be required.

Equifax

P.O. Box 740256

Atlanta, Georgia 30374

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Three Credit Bureaus in the United States

Businesses and lenders use a consumer's credit score when making decisions about lending out money. In the United States, three major companies provide credit information: Equifax, Experian and TransUnion. These companies are for-profit; they are not government entities and receive no funding from the government. Local, independent credit bureaus operate in the U.S., but most are affiliated with one of the three major companies. A fourth credit union--Innovis--exists, but it is not widely used.

Equifax

Equifax is based in Atlanta, Georgia, but it operates officers across the United States, Latin America and Europe. The company was founded in 1899 and is the oldest of the credit bureaus. The business is a credit reporting agency, but it also offers services in fraud detection and marketing. Essentially, the company provides business services to small and large companies.

Experian

Experian also handles matters other than credit reporting. According to Experian's company website, the company helps businesses manage credit and build a credit history. The company also prides itself on being a "leader in credit education." However, Experian is the youngest of the three credit bureaus; it was founded in 1980. The company has headquarters in Texas, but its birthplace is actually in England.

TransUnion

TransUnion began as a railcar holding company. The company was formed in 1968. TransUnion began collecting consumer credit information after acquiring the Credit Bureau of Cook County. Like the other credit agencies, TransUnion provides consumer credit information to businesses.

Innovis

Innovis is a fourth credit bureau, but it operates relatively quietly. According to Bargaineering.com, the company was founded in 1970 and was originally called ACB Services. In 1997, First Data Corporation purchased ACB Services and renamed the company Innovis. Innovis operates like the other credit bureaus but is not widely known. Currently, Innovis is not listed on AnnualCreditReport.com, a website set up by the government to provide consumers with a free credit report from each bureau every year.

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Does Closing Accounts Improve Credit?

After paying off a credit card or another similar account, many people opt to close out the account so that they are not tempted to accumulate more debt. While this is a sound strategy, it does not help your credit score. In fact, quite the opposite may be true, depending on your situation.

Lowering Available Credit

When you close out a credit account, it essentially lowers the amount of available credit that you have to use. While this might sound like a good thing from a practical standpoint, the credit bureaus do not see it that way. Credit bureaus look at the available credit that you have when calculating your credit score. If you do not have any available credit, this reflects negatively on your credit history and your credit score.

Credit Utilization Ratio

To calculate the impact of this transaction, the credit bureaus use a tool known as the credit utilization ratio. This is a ratio that compares the amount of credit you have to the amount of debt. If your credit utilization ratio is too high, this hurts your credit score. For example, if you have two $5,000 credit cards and they are maxed out, your credit ratio is 100 percent. If you pay off one of the cards and leave it open, your credit utilization ratio is 50 percent. If you pay off one card and then cancel the account, your credit utilization ratio is back to 100 percent.

What to Aim For

While having some debt will not necessarily hurt your score, you want to keep it below a certain level so that the credit bureaus look favorably upon your situation. According to Bankrate, you want to keep your credit utilization ratio to somewhere between 30 and 35 percent, if not lower. Once you get your debt up above that threshold, it starts to count against you. Paying down your credit accounts in this situation can help you improve your score.

Length of Credit History

When you close out a credit account, it can also hurt your score in another way. One of the factors the credit bureaus consider when calculating your credit score is the length of credit history. If you close out the account that you have had open for the longest, this will lower the amount of credit history that the credit bureaus use when calculating your score. This means that you should most likely just leave the accounts open even if you are not using them.

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How Many Points Do Inquiries Have on a Credit Report?

Many actions affect the information that shows up on your credit report, which is used to compile your credit history. Your current accounts and the way in which you use and pay them is a major influence on your credit score. In addition, applying for new credit can have an impact on your credit score as well.

Definition

Your credit reports and credit score are two different but interrelated items that affect your ability to get loans and credit cards. The information is compiled by the three credit bureaus, TransUnion, Experian and Equifax, which gather information from lenders and other sources. These documents contain basic demographic and job information and detailed data on your credit accounts. The bureaus calculate three-digit credit score numbers based on reports, as does a company called FICO, the most widely used scoring firm. The score is a quick indicator of your likelihood of paying back loans.

Effect

Everything on your credit reports factors into your score, including inquiries resulting from credit applications. Your score can drop by a few points whenever you apply for a new account and the creditor checks your records. The exact number of points lost depends on your initial score, but the result is usually five points or less. You do not lose extra points for making several applications in a short time frame while shopping for big loans like mortgages or car financing.

Considerations

A soft inquiry is another type of inquiry that shows up on your credit reports, but Bankrate columnist Don Taylor explains that it does not cost you any points on your credit score. It is only visible to you and results from your own credit report orders or pre-screening by creditors and insurers who want to send you solicitations. Soft inquiries are invisible to lenders and have no affect on credit score calculations.

Monitoring

You are entitled to see your credit scores, although the law does not force FICO and the credit bureaus to provide them for free. You can purchase them from the bureaus or FICO if you wish to check your credit standing. The Federal Trade Commission website explains that you are legally allowed to check your credit reports for free every 12 months through a website (see Resources). The reports do not show your scores, but they give you a general idea of your standing because they list inquiries and other items, like late payments, that deduct points.

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The Average U.S. Credit Ratings for Individuals

The average credit rating in the U.S. is in the upper 600s, but much of the population has a credit score in top credit tier, in the high 700s.

Identification

The average credit score for individuals in the U.S. changes in large part with the economy. During times of a recession, when defaults are typically at their highest, credit scores tend to dip because of missed payments. In August 2010, for instance, the average credit score was a 667, according to CBS Money Watch. In March 2011, the average score moved up to a 692 in light of a growing economy.

Regional Variations

In March 2011, the Midwest and Northeastern had the highest average scores in the U.S. The Midwest reigned supreme in large part because it was hit much more softly by the housing crisis of 2008, so more people can afford their mortgages and not default on payments. Some cities in the Midwest had high average scores. Minneapolis topped all cities in August 2010 with an average 787 and Madison, Wisconsin was right behind with an average of 785.

Considerations

The average score in the U.S. tends be far lower than a median score -- the middle of the scores -- because people with poor credit have such a bad score that they drag down the national average. Sixty percent of the population has a score over 700. The median score in the U.S. is in the 720s.

Tip

Moving to a city with a high average score has no bearing on your own. Work on eliminating debt from your profile and paying bills on time. Lenders usually want to see a score between 760 and 780. Anything less and you may see an adjustment to your interest rate. You may not even receive approval for a loan if you have the average score.

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How to Read a Trans Union Credit Report

At first glance, a TransUnion credit report may feel overwhelming, pages swimming with confusing numbers. However, each credit report is laid out in the same format, with the sections appearing in the same sequence each time. By using a quick primer on the format and learning a bit of credit union shorthand one can easily understand all the information on a TransUnion credit report.

Instructions

TransUnion Report Codes

1

Locate the sheet marked "TransUnion Report Codes," included with the credit report.

2

Note that there are five different categories of codes:

Equal Credit Opportunity Act Inquiry and Account Designators-details account ownership, such as a joint account or an individual account.

Date Indicators-show the status of a collection account, such as whether it is open or closed.

Current Manner of Payment-describes if an account is being paid on time or late.

Type of Account-describes the type of account, such as revolving or installment.

Kind of Business Classifications-describes the type of business that extended the credit account.

3

Refer to this page when reading the credit report to understand what the abbreviation stands for.

Account Information and Summaries

4

Locate the identifying information at the top of the credit report. Check all personal information in the Name, Current Address, Current Employer, Social Security Number (SSN), Birthdate and Telephone sections.

5

Check the Special Messages area for warnings, fraud alerts, or other issues noted by TransUnion.

6

Read the Model Profile, if included in the report. Get the credit score and risk score factors from this profile.

7

Analyze the Credit Summary if present. See the dollar amounts for High Credit, the Credit Limit, Account Balance, Past Due amount, and Monthly Payment for all Revolving, Installment and Mortgage accounts. Read the summary totals and the estimated percentage of credit available with current accounts.

Credit Accounts & Inquiries

8

Check the Public Records portion for any civil judgments, tax liens, or bankruptcy listings; only accounts still in their retention period will be present.

9

Look for any accounts sent to a debt collector in the Collections section. Read the details about each collection account, including the date of the original debt, current status, balance, terms and remarks from the creditor.

10

Read the Inquiries area to see each time a company viewed the credit report.

11

Review the Consumer Statement for any remarks issued by the individual regarding their credit report.

12

Look in the Inquiry Analysis portion to see each time credit was applied for in the last three months.

13

Read the TransUnion company information in the Credit Report Serviced By section. Contact TransUnion with any questions or disputes using this information.

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What Is a Great Credit Score?

What constitutes a great credit score depends on several factors. Different types of scores have different scales. A number that is a great score on one scale may be only a fair score on another. Also, different credit situations have different requirements and individual lenders often have different standards.

Types

There are two major types of credit scores used by lenders, the FICO score and the VantageScore. By far, the most widely used is the FICO score. The VantageScore is relatively new. It was first offered in 2006.

FICO Scores

The range for FICO credit scores is 300 to 850--the higher the score the better. According to MyFICO.com, most lenders consider a credit score above 750 to be excellent. A score around 700 is good.

VantageScore Scores

The scale for VantageScore credit scores is 501 to 990. Liz Pulliam Weston, personal finance columnist for MSN Money, reports that a score in the 901 to 990 range is an "A" score, which equates to excellent. Scores in the 801 to 900 range are considered good.

Considerations

Most people have a FICO credit score in the 600s and 700s.

Fun Fact

The average credit score for people in the United States, according to MyFICO.com, is 723.

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Definition of a Credit Score

It has been said that your credit score is more important than your SAT score. While the SAT determines the caliber of college you attend, your credit score or FICO score (named after Fair, Isaac, and Company) is a numeric tabulation of risk compiled by three different credit reporting agencies: Equifax, Experian and TransUnion. Lenders use your score to assess how willing they will be to lend you money and at what rate. The higher your FICO score, the most trustworthy you are and the more likely you are to secure low interest rates. Scores range from 300 to 850 points and are compiled using five different factors.

Payment History

Making regular payments on time accounts for 35 percent of your credit score. A single late payment can lower your score and make you seem untrustworthy. Other creditors, even those with whom you already have accounts, can cite this late payment as a reason to raise your interest rates. The best thing you can do for your credit is always make your payments on time, even if it's just the minimum payment.

Balances

The next most important factor in your score is the amount of debt (your balances) you carry against the amount of money available to you (your lines of credit totaled). This is worth 30 percent of your score.

Credit History

Your credit history is just that: History. The longer your accounts have been open and maintained, the more trustworthy you seem. This accounts for 15 percent of your score. This is why many financial advisors recommend against closing credit cards when the balance is paid off. When the card is closed, that credit history is lost and your score drops.

New Accounts

If you need to get several new credit cards or loans, space them out, because 10 percent of your score is dedicated to measuring how fast you open new accounts. Multiple requests in a short period of time makes it look like you are either trying to inflate your score by raising your credit limit or are being repeatedly denied for new accounts.

Types of Credit

The last 10 percent of your score determines whether you have a healthy mix of credit. Lenders like to see that you can manage multiple types of credit successfully, such as credit cards, home loans and installment accounts. Most people are hurt for having credit cards above other types of credit.

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Why Are There Other People on My Credit Report?

Credit reports contain various information regarding your past and present financial accounts. It is possible for credit reports to contain errors not only in the account information but in the personal information listed on the credit report. Other people's names showing on your credit report may or may not be in error.

Credit Reports

Creditors report information to the credit bureaus. A creditor reports the type of account, balance, credit limit and monthly payment as well as the names and addresses of the account holders. Just because a creditor reports information to the credit bureau does not mean the information is correct. As a consumer, it is your responsibility to review your credit reports to ensure information is accurately reported.

Reviewing Names

If one creditor reports a name associated with your Social Security number, that name is placed at the top of the credit report in the personal information. This can be similar names, misspelled variations of your name, maiden names, and married names. In some cases, the creditor may have made an error and reported an entirely unrelated name associated with your credit report. You may also find names of joint account holders listed on your credit report. This can be a parent, spouse, partner or friend -- anyone you have opened an account with. Finally be aware that there are cases where identity theft has occurred. Someone may be using a name associated with your Social Security number. Follow up with each credit bureau immediately if you suspect identity theft.

How to Fix Names?

In your copy of your credit report, you will find an address, website or phone number where you can file a dispute. Contact the credit bureaus by your preferred method. Inform the credit bureau that you have found inaccurate information on your credit report and request that the names be deleted or corrected. The credit bureau may request you send proof of your correct name to make changes.

Credit Score

Personal information on your credit report does not affect your credit score in anyway. It is still important to have your credit report reflect your current name with correct spelling. Any names listed on your credit report that do not belong should be removed. If someone has used your Social Security number to obtain credit and this is why another name is showing, your credit can definitely be impacted. You must contact the credit bureaus immediately to resolve this issue.

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FICO Proxy Agreements

FICO stands for the Fair Isaac Corporation, the creator of the FICO scoring method that is used to evaluate an individual's credit worthiness. Proxy agreements are legal documents that give authorization for someone to act on another party's behalf.

The FICO Scoring Method

FICO scores range within a scale of 300 to 800. FICO scores are obtained through statistical models that examine an individual's credit report for payment history, current debt-to-income ratios, types of credit lines and length of credit history. A FICO score is obtained any time an individual wishes to obtain financing from a lender.

Proxy Agreements in Relation to Credit Rating Agencies

The idea of proxy agreements comes into play with credit reporting agencies, as they actively disclose nonpublic information. In fact, they gather, compile and organize sensitive information on individuals in order to release that history should it become necessary. Essentially, they are legally acting on any consumer's behalf who is of legal age with an established credit history.

Credit Agency Information Determines FICO Score

Agencies such as TransUnion and Experian keep record of the account information they receive from an individual's lenders. Acting on an individual's behalf, they release a FICO score to any new lender that the individual has authorized. The authorization is typically signed by the individual during the financing process.

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How to Buy Credit Scores From Credit Bureaus

Although you are entitled to one free credit report per year from each of the major credit bureaus, that credit report will not include a credit score. Your credit score, also known as a FICO score, is calculated from the information in your credit report using an algorithm developed by the Fair Isaac Corporation and is used by lenders to determine how likely you are to repay loans given to you.

Instructions

1

Request a free copy of your credit report from all three credit bureaus from the free annual credit report website link in Resources. You will need to enter your identifying information and select which reports you want to view.

2

Compare your credit reports from the three credit bureaus. According to Consumer Union, if all three appear to contain the same information, you are probably fine purchasing a credit score from just one of the credit bureaus. However, if there are differences, such as delinquent accounts being reported to one bureau or accounts present only with another bureau, you should order more than one.

3

Go to the FICO scores website (see Resources) and create an account.

4

View your score online as soon as you have completed the purchase of the scores. By ordering your score online you can see your score immediately rather than waiting for it to come in the mail.

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Can a Visa Debit Card Help Build Credit?

Credit scores are a measurement of how you manage your debts. Debit cards are a method of managing your money; they don't incur debt. Because of this, banks do not report debit transactions to the credit bureaus.

The Facts

To build credit, you must accrue debt and pay it off. Credit cards allow you to do this, but Visa debit cards do not.

Benefits

Debit cards teach you how to manage your money and are good practice for learning how to spend responsibly with a credit card.

Disadvantages

You can opt to use your Visa debit card for credit transactions, but these transactions do not help you build credit.

Considerations

If you don't spend more than you have with your Visa debit card, this will demonstrate responsibility. Your bank will be more likely to issue you a credit card if you have a good track record with your debit card.

Warning

If you spend more with your Visa debit card than what is in your checking account, you will owe the bank money. If you do not pay what you owe, this will eventually harm your credit score.

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Credit Bureau Disputes

The three major credit bureaus --- Equifax, TransUnion and Experian --- collect credit information on consumers to provide lenders with credit histories and scores, which lenders and businesses use to determine the creditworthiness of a consumer. A consumer's credit history can impact his ability to take out credit cards, get a home loan or even receive employment. Federal law gives consumers the right to have errors in their credit file corrected through the credit bureau dispute process.

Considerations

To determine if there are errors in your credit file, obtain copies of your credit report. According to the Federal Trade Commission, you have the right to receive one free credit report a year from the three major credit bureaus. You also receive a free credit report if a lender denies you credit or an employer denies you employment based on your credit history. Alternatively, you can buy extra copies of your credit bureau reports. The FTC says Colorado, Georgia, Maine, Massachusetts, New Jersey and Vermont law allows consumers free, unlimited access to their credit reports.

Mail

If you find an error in your credit report, send a letter to the credit bureau with your personal information and a copy of your credit report. Be sure to identify the line of your credit bureau report with the error and state why the erroneous information should be removed. Attach documentation of your claim with your dispute letter if possible. The review process usually takes 30 days, says the FTC. The credit bureau will send you a letter detailing their own findings and will correct the disputed information if they find in your favor.

Online

Experian, TransUnion and Equifax all offer online dispute processes to correct inaccurate credit report information. Consumers need a copy of their credit report number to start the process and must verify their identity by answering security questions. The consumer then identifies the inaccurate line of his report and details the reasons why the information is not correct. After submitting an online dispute, the process of verifying the inaccurate information can take place immediately or up to 45 days. Filers can check their dispute status online, indicates TransUnion.

Phone

To initiate a credit bureau dispute by phone, Experian and Equifax provide a number to call on the consumer's credit report. As of March 2011, TransUnion allows consumers to initiate disputes by calling 1-800-916-8800 Monday through Friday from 8 AM to 9 PM Eastern Time. When a consumer calls, he will have to give the file number of his credit report and his personal information for identification purposes. The company will then flag the disputed item and record the consumer's reasons for the dispute. The credit bureau then investigates the claim and mails the consumer their findings.

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Definition of Credit Repair

Credit repair is meant to mend your credit score. You can do this yourself or engage the services of a credit repair agency. Credit repair is a three-step process. It involves analyzing the factors for a low FICO credit score, devising a plan to address the problems and finally building up your credit score and rating. When credit is repaired, you will be able to fetch loans at more competitive interest rates.

Credit Scores

Individuals with a FICO score of 720 or higher receive financial services such as home mortgages and vehicle loans at competitive rates. You can use credit repair firms to remedy bad scores. Credit repair firms analyze your financial position and then take measures to improve it.

Credit Report Details

Obtain your credit report or ask a credit repair agency to get it for you from each of the three national credit-reporting bureaus. Reports provide details on your place of residence, the manner in which you pay your bills and whether you've had any overdue payments or lawsuits against you in the past year. The reports also provide details on whether you have ever filed for bankruptcy or been arrested. Review each report and if you find discrepancies, write to the bureau and dispute them.

Remedy Your Bad Credit

Improve your credit. If you own credit cards you are not using, close them and pay off the balances. Even if the balances are low, interest and penalties will continue building up on them. Closing credit cards impacts credit score; therefore, it is advisable to close newest cards first. This way, the longer credit history with the older cards still remains. And if late mortgage payments are hurting your credit score, approach lenders and try to refinance your mortgage for lower monthly installments.

New Start

Continue to keep up with whatever is positive about your credit history. If you have promptly paid your auto loan, continue to do so. Once you've paid off past accounts and improved your credit score, apply for a new account and pay it on time.

Be Wary of Fraud

Carefully evaluate proposals from credit repair agencies. Many agencies run fraudulent schemes by asking the individual to take on a new identity; you can face serious legal action when you are caught.

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Can a Credit Score Keep You From Getting Hired?

It's common knowledge that credit scores are crucial for getting loans, qualifying for credit cards and obtaining financing for home purchases. In addition, some employers may factor your credit rating into the hiring decision.

Significance

Many employers run background and credit checks on prospective applicants. Employers generally look to hire people without serious black marks on their credit history, such as bankruptcy or foreclosure. Additionally, hiring managers prefer applicants with average to excellent credit scores, according to Smart Credit.

Expert Insight

According to MSN Money, many employers view those with low credit scores as irresponsible people who are incapable of managing their own finances. Additionally, employers may view someone with a bad credit rating as a greater risk for theft or embezzlement.

Considerations

Employers in certain sectors such as government, banking, home care and high-end retail sales place a heavier weight on your credit score and credit report, although employers in other sectors may consider it as well. However, you must give written permission in order for employers to check your credit report or score.

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