How Long Will It Take for My Credit Score to Improve After a Collection Is Removed?

Having a collection on your credit report can hurt your credit score to the tune of 100 points or more. Even when you've paid off the debt, a record of the collection will remain on your credit report, lowering the score. Collection agencies are under no obligation to remove that information. It is possible to negotiate with them, get the information removed, and raise the score, but it will take time.

Credit Score

A credit score is a shorthand summary of your credit history from the past seven years. Every time you borrow money, the lender will report it to one or more credit bureaus. If you miss a payment or are late by as little as a day, the lender will report this to the bureaus. The bureaus compile this information into a credit report to tell other lenders how credit-worthy you are. To make it easier for lenders, the bureau summarizes all of that information into a single three-digit number. This is your credit score.

Calculating Credit Scores

Each credit bureau calculates its own credit scores using a slightly different formula. The exact formulas are kept secret, but we do know what sort of information goes into the calculation and how it's weighted. Repayment history makes up approximately 35% of your credit score, while 30% of the score reflects your total debt. Another 15% is determined by the length of your credit history and 10% reflects the number of new credit applications. The remaining 10% is determined by multiple factors, including types of credit.

Improving Your Credit Score

The best way to improve your credit score is to keep up with repayments. A single missed payment is enough to damage a long-standing credit history. Several missed payments will hurt your credit score for years to come. It's almost impossible to remove missed payments from your credit report, though as time progresses, they'll matter less. Once the lender passes your account onto a collection agency, this will go on your credit report. Paying off the debt will not erase it from the report. You'll have to negotiate with the credit bureau to get this done.

Negotiating With the Collection Agency

The collection agency has a single goal: to get you to pay your debt. You can use this to negotiate with the agency to get the collection removed from your credit report. Offer to pay your debt in full in exchange for the agency agreeing to remove the collection from your credit report. Make sure you get this in writing and that it specifically says that they will remove all record of the collection. This is not the same as reporting the debt as settled. A settled debt will stay on your credit report for seven years. Instead, you want it removed completely.

Time Frame

Most lenders report to credit bureaus every 30-90 days. Your credit score will not change quicker than that. Even once the collection has been removed, your score may not improve significantly. The repayment history that led to your account being passed on to the collection agency will still be there. It will take a couple of years of making payments month after month to raise the score by 100 points. The exact time frame depends on many factors, including your current credit score and the rest of your credit history. It takes as little as 30 days to destroy your credit score and years to build it back up.

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Felony Conviction & Credit Rating

Credit ratings are measurements compiled by financial services companies of the likelihood that an individual will be able to pay off a loan. Credit ratings are compiled using a number of factors, including the individual's previous credit history and the amount he currently owes. A felony conviction plays no part in an individual's credit rating.

Credit Scores

According to the Fair Isaac Corporation, the inventors of the modern credit score, a credit rating is compiled of five elements: payment history, amount owed, length of credit history, recent credit history and type of credit use. The score does not include any personal characteristics nor any data about an individual's life history other than those directly related to her payment of a loan.

Felonies

Although felonies do not factor into an official credit rating, there are ways such a criminal record could indirectly affect an individual's credit standing. For example, if conviction for the felony caused the person to be incarcerated, he could have lost a job and this loss of income could easily impinge on his ability to pay down debts. If the incarceration caused the individual to default on a loan, this would negatively affect her rating.

Restitution

In many cases, felons are forced to pay some form of restitution to their victims as a component of their parole or probation. Generally, if a person fails to live up to the obligations imposed on him, he is reincarcerated or otherwise sanctioned. However, if the person to whom the felon owed money chose to file a civil claim seeking payment on the debt and received a judgment in civil court, a credit rating company could count this as a failure to pay a debt, causing the company to lower the individual's rating.

Housing

People with poor credit and those with a felony conviction often face similar difficulties in finding housing. Applicants with poor credit are often turned down for housing based on the perception on the part of the landlord that they will be less likely to pay their rent on time and in full. While some states make it illegal for landlords to discriminate against applicants with felony convictions, others do not prohibit this type of discrimination.

Considerations

While a felony plays no part in a person's credit score, a lender might still consider the felony conviction when determining whether to loan money to someone. One of the criteria that lenders use when deciding whether to extend loans is a person's present income. If the lender believes a felon will face greater difficulty attaining a good job or that he might return to prison, he may refrain from the loaning the person money.

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How Does Your Credit Score Affect Your Life?

A credit score is a three-digit number that says a lot about your financial situation. It measures your reliability with paying your financial obligations. Whether you have a good credit score or one that needs improvement, you need to understand how a credit score could possibly affect your life and everyday activities.

Difficult to Get New Credit

A credit score can affect your ability to get new credit. A low score makes it more difficult to get new credit. A low credit score may also cause you to receive higher interest rate quotes, which costs more over the course of a loan. If you have top-rate credit you'll commonly get better offers for new credit arrangements.

Insurance Premiums

When you call an insurance company to get a new policy, the insurer may include your credit score in the decision regarding the premium. A low score equals a higher premium rate and vice versa. So for instance, if you are securing a car policy, even if your driving record is clear you could still end up paying more expensive rates than a similar applicant with a better score.

Employment

A potential new employer may check your credit during the hiring process. When evaluating a potential candidate, employers want to hire people who are reliable and who will meet their obligations consistently. A poor credit score indicates poor management of personal finances. While a bad credit score may not disqualify you from a position, it could cause an employer to choose another applicant with a more responsible financial history.

No Effect?

For some people, a credit score does not have much of an effect on their lives and everyday activities. Many people choose to pay off their debts, live a cash-only, credit-free lifestyle and do not need to worry about applying for a new job or insurance in the near future. In this case, you do not need to keep tabs on your credit score and you do not need creditors to investigate your credit history.

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Does Opt-Out Pre-Screen Raise Your Credit Score?

Although the Credit Card Accountability Act of 2009 made pre-approved credit card offers illegal, a loophole allowed lenders to mail 47 million offers for pre-approved business accounts in the first three months of 2010, according to The Wall Street Journal. Consumers can stop most pre-approved mailings by signing up for Opt-Out Pre-screen, and doing so may help protect their identities and credit ratings.

Identification

Opt-Out Pre-screen takes consumers off the mailing lists of members of the Direct Marketing Association, which sends out most pre-approved mailings. However, pre-approved credit offers do not affect consumer credit ratings, because the inquiry does not cause damage like a request for credit by the consumer. Also, creditors cannot see how many pre-approved offers a consumer receives, so Opt-Out Pre-screen has no direct effect on the creditworthiness of consumers.

Considerations

When a consumer accepts a pre-approved credit offer, the lender performs another credit check to ensure the consumer meets the lender's borrowing standards. This counts as a hard inquiry, which takes up to five points off a credit rating. Any successive credit inquiries cause more damage, and six or more inquiries become a significant negative event in a credit history, according to the Fair Isaac Corp., which calculates the FICO score.

Identity Theft

Pre-approved credit card mailings increase the odds of identity theft, which can ruin a consumer's credit rating at least until the individual proves fraudulent accounts to the credit reporting bureaus. A would-be thief can intercept pre-approved mailings, take out a new account and make fraudulent charges long before the consumer realizes the theft. Damage from identity can cause a low credit rating for several months until the consumer resolves the matter.

Tip

The initial opt-out only lasts for five years. If a consumer wants a permanent opt-out, he must request this in writing. The consumer may still receive pre-approved offers, so she should shred those and make sure nobody can piece the mailing back together to obtain sensitive personal information. However, the consumer should consider the benefits of pre-approved offers, too. For example, the mailing may give him a good gauge of reasonable terms on a credit card or offer credit on better terms than those available to the general public, according to the Federal Trade Commission.

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Credit Repair Fundamentals

Repairing your credit score before seeking a loan can help ensure a quick approval. Credit scores measure how well you manage credit, and lenders use this information to determine approvals. Financing anything from cars to houses necessitate a decent credit history.

Pull Your Credit Profile

Knowing what you need to work on or improve helps speed the credit repair process. The best way to learn your credit history is to pull or request a copy of your credit report from annualcreditreport.com. These free reports detail your credit history. They show what creditors are reporting about you, and if you have delinquent accounts or collection accounts, these will also appear on your report. Regrettably, errors can also appear on your report, and any negative information reported in error can reduce your FICO credit rating. Check your report regularly to detect mistakes.

Clean Up Payment History

Payments make up 35 percent of your credit score, and repairing your personal score calls for organization and paying bills before they are due. Creditors and lenders often offer provisions when debtors experience payment problems. Communicating with your lender and asking for assistance helps you avoid delinquencies. Start anew and resolve to make all your payments on time each month. If necessary, start paying bills several days or weeks before they are actually due.

Credit Scores and Debt

Debt doesn't only impact your amount of available funds. Balances on credit cards and loans can decrease your credit score---especially if you max out credit cards or use more than 30 percent of the credit limit. Stop charging merchandise and pay for things with cash to help reverse debt. Getting rid of debt isn't easy for some. But with determination and a plan, you can pay off balances and enjoy a higher credit rating. Get out of the habit of only paying the minimum. Sell belongings, take money from savings and make higher payments to get rid of balances.

Other Tips

Certain actions can further reduce your credit score and hinder any efforts to repair the damage of a low credit score. While fixing your credit score, refrain from applying for new credit accounts. Credit applications result in credit checks, and each inquiry takes points off your score. Additionally, closing a credit card can also hurt your score because it may decrease the length of your credit history.

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How to Increase a Beacon Score

A borrower's credit score is the numerical representation of his past credit history. It shows a lender a borrower's ability and willingness to repay debt. There are three credit bureaus who create credit scores: TransUnion, Equifax and Experian. The Equifax credit score is known as a beacon score. With a few simple steps, a borrower can increase his beacon score and his other two credit scores as well.

Instructions

1

Pull a copy of your credit report. One can be pulled for free from AnnualCreditReport.com once per year. You will need to provide the service with your full legal name, address, credit card information, Social Security number and date of birth to verify your identity.

2

Comb the report for errors. Immediately report any to the credit bureaus through the website. This can easily be done by selecting the erroneous line item, clicking the reason for the dispute and sending an email to the credit bureau. Each credit bureau is required to respond to your request within 30 days via email.

3

Pay down all lines of credit, including credit cards, to less than 30 percent of the credit limit. This will quickly raise your credit score.

4

Pay all of your debt payments on time. If any payments are behind, catch up quickly to help raise your score.

5

Pay off any negative credit items, such as bankruptcies, judgments, liens or collections.

6

Limit the number of creditors who check your credit by providing potential lenders with a copy of your credit report. Only allow the lender you choose to provide you with a loan to check your credit.

7

Avoid closing old credit cards to add length to your credit history. Keep them open by making one necessary purchase on each one per month and then pay in full at the end of the month to avoid interest charges.

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Is There a Money Limit Debt Collectors Can Report to the Credit Bureau?

You might think that nobody would go through the trouble to collect on a small unpaid debt, like an overdue book, but anything can appear on your credit report. As long as a collection agency holds a debt it can report it to the credit bureaus. Debt collectors do not necessarily care about the size of a debt when deciding whether or not to pursue it.

Identification

There is no limit to what debt collectors can report to the credit bureaus. Reporting delinquent accounts to the credit bureaus is one of the best collection tactics in the employ of debt collectors. In the case of very large debts, the original creditor might choose to pursue litigation rather than take a loss of thousands of dollars selling it to a collection agency. If the creditor does not report to the credit bureaus, the bureaus might never know about it. Smaller debts are often sold off to debt collectors because of the administrative and legal cost to creditors without a debt collection department.

Small Debts

Debt collectors usually call accounts worth less than $100 "nuisance" debts because the company has to pursue debt, but there is little money to be made. In 2008, the Fair Isaac Corporation changed its credit rating formula to ignore debts under $100. Nuisance accounts still appear on your credit report, but do not affect your credit score, assuming that your creditor uses the latest version of the FICO formula -- FICO 08.

Considerations

You should not ignore any unpaid debt. Lenders may require you to pay nuisance debts regardless of whether or not they impact your credit rating. The bureaus usually pick up civil judgments if a creditor takes you to court. Creditors often design their own credit scoring formulas, which might include collection accounts of any size. Almost all financial transaction are tracked, so it is likely that any collection account affects your credit somewhere down the line.

Time Limit

Collection accounts definitely have a credit reporting time limit: seven years from the first time you missed a payment. Thus, if you are close to this date it may not make sense to pay it other than a moral obligation. This differs from the statute of limitations. Most states do not allow creditors to sue for an unpaid after a certain amount of time -- usually no more than six years and up to 10 years in some states.

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What are the Names of the Three Credit Report Agencies?

In the United States, there are three main credit bureaus: Equifax, Experion, and TransUnion. A fourth bureau, Innovis, is smaller than the three major ones. A fifth bureau, Payment Reporting Builds Credit, allows consumers to report transactions not normally included in credit reports.

Equifax

Equifax, founded in 1899, is the oldest of U.S. credit bureaus. Equifax provides credit histories, credit reports, and credit scores. Equifax provides a BEACON credit score, similar to a FICO score.

Experian

Experian, founded in 1980, is a leading U.S. credit bureau. Experian provides credit reports and credit scores for consumers. Experian's credit scoring system is based on the Fair Issac, or FICO, scoring model.

TransUnion

TransUnion, founded in 1968, is the final large bureau. TransUnion offers a credit scoring system, similar to a FICO score, called EMPIRICA.

Innovis

Founded in 1970, Innovis is the fourth and smallest of the traditional credit bureaus. Though businesses use Innovis, the three other bureaus are more commonly used. Innovis does not share information with the three other bureaus and must be contacted directly for credit freezes, fraud alerts, or identity theft.

Payment Reporting Builds Credit, Inc.

PRBC, founded in 2002, is an alternative credit bureau that allows consumers to report payments such as rent and utility bills to build a credit history. Reporting this type of payment allows consumers to build a credit history without debt.

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Why Don't I Have a Credit Score When I Have a Credit History?

Not having enough credit information in your credit profile can be just as bad as having a low credit score. When you have an insufficient credit history, the credit agency's credit scoring formula cannot compare you to other lenders. The only way to get out of this zone is to continue using credit.

Identification

The most popular credit scoring formula, the FICO model, requires a certain amount of data before it can adequately rate you as a credit risk. Even if you have an account, the model may not "feel" you have enough history to compare you to other lenders, according to Maxine Sweet of Experian, one of the major bureaus in the U.S. Consumers need at least six months of credit history to have a credit score.

Considerations

Once you have enough credit history for the credit bureaus to calculate a score, you need to continue using it. You must have at least one creditor update your report in the past six months to calculate a score. Thus, if you let all of your accounts go dormant, your score will come back as "insufficient credit history."

Effect

Lenders will likely not offer you much credit or credit at a reasonable interest when you have no credit score. They want to know that you have experience paying back a line of credit. The credit bureaus actually use about 10 different scores for various demographics, such as new borrowers or people going for a mortgage, so it is possible you do not have a enough credit history for a certain loan.

Tip

You may have some accounts the credit bureaus do not list, because the lender has yet to send in the information. Ask your creditor if it minds adding your accounts to your credit profile. Start using a dormant credit card again by putting a small charge on it. If you want to acquire a new creditable account, try a secured credit card. These are low-risk, because the lender requires a security deposit, according to Bankrate.

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The Length of Time for a FICO Score to Increase

Even if you have a seriously damaged credit history, you can raise your score to the excellent range in a few years. The time it takes to increase your FICO credit score to that level depends on your past credit history, and how fast the credit agencies process your data. Even though it takes weeks to update a credit score, you can start building your credit immediately.

Identification

Credit rating bureaus update their databases whenever they receive information from creditors. The major credit rating agencies update accounts every month, but it can take up to 90 days before new data appears on your report, according to Bills.com. Thus, you should only have credit accounts with lenders that report information to the credit rating agencies.

Time Frame

Your credit score starts increasing whenever positive information enters your credit history. It will probably take six months before you start seeing drastic improvement in your score. The more negative, and serious items you have on your credit history, the longer it takes to raise your score. If you have a bankruptcy, it usually takes at least two years before you can get credit at reasonable rates.

Potential

Eventually, all negative items leave your credit report and don't factor into your score. Most red flags, such as late payments, stay for seven years, according to Experian. Some bankruptcy filings, such as Chapter 7, affect your credit score for ten years, and tax liens can stick for up to 16 years.

Pay Off Debt

BankRate suggests that the first thing to do is check your credit report and look for errors. The best action you can take, after correcting errors, is to pay off as much credit card debt possible. Don't close unused accounts, or those with a balance. Closing accounts just reduces the proportion of debt you use, compared to that which you have available.

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FAQ on Credit Repair

Your credit score is one of the most important tools for your financial life. Whether or not you qualify for loans, credit cards and even simpler things such as renting an apartment depends almost completely on your credit score. If you have a bad credit score, you can begin to fix this by receiving credit repair counseling, which helps you to manage your credit and change the information on your credit reports.

Is Credit Repair Legal?

Credit repair is a legal tool to change information on your credit reports. Some federal laws help you to be sure that you have the right and that you can repair your credit. The Fair Credit Reporting Act was passed in 2003 and gives you the right to receive an accurate credit report. It also allows you to dispute any inaccurate information with the credit bureaus. The Credit Repair Organizations Act helps to ensure that credit repair agencies do not take advantage of consumers. However, things you do that change your vital information, such as creating another identity, are not legal.

What Are the Credit Reporting Agencies?

Credit reporting agencies are in charge of compiling your financial information into credit reports. This information is compiled by the reports that these agencies receive from your creditors. The three main credit reporting agencies are Equifax, Experian and TransUnion. All three of these agencies are important because each one reflects at least a third of your credit information. You may find information that is not available through one of these companies if you look at the other company's credit report.

For How Long Can My Credit Score Be Negative?

Your credit score is negative depending on how you manage your debts. If you have many debts but you also pay them adequately, you probably have a good credit score. However, if you have problems making timely payments, these problems will influence your credit score in a negative manner. Most negative information stays on your credit report and affects your credit score for seven years. Filing for bankruptcy can stay on your credit score for up to 10 years.

How Does Credit Repair Work?

Credit repair is done based on the Fair Credit Report Act, which gives you the right to dispute credit report information. Companies that offer credit repair services dispute negative information on your credit report with the courthouse, credit reporting agencies and creditors or lenders for you. They dispute any negative information that cannot be verified, and these are then removed from your credit report. A new credit report is issued with the corrected information, and this is reflected in your credit score.

Can I Do Credit Repair On My Own?

You can do credit repair on your own, especially if you do not have the money to pay a credit repair agency to do it for you. Send credit dispute letters to your creditors, lenders or credit reporting agencies, or you can send a pay for delete letter to your creditor, which is an agreement with your creditor in which you pay off all the remaining debts and he removes the negative listing from your credit report.

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The Highest Credit Score Available

An individual's credit score not only affects whether his applications for credit are accepted or denied, but it also affects the interest rates he is offered. Therefore, having a high credit score can help individuals save thousands of dollars in interest while they repay the money they borrow.

Score Ranges

The highest credit score depends on what type of credit score it is. The credit score developed by the Fair Isaac Corp., known as the FICO score, has a range of 300 to 850. This is the credit score most people pay attention to. However, the credit reporting companies have developed an alternate scoring model called the VantageScore. This has a range of 501 to 990. Therefore, individuals should know what type of credit score they are looking at to get an idea of how it measures up. A score of 820 on the FICO scale is excellent, but it is just a little above average on the VantageScore scale.

Credit Score Components

Both the FICO score and VantageScore take a few areas of an individual's credit history into account when calculating a credit score. To have a perfect credit score, the individual must excel in all of the categories. The FICO score considers payment history, amounts owed, types of credit, length of credit history and new credit. The VantageScore looks at payment history, utilization, balances, depth of credit, recent credit and available credit.

Tips to Improve

The best way a person can improve his credit score is by managing accounts consistently over a long period of time. The individual should have multiple credit card and installment loan accounts but apply for new accounts infrequently. Her payment history should show that all payments have been made on time. In addition, she should owe low balances in relationship to the credit line or the original amount borrowed. Each credit card should have a balance of no more than 25 percent. The closer the balance is to zero, the better.

Considerations

Although the top FICO score of 850 and the top VantageScore of 990 are technically available, few people actually have them. In fact, having the highest credit score available does not even offer many benefits. Most lenders offer their top tier of interest rates to anybody with a FICO score of at least 775, according to MSN Money. Therefore, having a FICO score higher than 775 will not make any difference. With the VantageScore, anything over 900 is considered an A on a grading scale of A to F.

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What Is My FICA Score?

For many people, the very idea of a "credit score" leads to panic and frustration. Used by lenders and other creditors, FICO is the most commonly used credit rating system. Your FICO score not only determines whether you receive a loan, but also how much and at what interest rate. In addition, these scores may often be used by utility providers, apartment communities and even employers. But what exactly is a FICO score?

History

Developed in 1958, the FICO scoring system was created by Fair Isaac and Co. as a tool to help rate potential borrowers' creditworthiness. First used for credit cards in 1970, the FICO score relied upon information from consumer credit files to determine whether a borrower was more or less likely to pay back any borrowed funds. Since that time, the FICO credit rating system has become the standard method used by banks and other credit providers for their credit decisions.

Function

The FICO score relies upon information about you and your credit history to determine whether or not you are qualified for a loan. Compiling data such as the person's late payments, accounts in collection, current debt and bill-payment history, the FICO score then compares this information to other consumers. Once the comparison is complete, the system uses statistical information to assign a numerical score to the borrower. This score is designed to reveal how likely you are to repay a loan and make payments on time. In the United States, this information is provided by three credit reporting agencies: Equifax, Trans Union and Experian and then reported back to the lender.

Types

Because it is a ranking system, there are several categories of FICO scores. A higher FICO score indicates a better credit ranking and users who are ranked higher are more likely to be approved for a loan, receive higher credit limits and qualify for low interest rates. Ranging from 300 to 850, a score of more than 750 is typically considered excellent. A score between 720 and 749 is good, while 660 to 719 is seen as fair. If your score is 620 to 659, your creditworthiness is uncertain, and consumers with a credit score below 620 are deemed high-risk borrowers.

Significance

FICO scores are most often used by mortgage lenders to determine whether an individual or couple is eligible for a home loan and if so, what the interest rate and monthly payment can be. For most people, purchasing a home is the biggest investment they will ever make--and the monthly payment is usually the largest of their financial obligations. As a result, most borrowers find reduced interest rates and lower monthly payments quite beneficial. In order to receive these incentives, however, borrowers should do their best to maintain a good credit score. In addition to home purchases, your FICO score can also affect car payments, rental arrangements and occasionally even employment.

Considerations

Because the FICO score is developed differently by each credit agency, your credit score may vary based upon the company. Therefore, you should regularly check your credit report with each agency for accuracy and to ensure your FICO score is similar across all three credit bureaus. An individual who is denied credit for any reason may obtain a free copy of his credit report within a yearlong period. It is important to note, however, that a basic credit report does not contain information regarding a person's FICO score, so you should expect to pay about $20 to obtain your exact score with each credit bureau. Although this may seem expensive, knowing your FICO score can help you make better credit decisions and save you money in the future.

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How to Do a Quick Credit Clean up

Credit clean up is not a fast process. It is, at best, somewhat lengthy. However by the time many people learn that credit clean up is even possible, they are already working with a deadline in which their credit score absolutely has to improve. Cases like these are not hopeless. If you need a quick credit cleanup you do have options.

Instructions

1

Clean up old tradelines. Pull your credit report and take a look at the dates on the tradelines. Are any of the negative accounts more than seven years old? If they are, a simple call to the credit bureau that is reporting the debt should clear it up. Let the bureau know that the debt is past the legal reporting period and that you would like it removed. Don't worry, you aren't in for a fight. They have to remove old debts after being reported for seven years, its federal law. Sometimes you can even dispute a debt as being too old when it is a few months away from dropping off and have it successfully removed.

2

Dispute your old addresses. Does your credit report list an address where you never lived? Are any of your old addresses even the slightest bit incorrect? Get these addresses removed. You may be surprised the negative information that tends to vanish when the address it was originally connected with vanishes.

3

Look through the inquiries on your credit report. Call each company and ask them to remove the inquiry. If they won't remove it, let them know that they need to provide you with proof that the inquiry was permitted, otherwise they are in violation of federal law. Most companies would far rather remove the inquiry than deal with the potential of a lawsuit. Some will do so just because you asked. This is the last bit of clean up before the waiting game begins.

4

Wait. The credit bureaus that you disputed with will contact you with the results of your investigation. Hopefully, you will receive these results and a cleaner credit report before your deadline, but you may not. Hopefully you will see a jump of a few points because of old addresses falling off, an inquiry or two being removed and the disappearance of some negative tradelines. The few very lucky consumers will be bumped right up into a better interest rate bracket.

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How Often Are Credit Scores Updated?

Your credit score is a very important number because it directly affects your ability to get credit cards, loans and other accounts. Some insurers and employers use it to decide whether to issue a policy or a job offer. Credit scores constantly change because they are based on your financial information, which can vary from month to month, depending on your payments and other financial activities.

Definition

A credit score is a three-digit score that is calculated based on your credit reports. It gives a quick indication of your creditworthiness and is used by many lenders and financial institutions to make decisions about doing business with you. The most common credit score is the FICO score, which is calculated based on a formula created by Fair Issac Corporation.

Calculation

Credit scores are calculated with software. The exact program varies, depending on the credit bureau used for the score. The most commonly used score is the FICO, which comes from Experian. Equifax uses Beacon software, and TransUnion uses Empirica.

Factors

There are many factors that affect your credit score. These factors often change from month to month, and when they do, they affect your credit score updates. Your payment history on credit cards, loans and other accounts and the amounts you owe are the two biggest factors that affect your credit score. If you miss payments, this will quickly bring your credit score down.

Updating

Your credit score is recalculated every time someone requests it, so technically it is updated whenever it is given out. However, it is based on information from your credit reports, and they are typically updated on a monthly basis. This means that it will not change until the next monthly update. If there are no changes to your payment history, the amounts you owe or the amount of credit you have available, there may not be any change in your score.

Corrections

When your credit score is updated, it may change based on incorrect information that is being reported. You can monitor this by getting a free copy of your credit report each year. You are entitled to a free copy from each of the three credit bureaus. If you find incorrect negative information, file a dispute. The credit bureaus must investigate the matter, and they must remove the information if it cannot be verified. As soon as the change is reflected on your credit report, your credit score will go up because it will be calculated based on the updated information.

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Can Credit Scores Improve?

Even the worst credit score can improve over time. According to the Federal Trade Commission, most bad debts are automatically eliminated after seven years and bankruptcies disappear from a credit report after 10 years. To improve your credit score, credit experts at the Fair Isaac Company (FICO) suggest these tactics: review your credit report for accuracy, eliminate bad debt, choose credit carefully and limit credit card use.

Review Credit Report

Review your credit report from each agency (see Resources). Look for errors, missing information or forgotten debts, which can reduce your score. Ask the agency to remove any unverified disputed charges with a creditor. Request that judgments and defaults over seven years be removed from your report. Provide missing information to the agency, such as any positive account histories that are missing from your report. Check that the agency has your correct personal information and is not confusing you with someone else.

Eliminate Debt

Pay your bills early to avoid interest charges and penalty fees. Good payment patterns on recent credit accounts for 35 percent of your score, according to the Fair Isaac Company. Reduce the amount of debt you carry. Charging your cards to the limit increases your amount of debt compared to your available credit, decreasing your score. Improve your score by paying off one card at a time while making minimum payments on your other cards.

Choose Credit Carefully

Choose and build your credit carefully. A high number of new credit inquiries on your credit report can decrease your score. Avoid applying for multiple credit cards in a short period of time. Before applying for a credit card, review the disclosures. Does it have an annual fee? What is its interest rate and credit limit? Doing so will help you to determine the benefits and disadvantages of owning the card.

Limit Credit Use

Limit the amount of credit you use. Carrying a zero or low balance on your cards and maintaining a high credit limit will increase your score and keep you from going into debt. Rotate your credit cards and use only one or two at a time. Resolve to not charge more than 10 percent of the credit limit on each card and pay off the balance each month. Use cash whenever possible for daily purchases and use your card for financial emergencies.

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Is Checking My Credit Score Too Often a Mistake?

People sometimes hear that credit checks lower a person's credit score. This is only half-true; checking your own credit has no effect on your score. Checking your score more often can never be a mistake, and only improves your knowledge of consumer credit. Only in very rare circumstances could a personal credit check hurt your score.

Identification

Checking your own score too often is not a mistake. Personal credit checks do not lower your score, and the credit bureaus update their databases all the time; the more often you check your profile, the more up-to-date knowledge you have about your credit score. Americans tend to have a poor understanding of how the credit rating system works, so the more you see your payment history changing your score, the more well-rounded your financial literacy.

Considerations

It is possible that a credit check through a third party, such as a credit monitoring service, could harm your score, according to Experian. Most credit monitoring services arrange for credit checks by clients to count as a personal request, but a service not set up properly for this could appear as a hard inquiry on your report. Hard inquiries only count for a few points, but can add up to real damage when you have more than five or six on a report.

Benefits

Millions of people each year fall victim to identity thieves who apply for loans under their names. The more often you check your score, the more likely you are to catch a new, falsified account before the thief has a chance to ruin your name. If you wait several months to check your report, you could have an account in collections and more headaches than if you checked far more frequently. You can also identify problem areas in your credit management skills and plain old errors before they become too serious.

Tips

Check with any service that pulls your report to ascertain how the check will appear on your credit report -- don't assume everything counts as a personal check. You do not have to review your credit profile every day, but at least check your credit before applying for a loan so you can correct mistakes or look for ways to boost your score.

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How to Build a FICO Score

Building a positive credit history is important to securing loans and good interest rates. But to create a positive credit history, you need to focus on ways to build a FICO score. This includes simple actions, such as establishing a financial relationship with a bank or credit union, and keeping your credit card balances low. Because credit bureaus evaluate a variety of factors when determining your FICO score including how long you've had credit, amount of debt compared to available credit and late payment history.

Instructions

1

Open a checking or savings account at a bank or credit union. They report regularly to the credit bureaus, and this will positively boost your credit score.

2

Apply for a credit card. You bank or credit union may offer a credit card, or you can check out Bank of America--the largest credit card holder in the nation--offering more than 400 different types of credit cards. If you don't qualify for an unsecured credit card, ask about a secured card. This will require you to provide a deposit, but after several months, you should qualify for a traditional card.

3

Don't let your credit card balance exceed 30 percent of the limit available. For example, if your limit is $1,000, don't charge more than $300. Exceeding this amount can adversely affect your credit score. However, if you keep your balance low, your FICO score will climb.

4

Set up automatic payments from a checking account. Making payments on time is one of the most positive actions you can take to building a FICO score. Set up automatic payments with your financial institution to ensure you never have a late payment.

5

Ask a family member to co-sign on your loan. Just make sure they have excellent credit, because if they do, you're FICO score will benefit. The credit bureaus affiliate the person with good credit to your name, which reflects positively on your credit history.

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How to Obtain a Credit Report for the Deceased

As the executor or administrator of your loved one's estate, one of your fiduciary duties is to make sure that outstanding debts are paid from the estate's assets. Obtaining a credit report for the deceased can help you identify existing loans, credit card balances and other types of debt of which you may be unaware. However, this also lets you make sure that an identity thief has not acquired the deceased's personal information to coast on your loved one's good credit history.

Instructions

1

Gather the information you need about the three major consumer reporting agencies (CRAs)you will need to make contact with Experian, Equifax and TransUnion individually. Contact information is as follows:

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
1 (800) 685-1111

Experian
P.O. Box 2104
Allen, TX 75013-0949
1 (888) 397-3742

TransUnion
P.O. Box 1000
Chester, PA 19022
1(800) 916-8800

2

Put your request in writing, advises financial adviser Lucy Lazarony. In your letter, specify your name and contact information and your relationship to the deceased. Specify your loved one's full name, Social Security number and most recent address. Also make sure the CRA puts a "do not issue credit" notice in your loved one's credit filethis is also known as a "security freeze." Include copies of the deceased's death certificate as well as documentation supporting your legal relationship with the deceased as executor or administrator of the estate.

3

Make copies of all correspondence sent to the CRAs and send the originals by certified mail, return receipt requested. By doing so, you ensure that the CRA receives notification of your loved one's death, as well as your request for his credit report.

4

Further protect your loved one from identity theft by contacting the Social Security Administration, which assembles a "Death Master File," advises MSN Money (although CRAs will defer to this file, they typically do not do so right away). Once informed of your loved one's death, her Social Security Number will be marked as "inactive"a further deterrent to identity theft. For more information, see the Resources link below.

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Does Co-Signing an Apartment for Someone Go Against Your Credit?

If you co-signed a lease, or you're thinking about it, you should be aware of the potential impact it can have on your credit. The act of co-signing a lease in itself does not go against your credit. However, if the tenant for whom you've co-signed ends up owing the landlord money, you can ultimately be held liable.

Rent Owed or Damages

If a tenant falls behind on rent, landlords have the right to begin the eviction process. If a tenant is evicted and owes back-rent, the landlord can file a claim -- usually in small claims court -- to recover rent owed. Often, both the tenant and the co-signer will be named as parties to the civil suit. Additionally, if a tenant caused damage to the apartment beyond normal wear and tear, a landlord can sue a tenant for the cost of damages.

Collection and Civil Judgment

Once a landlord receives a civil judgment against the former tenant and co-signer, the tenant's wages and/or bank account can be garnished. The landlord also has the right to seek out the co-signer and collect money owed from the co-signer's wages or bank account. In lieu of obtaining a civil judgment, a landlord can turn the matter over to a collection agency.

Impact on Credit

A co-signer's credit is negatively affected if the tenant defaults on the lease and the landlord obtains a civil judgment or turns to a collection agency. Whenever debt is turned over to a collection agency or a civil judgment for money is obtained, it is reported to credit reporting agencies and credit scores are negatively impacted. For the co-signer, this can cause future difficulty obtaining loans or lines of credit.

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Credit Score FAQs

Your credit score determines whether you can qualify to borrow money. It also determines the interest rate you will pay when you buy something on credit. If you have a high credit score, you can qualify for lower interest loans and ultimately pay back less money over the course of your life. Your credit score is based on formula developed by the Fair Isaac Corporation, called your FICO score. FICO scores range from 300 to 850, and whatsmyscore.org says most Americans score in the 600s or 700's. In addition to your score, you also have a credit report that contains details about your borrowing record. Three different companies maintain credit reports- Experian, TransUnion and Equifax.

How is My FICO Score determined?

Your FICO score is determined by several different factors. Thirty-five percent of your score is based on your payment history, and how responsible you have been about making on-time payments in the past. Thirty percent of your score is based on the amount of money that you owe to your creditors. Fifteen percent is based on the amount of time that you have had credit. Ten percent is based on whether you are applying for a lot of new credit. The last 10 percent is based on the specific types of credit you have used.

What factors impact my payment history?

There are a couple of different things that go into determining the part of your score that deals with payment history. Any bankruptcies or judgments against you affect this portion of your score. A bankruptcy or a home foreclosure has the most adverse impact on your credit score, and can stay on your credit report for up to 10 years from the bankruptcy. Likewise, if you settle a debt for less than what you owe (for example you have a short sale on a house) then this adversely affects your "payment history." In addition, even a simple late payment can lower your credit score. Creditors report payments that are 30 days late, 60 days late or 90 days late, and these records can also stay on your account for up to seven years and have an adverse impact on your payment history record.

Does carrying a balance lower my credit score?

Carrying a balance on your credit cards that nears the limit of your card can adversely impact your credit score. In addition, owing a lot of money in relation to what you make can impact your score. These two components make up the portion of your score determined by amount owed, or 30 percent of your score.
The first factor, the amount you owe in relation to the amount of credit available, is called your debt-to-credit ratio. Credit card companies do not like to see cards "maxed out." In other words, if you have $10,000 available to you, you should not borrow the whole $10,000. Your credit score would be higher if you had two cards with $10,000 available and borrowed $5,000 on each of those cards, than if you had one card with a $10,000 balance and a $10,000 limit.
The second factor, the amount you owe in relation to what you make, is your debt-to-income ratio. The more money you make, the more money you can borrow.

What if I open new credit cards?

Opening new credit cards hurts your credit score in two ways. First, when you open a new card the creditor will "pull" your credit report (request it from the company). This shows up as an inquiry. Having multiple inquiries lowers your credit score because creditors get nervous that you are running up large debts you won't be able to pay. Second, opening new cards lowers the average age of your credit accounts, which lowers your overall credit score.

What else can I do to improve my score?

Having a mix of different types of credit can help raise your credit score. You should try to achieve a good mix of secured loans (like mortgages and car loans) and unsecured debt (like credit cards). You also want to ensure that there are no mistakes on your credit report. You can obtain a free copy of your credit report annually from each of the three major credit bureaus, and should do this periodically to ensure accurate reporting of information and to protect against possible identity theft by looking out for any new cards opened in your name or other suspicious activity.

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What Are the Functions of Equifax, Experian & TransUnion?

Equifax, Experian and TransUnion are the three major consumer credit reporting agencies that operate in the United States. All three companies are for-profit enterprises that function to earn revenue. The Fair Credit Reporting Act requires that the businesses abide by certain rules and restrictions as to how they manage personal and financial data of U.S. consumers. Thus, the agencies play an important role in compiling individual credit histories and disseminating that information.

Identification

Equifax, with world headquarters in Atlanta, Ga., trades on the New York Stock Exchange under the symbol EFX. According to the company's website, Equifax offers a wide range of products from fraud protection to prescreening mortgage applicants. Equifax's largest customers are financial institutions that lend money to consumers.

Experian, headquartered in Dublin, Ireland, trades on the London Stock Exchange under the symbol EXPN. Experian has what the company calls four principal lines of business. These include providing credit information on consumers to lenders and providing software to help businesses refine approaches to lending.

TransUnion claims 45,000 customers on five continents and provides credit histories on consumers to clients in several markets. According to TransUnion, the key markets in which the company conducts business include financial services, collections and healthcare, among others.

Distributors

All three agencies compile and distribute information related to consumers' credit-related activity. Consumer credit reporting agencies gather data, assemble credit histories on individuals, assign credit scores based on the histories and sell the reports to others. Insurance underwriters, healthcare providers, rental property managers, employers, mortgage companies and banks are a few of the types of businesses that use the services of consumer credit reporting agencies. The histories and credit scores assigned by the reporting agencies can affect what the consumer pays in insurance premiums and interest rates or whether a consumer is approved for credit.

Free Annual Report

Under the provisions of the Fair Credit Reporting Act, each of the three major consumer credit reporting agencies must provide consumers with a free copy of their credit report on file at the consumer's request once per year. Free copies of your credit reports can be obtained through the Annual Credit Report website. It is possible to stagger when you receive the reports so that individual credit history can be checked every four months free of charge. For example, request one report in January from one agency, request one in May from the second agency, and request the third in September.

Fraud Alert

Federal regulations require the major consumer credit reporting agencies to place a fraud alert on a consumer's file if requested by the individual. This protection makes businesses aware that the consumer believes identity theft could have occurred. According to federal law, a consumer does not have to contact all three major agencies. When one is contacted, the company is required to notify the other two. In this role, the agencies function as a warning system.

Clarification

When news anchors or financial pundits refer to credit rating agencies, most often the reference is to another big three -- Moody's, Standard and Poor's, and Fitch's. These three companies are the major players in rating the credit quality of businesses and governmental agencies in the United States and should not be confused with consumer credit reporting agencies.

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How to Compare Credit Reporting Companies

Credit reporting companies, also known as credit bureaus, are storehouses for consumer credit history. Throughout the United States, there are more than 1,000 local and regional credit reporting companies, but the majority are under contract or owned outright by three primary national credit bureaus: TransUnion, Experian and Equifax. Each uses its own version of the FICO (Fair Isaac Corporation) credit-scoring method to rate consumer credit. Your FICO score plays a central role in your ability to acquire loans, insurance, credit cards, jobs and in some cases, housing.

Instructions

1

Research the three credit reporting companies to learn about the products and services each offers, such as identity theft protection, continuous credit monitoring, credit reports and scores. They each have their own websites online, and you can find comparison information offered by other companies online as well, such as HowToEstablishGoodCredit.com and Credit-Report-Review.com. Credit-Report-Review offers rankings and detailed information about products available from some of the smaller credit reporting agencies, including which of the three major bureaus each agency uses for their credit monitoring services.

2

Order your credit report from each of the three national credit bureaus. You are entitled to one free report from each agency every 12 months. The three bureaus have established a central website -- AnnualCreditReport.com -- where you can order your reports, either one at a time or all at once.

3

Check over your reports carefully for erroneous information. The credit bureaus don't gather and report your information in exactly the same manner, and mistakes do get made that could affect your credit rating, so you should report any errors to the particular reporting bureau immediately. Occasionally, someone else's information could end up on your report, such as someone with the same name or a similar Social Security number.

4

Decide on your purpose for ordering your credit report. Comparing credit reporting companies may simply come down to a personal preference on your part and how well you can interpret the information within the varying formats offered by each bureau. If you require the reports because you will be getting a home or car loan soon, keep in mind that lenders may look at any one of the three reports, and they are not obligated to tell you which one they use.

5

Purchase your credit report with a score. Unfortunately, the free yearly reports you are entitled to do not come with a credit score. You can purchase individual reports from each bureau (fees range from $14.95 to $15.95), or they each offer a three-in-one credit report and score that includes a score from each bureau, which typically costs around $39.95.

6

Compare your scores from each of the credit reporting companies. Do not expect to see an identical score, as all three bureaus may not have the same credit information about you, and all lenders do not necessarily report their data to all three bureaus.

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Why Do Companies See a Different Credit Score From You?

When you apply for a loan, your creditor wants to know whether you're likely to repay that loan. One way a creditor tries to gauge this likelihood is by using a credit score, a numerical representation of your history as a borrower. Not all credit scores are the same, and even if you know one score, your creditor may use a different score.

Credit Scores

There are a wide variety of credit scores, each with different strengths and weaknesses. The most widely used score, the FICO score, ranges from 300 to 850, with scores of 700 or higher representing good credit histories, according to the Federal Consumer Information Center. When you apply for a loan, the creditor might look at one or more of your scores to determine if you should get your loan.

Types of Scores

Apart from the FICO score, so-named because it was created by the Fair Isaac Corp., creditors and consumers have access to a variety of types of scores. The VantageScore, for example, was created by the three consumer credit reporting agencies, Equifax, Experian and TransUnion. Other scores include the PLUS score, TransRisk score and CreditXpert score, each using slightly different calculation methods. According to Consumer Reports, the score provided by one company might indicate you are an excellent borrower, while a score provided by another might list you as merely an average borrower.

Updates

Even if you and your creditor request the same credit score, your creditor may see a different score based on when you requested the scores. Credit scores change as credit reporting bureaus add new information to your credit report. If, for example, you received your score a week before applying for the loan and a new item has since been added to your report, the score the creditor sees might be different because it reflects new information.

Other Factors

Even if the credit score your lender looks at tells the lender you are a safe borrower, that doesn't mean it will approve your loan application. Lenders also look at other factors, such as how much income you earn and how much debt you currently have. For example, if you have an excellent credit score but have a debt-to-income ratio of about 36 percent or higher, a mortgage lender is much less likely to give you a loan, according to Lending Tree.

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Comparison of Prepaid Debit Cards to Rebuild Credit

About 50 million people in the U.S. have no credit history because they do not qualify for a credit card or use lenders that do not report to the major credit bureaus. Although prepaid credit cards, which require the customer to load funds into the account, look and act like a credit card, they rarely build a traditional credit history. Instead, they report to "alternative" credit agencies.

Considerations

Prepaid debit cards do not build credit history with the national bureaus, according to Maxine Sweet, head of Public Education at Experian. The credit bureaus do not list information on prepaid accounts because they lack firm data suggesting that this type of account predicts a person's willingness to repay a debt. Also, issuers of prepaid cards often do not have the technological requirements and financial resources to report to the major bureaus.

Alternative Agencies

When a prepaid credit card claims it can help build credit, the issuer usually means it reports the account to an alternative agency, such as PRBC. Alternative credit agencies allow consumers to report just about any type of account as long as it can verify the payment history on the account. Alternative credit reports are usually designed to meet or exceed accuracy of traditional credit histories, so some lenders are very welcoming on alternative histories, according to Market Watch.

Potential Benefit

Even though alternative credit histories can have a better predictive value than a traditional history, alternative reports are not widely adopted in 2011, but the trend is to increase the acceptance of nontraditional histories. The company that develops the major credit scoring scoring system in the U.S., the Fair Isaac Co., has a scoring system similar to the FICO risk model preferred by most lenders that incorporates alternative payment data. In 2010, the FICO Expansion score helped 10 million people establish a credit history, so building alternative credit data now could help borrowers gain credit in the future.

Secured Account

Borrowers can probably find some kind of account that reports to the national credit bureaus. Secured accounts are notoriously easy to acquire, because the lender requires a security deposit on the line of credit. Retail and gas cards are also good options for borrowers with bad or no credit. However, consumers should use these types of accounts to eventually apply for a regular credit card account with a national bank.

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How to Add an Explanation to a Credit Report

Under the Fair Credit Reporting Act, you have the right to report any discrepancies on your credit report by submitting a letter of explanation to each of the credit bureaus. While doing so won't improve your credit score, it will give you peace of mind.

Instructions

1

Request a free credit report for each of the three credit bureaus at Annual Credit Report online, by phone (1-800-322-8228) or by mail. Review and take note of any discrepancies.

2

Visit the website of the credit bureau that is reporting the discrepancy. If all three bureaus have the information that you would like to dispute or add an explanation to, you will need to contact all three.

3

Visit the credit bureau's website (see References) and elect to dispute the discrepancy online (using the report number at the top of your credit report), by mail or by phone. Each bureau has detailed instructions on how to file your dispute online. After you have submitted the dispute, the bureau will begin an investigation.

4

If the credit bureau determines that the dispute is valid, take no further action. It will remove the discrepancy from your file. If it verifies that the dispute is not valid, prepare to submit an explanation.

5

Write your explanation in 100 words or less and mail it to the appropriate credit bureau. Include a reason for the discrepancy (was laid off, didn't understand responsibility, first credit card), and reasons why you are now creditworthy (new job, more responsible). Be sure to claim ownership for the discrepancy. For Equifax, mail your explanation to Equifax Information Services, LLC, P.O. Box 740256, Atlanta, GA 30374. For TransUnion, mail to TransUnion Consumer Solutions at P.O. Box 2000, Chester, PA 19022-2000. For Experian, mail to Experian, PO Box 9532, Allen, TX 75013

6

Verify that your explanation has been accepted and attached to your credit report.

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How Long Do Bad Things Stay on Your Credit Score?

Your credit score is a number used by lenders to determine the credit risk you present. A high credit score increases your chances of approval and improves your chances of receiving a lower interest rate on loans. Credit scores are determined based on information from your credit report, including payment history, public records (such as bankruptcy) and inquiries into your credit report. While positive information may remain on your report forever, negative information often may be removed.

Permanent Information

Criminal convictions may be reported on your credit report and remain there permanently. Any credit information reported as a result of application for employment with more than a $75,000 per year salary or an application for credit or life insurance valued at $150,000 or more may also remain on your report and affect your score indefinitely.

Bankruptcy

Bankruptcy remains on your credit report for 10 years after filing. Although accounts will show they were discharged or included in bankruptcy, check your credit report to ensure the account balance has been changed to $0 following bankruptcy and that the creditor is not still reporting late payments on the account.

Late Payments and Other Negative Information

Other negative information remains on your credit report for seven years. This includes late payments, charge-offs, defaulted student loans, judgments and tax liens. According to Bankrate, if the tax lien is unpaid, it can remain on your report for up to 15 years.

Other Negative Information

Other items on your credit report that may negatively affect your credit score include having a high debt-to-credit ratio (carrying a large amount of debt relative to your credit limit) and late payments. Paying down debt and having more available credit will help to raise your score. Although late payments will remain on your report for seven years, getting current on any past due accounts will immediately improve your score.

Disputes

Dispute any information on your credit report that is inaccurate or does not belong to you. In addition, dispute any items not removed from your credit report after the time limit has been reached. Creditors do not necessarily report information to all three credit bureaus -- Experian, Equifax and TransUnion -- so check all three of your reports to ensure that all three reports are accurate and all three credit scores are a high as possible. You can obtain a free copy of your credit reports once each year through AnnualCreditReport.com.

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Debit Cards & Credit Ratings

Many checking accounts come with a debit card. Debit cards look and spend like credit cards, but the comparison ends there. A debit card does not have the same effect on your credit history or credit rating. In fact, it may never affect your rating at all if you watch your spending.

Basic Use

Debit cards allow you to make purchases using the funds in your checking account without having to write checks. A debit card carries a MasterCard or Visa logo. You can swipe your debit card through any point-of-sale machine or use it online. When you make a purchase, the funds are withdrawn automatically from your checking account. Most banks allow you to use your debt card free of charge. However, you can accrue fees by spending more money than you have available in your account. Doing so will result in an overdraft charge.

Typical Credit Rating Effect

Banks do not typically report the day-to-day activity on your debit card to the credit bureaus. If you manage your debit card responsibly, it will not appear on your credit report. However, if you overdraw your account, the bank will not report it to the credit bureaus as long as you remedy the situation quickly by paying any fees you owe to the bank. Since daily activity does not appear on your credit report, a debit card will not help raise your credit rating.

Charge-Offs

If you allow your checking account to go into overdraft status and do not pay off the negative balance, the bank will eventually close your checking account. When the bank closes your checking account, it will write off your debt as a charge-off. Bankrate.com reports that lenders typically write off accounts as a charge-off after 120 to 180 days of nonpayment. The bank is then likely to sell your account to a collection agency. Both the charge-off and the collection file will appear on your credit report, leaving a negative mark, which will lower your credit rating.

Considerations

Avoid going over your available balance by tracking your spending. You can monitor the funds in your checking account online with most banks. You can also use your check register to keep track of debit-card purchases. Steering clear of overdrafts will save you money. If you do overdraw your account, pay the negative balance immediately. You cannot remove a charge-off account from your credit report once the bank adds the information.

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Do Credit Card Companies Really Investigate a Disputed Charge?

If you're faithfully monitoring your credit reports, you may find some inaccurate information has been reported to the Big Three. You can always file dispute forms with the major credit bureaus, but you might be wondering whether you should bother. Will it make any difference? You might be surprised.

Disputing Information

Each of the three major credit bureaus provides a form you can either file online or by mail to dispute any information listed on your credit report. Once you submit the form, the credit reporting company has 30 days to investigate the disputed information.

Effects

Credit reporting bureaus are quite busy and may not have the time to investigate disputed information. Should the time pass without an investigation taking place, the bureau is required to delete the negative information. This is a great advantage for you, but don't get too excited. The creditor who reported the negative information can always report it again, and you'll be back at square one.

Warning

One of the most maddening things about the credit reporting industry is that the credit reporting company will always take the word of the creditor over the word of the consumer. So if the reported information is inaccurate (or even a flat-out lie), whatever the creditor tells the bureau is what will appear on your credit report. Your only options are to keep disputing the information or sue the creditor. Since creditors have much deeper pockets than most consumers, filing a lawsuit against them is out of the reach of most of us.

Considerations

Negative information may remain on your credit report for seven years. Bankruptcies may remain on your report for 10 years. Each of the three major credit reporting agencies is a separate entity, so disputed information removed from one report does not mean that information will be removed from all three. You must file a dispute form with each bureau.

Significance

Having an accurate credit score is becoming more and more important now that companies other than those offering credit are relying on credit scores to make decisions about consumers. For example, car insurance companies charge consumers with lower credit scores more money for coverage and potential employers can refuse employment to consumers with lower credit scores. These discriminatory practices are currently legal, and until legislation takes place to prohibit such behavior, all a consumer can do is continue to monitor his credit reports and dispute inaccurate information.

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How to Raise My Credit Score to 800

Your personal credit score affects how much credit you can get, the type of credit and the interest rate. The higher your credit score, the more confident you can be when you need to apply for credit. Checking your credit score regularly is important. This measure will indicate where improvements are needed and will help you raise your score. You can raise your credit score to 800 over a period of time by following certain guidelines.

Instructions

1

Obtain your credit score from MyFICO. This will provide a starting point to help raise your credit score. The FICO (Fair Isaacs Corp.) score is the one most lenders use to assess your suitability for credit. It compiles data from the three main credit reference agencies: Equifax, TransUnion and Experian. Click the link in the resources section. You will find three options: check it, compare it and track it. The cost varies for each option. Make your choice and click "buy now" then create your account and complete the application form. Click "continue" to view the customer agreement form. Follow the instructions and enter your payment details. Your identity will be verified and login details will be given. Create a password and your credit score will be available.

2

Carefully check your credit score. Understand how your score is calculated as this will assist you in ways to raise your credit score. (See resources.) Correct any errors by contacting the lender and the credit reference agency. This will raise your credit score. (The link is in the resources section.) Check areas where your score is lowest. It may be that you have not used a card for some time and so it is considered inactive. Using a credit card wisely and regularly increases your score.

3

Apply for credit only when you need it. Too many applications reduce your credit score. A maximum of two or three applications a year is best. Maintain a maximum of four or five credit cards. More can negatively affect your credit score but having only one will keep your credit score low. Use your cards regularly and maintain a balance of less than 40 percent of your credit limit.

4

Make sure all bills and credit card payments are made by the due date. You will need to have at least six to seven years of up-to-date payments to raise your credit score above the average of 600. Maintain a credit balance in your checking account.

5

Maintain credit over many years; 20 years or more is best. This will show that you are responsible and can be trusted with credit and will assist in raising your credit score, over time, to 800.

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What Information Is Given Out on a Credit Check?

Credit checks are usually performed by lenders before issuing you a loan or line of credit such as a home equity line of credit or credit card. Lenders usually request your credit history from one of the three main credit bureaus: Equifax, Experian or TransUnion. The information on your credit report is provided by creditors from around the country.

Identification

Basic identifying information such as your name, home address, birthday, Social Security number and employment history are part of your report. However, they do not affect your credit score. Lenders may use this information to determine how stable your employment situation is or to verify your income.

Payment History

Your credit report will include information about credit accounts that you have had including credit cards, auto loans and mortgages. Each account will show how long you have had the account, the credit limit of the account and will note whether your payment was on time or late each month as well as if the account is delinquent. If you have declared bankruptcy or defaulted on any loans, that information will also be on your report.

Inquiries

Each time you apply for a new loan or line of credit, an inquiry is noted on your credit report. These inquires remain on your report for two years.

Permission

You must grant permission for anyone to conduct a credit check. Usually your loan application will include you giving permission for the financial institution to conduct a credit check. Even though a company may require you to undergo a credit check, the employer must still have your signature authorizing the credit check.

Differences for Potential Employers

Some companies will require that you submit to a credit check as part of the application process. This is more common in jobs that require dealing with proprietary information that an employee could be bribed to give out or jobs that require employees to handle large sums of money that employees with debt issues may be tempted to embezzle. The report that the companies get differs from the report lenders get in only two ways: your birthday is not included to prevent age discrimination and your credit score is not included.

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How to Raise Your Credit Score by 100 Points

Credit markets have tightened considerably with the nuclear meltdown of our financial markets. What cash is still available for borrowing will be harder than ever to obtain. Your credit score will definitely affect whether or not you get the loan you need, or at the very least will affect the interest rate you'll get. Plan ahead. Begin working now on credit repair. The process can take a few months.

Instructions

1




Know your credit score and what the negatives are. Shoot for a score above 700. If your score is above 700 you probably don't need to invest a lot of time and money to get your score higher. Check with your lender though. The changing financial landscape may have affected this long-standing rule of thumb.

2

Contact the credit reporting agency (Transunion, Experian, or Equifax) about any obvious errors. The Federal Trade Commission suggests contact the agency in writing. Explain what you think the error is, and include copies (not originals) of documentation that would support your position. The agency is required to look into your claim. The agency must report their results to you in writing. If their investigation results in a change to your credit report, they must also provide a free copy of your revised credit report.

3

Find a reputable credit repair company. Certainly there are bad companies that charge hundreds or even thousands of dollars that produce little or no results. But there are reputable credit repair companies. I was referred to Lexington Law by my mortgage broker. Lexington Law was around $59 per month, and an additional $13/mo for Identity Guard, a service which makes available your credit report from all three reporting agencies. With their help my score went up more than 100 points in about six months. You can try to go it on your own, but the working with a credit repair company will keep you disciplined about your credit repair efforts. In addition, a good credit repair company just might have more clout with the companies who have dinged your credit than you will.

4

Keep your nose clean. There is no sense in putting a lot of effort into credit repair unless you're willing (and able) to change the practices that got you there. A) Pay your bills on time, maybe by using your banks automatic bill pay that you manage over the Internet. B) Use under 50 % of your credit line on each account. Creditors want to know that you won't be tapping out your borrowing power anytime soon. C) Minimize the number of people checking your credit. A lot of hits by companies checking your credit could indicate that you're planning on opening a number of accounts.

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