Credit Score Compared With FICO Score

A credit score is a numerical calculation of a person's creditworthiness, based on information from accounts, such as credit cards, loans and mortgages; public records, such as tax liens or bankruptcies; and inquiries by lenders to view the person's credit. The credit scores that most lenders use are FICO scores, so called because software developed by Fair Isaac and Company produces these scores.

FICO Scores

The three credit bureaus in the U.S. are Equifax, Experian and TransUnion. A person has three FICO scores, one based on information from each of the three credit bureaus. FICO scores range from 300 to 850, with a higher score indicating lower credit risk. Scores from the bureaus may be different, if they have different information about a person.

Other Credit Bureau Scores

Equifax also has its own scoring system, called the Equifax Credit Score, that uses a numerical range of 280 to 850. TransUnion has a scoring system called VantageScore, which scores up to 990. According to Bankrate.com, multiplying a person's VantageScore by 0.86 gives a rough estimate of the person's FICO score

Other Credit Scores

Although FICO is the most used credit score, more than 1,000 different credit scores may be available, according to Experian. Some lenders produce their own credit scores for a person, often based on the person's FICO scores and other information about the person.

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Tips on Building My Credit

Building your credit is a long-term process, but it is a critical part of getting good terms on future borrowing. Your credit score is based on the information found on your credit report and affects whether you qualify for new loans, such as a car loan, mortgage or credit card, and the interest rate you pay on your debts.

Educate Yourself

If you don't know what goes into your credit score, you have no idea where to start when building your credit. FICO, the company that calculates the credit scores that most lenders use, lists the components that factor into your score and their approximate weights in the calculation. About 35 percent of your score is based on your payment history, 30 percent on amounts owed, 15 percent on length of credit history, 10 percent on new credit and 10 percent on types of credit.

Start Early

The sooner you start building credit, the better. Your score will be low at first because it is not based on much, but as you develop a positive payment history and a longer credit history overall, your score will increase. College students can start by getting a joint credit card with a cosigning parent or an individual credit card by proving sufficient income. An auto loan on an inexpensive used car is another good way to build credit. By the time you are ready to buy a home or a new car, you will have built your credit so you can get a better interest rate.

Pay on Time

One late payment stays on your credit report for seven years, and although its effect on your score lessens as you make on-time payments, save yourself the trouble by not missing the payment in the first place. Most lenders allow you to sign up for automatic payments, which keeps you from ever missing a payment.

Watch Utilization Ratio

Your utilization ratio, or the amount you are currently borrowing in comparison to your credit line, contributes toward the amount-owed portion of your credit score. Maxing out a credit card makes its utilization ratio 100 percent, which affects your score negatively. A lower utilization ratio is much better; Bankrate.com recommends keeping it under 40 percent and MSN Money recommends using 30 percent or less of your available credit, with 10 percent as an ideal target.

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How Do I Read My Credit Report National Risk Score?

Credit histories, getting credit and how lenders make decisions can be confusing. From the inside, it's a complex process. From the outside it can be so mystifying as to appear random. The first step in deciphering this process is understanding your credit history. Understanding that begins with your national risk score.

Getting the Score

You can request a free copy of your credit history from each of the three credit bureaus once per year. Do so by contacting Experian, Equifax and TransUnion individually with a request for your credit report.

You can also access this report through a wide number of credit watch websites. Generally, these sites offer a credit watch service and offer a free credit report in conjunction with a free or inexpensive trial of their service.

Finally, you can ask your next potential lender what your score is. Theoretically, they're not supposed to tell you but in practice most will.

Your Score

Your score will be a number from 300 to 850. Higher scores are better. Although credit score is not the only thing potential lenders look at, your score will land you in one of four general categories.

Excellent: scores of 750 and higher mean you'll get approved most of the time, and at premium interest rates.

Good: scores from 650 to 750 will usually get you approved for loans at standard rates of interest, though other credit factors such as debt-to-income ratio may result in a worse rate.

Fair: scores from 500 to 650 mean you have some problems with your credit. Potential lenders may add additional fees or exorbitant interest rates to help protect them from the lending risk you represent.

Poor: scores below 500 mean you'll have some real trouble finding credit. You may be required to resolve outstanding debts with other companies, offer collateral, pay very high interest or a combination of all three.

What Affects Your Score

The most important factor in your credit score is your payment history. It's also the easiest one for you to do something about. To increase your credit score, take out one or more reasonably sized loans or credit lines and make regular, on-time payments. If possible, automate these payments so it's impossible for you to miss one or be late.

Your type of debt and amount of debt are the next most important factors. Debt like mortgages and car payments look better than unsecured consumer debt on credit cards.

The length of your credit history and the age of your debts also affects your credit score. However, these don't have a strong affect (typically 5 to 10 percent combined) and are impossible for you to act on.

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What Is So Good About a Credit Rating

Lenders, rental management firms, insurance companies, cell phone carriers and employers are just a few of the entities that judge you by your credit rating. This rating is influenced by your credit use, as reported by the Experian, Equifax and TransUnion credit bureaus, and your credit score, which comes from the report data. A positive credit rating benefits you in several ways.

Definition

Your credit rating is your perceived creditworthiness, based on information in your credit reports, according to the Federal Reserve Bank of San Francisco. Creditors and others review the number and types of accounts on your reports, whether they are currently active, whether your payments are up to date, how much you owe and how much credit you have available. The bureaus and credit scoring companies like FICO also distill your information into a three-digit credit score, which is a quick indicator of your financial stability.

Borrowing Ability

Your credit rating lets you easily qualify for loans and credit cards if it is positive, with low balances and a long history of on-time payments. You get the lowest loan and insurance rates with a good credit score and appear favorable to employers. For example, if you pay three percentage points more for a mortgage because of a poor credit rating, the Consumer Federation of America advises that a $100,000 loan will cost you $2,400 more per year. A good rating also qualifies you for credit cards with favorable terms such as reward points, cash rebate or airline mile programs and no annual fees.

Other Benefits

A good credit rating lets you easily rent apartments, turn on utilities and get new cell phone service. Landlords, utility companies and phone service providers want to deal with people who are likely to pay their bills on time and a positive rating or high credit score gives them some assurance.

Considerations

Your payment dates and the amounts owed on your credit cards are the two most important parts of your credit rating and the biggest influences on your score, the MyFICO scoring site explains. Your rating is positive if you pay your bills on time and keep your balances to less than 30 percent of your credit limits, as long as you do not have major negatives like written off accounts, car repossessions or bankruptcies within the past few years. Catch up late accounts and pay down high debts to improve your rating.

Rating Review

Federal law lets you review your credit reports and check your credit score if you want to determine your rating, according to the Federal Trade Commission. The reports are free once each year through AnnualCreditReport.com. The credit bureaus and FICO are allowed to charge you a "reasonable fee" for your credit score under the Fair and Accurate Credit Transactions Act, according to the Privacy Rights Clearinghouse.

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What Credit Gets Checked for a Car Lease?

Borrowers with bad credit often turn to car leases, because the common belief is that car dealerships accept any kind of credit history. When the dealership checks a person's credit history, it is usually a credit file kept by either one or all three of the national credit bureaus. The borrower might be able to work around a lack of credit history or bad credit, but without a great credit history, a lease is no guarantee.

Identification

A credit check refers to a traditional credit history tracked by Equifax, Experian and/or TransUnion -- the three major credit reporting firms in the U.S. Most major lenders send customer payment history to the national bureaus and use reports from them. Not all lenders report to the bureaus. Apartment leases, cell phone providers and utility companies are usually omitted from a traditional credit history.

Importance

Car dealers tend to set the cost of the lease based mostly on a person's credit history, as previous payment history is a good indicator of the chances the borrower misses payments in the future. The dealership will likely raise the cost of an auto lease as a person's credit history gets worse. If the borrower has several late payments and delinquent accounts, the dealership may reject an application for a lease.

Alternative Credit History

No lender or service provider has to use a credit history from the national bureaus. Lenders, such as car dealers, sometimes accept an alternative credit history when the borrower does not have a traditional credit history. However, an alternative credit history is always weaker than a primary history, because the national bureaus are more respected, according to the Privacy Rights Clearinghouse.

Tip

Consumers looking for a car lease without a credit check might be able to find a dealer willing to forgo one, according to CarsDirect. The large, nationwide rental companies often agree to not pull a credit history if the borrower puts the monthly payment on a credit card. A borrower can probably get a car without average or better credit, but he can expect to pay more than someone with a great score. Thus it pays to eliminate debt and have several months of on-time monthly payments to all creditors before applying for a car lease.

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Does It Affect Your Credit Score if You Put Student Loans in Forbearance?

A forbearance is a temporary postponement of your student loans. It allows you to place making any payments on hold for a period of time as specified by the lender. Interest will continue to accrue while in a forbearance, which means it will increase the total amount that you owe on the debt. If you have or are considering getting a forbearance, it's helpful to understand if this forbearance will affect your credit score.

FICO Scores

Your FICO credit score is based upon the credit information contained within your credit report. The score measures your overall level of debt, which makes up 30 percent of your score, and your payment history, which makes up 35 percent. The other key variables are the mix of credit types present on the report and how much new credit you've recently applied for, with each representing 10 percent of the score. The final 15 percent of the score is determined by the length of your credit history.

Significance

A forbearance is not reported to the credit bureaus by the lender. It is a postponement of the loan and not a default. The lender reports the loan as paid as agreed while you're in forbearance. Having a loan in forbearance does not affect your credit score. However, the fact that the interest on the loan continues to accrue and will be added to the total loan amount increases the total amount of debt that you owe. This could lower your score. On the other hand, a loan in forbearance can help your score by preventing late payments if you are unable to make your student loan payments on time. One 30-day late payment can drop a FICO score by up to 110 points.

Considerations

To apply for a forbearance, you will have to contact your lender and complete the necessary paperwork. Different lenders may have different qualifying criteria. However, a forbearance is generally granted if you experience unforeseen personal problems, including poor health; the monthly payment on your student loan exceeds 20 percent of your monthly income; or you are unable to repay the loan within the maximum repayment term, which is usually 10 years. A forbearance is granted for a limited time period, usually no more than one year.

Warning

Once a forbearance expires, you are required to take steps necessary to keep your loans in a current status. A default on the loan can lead to a garnishment of up to 15 percent of your wages by the Department of Education (DOE). The DOE does not have to sue you first before initiating the wage garnishment. The DOE can also seize your federal tax returns, add collection costs to the debt and seize up to 15 percent of federal benefits that you receive.

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The Best Way to Find Out All of Your Credit Scores

Your credit scores give lenders and creditors a quick assessment of your financial history through a score ranging from 300 to 850. You can expect lenders, utility companies, insurance companies and even some employers to review your credit scores. You may not realize that numerous credit scores exist. While you can purchase these directly from the credit bureaus, the scores you receive arent the ones lenders use most often. Lenders use FICO scores, which are determined by the Fair Isaac Corporation. You can access your FICO scores from both TransUnion and Equifax before applying for a loan or credit card.

Instructions

TransUnion and Equifax

1

Visit the Fair Isaac Corporation website (see Resources)

2

Elect to Create an Account. Enter your name, birthdate, address and Social Security number in the spaces provided.

3

Choose a User ID and password. Select a secret question from the drop-down menu and enter your answer in the blank space below. This will allow you to access your account in the event you forget your password. Click Continue.

4

Enter your credit card number, the expiration date and the three digit security code from the back of the card. Read the customer service agreement in the box below. Click I Accept when you finish reading. Once you accept the agreement, youll be automatically enrolled in the Fair Isaac Corporations ScoreWatch service.

5

Request an FICO credit score from both TransUnion and Equifax. Youll need to re-enter your personal information and answer three to five security questions concerning previous accounts that may appear on your credit report. This helps the Fair Isaac Corporation verify your information before providing you with FICO scores.

6

Print both your TransUnion and Equifax credit scores for your records.

7

Call 1-800-319-4433 to cancel the Fair Isaac Corporations ScoreWatch service. If you cancel within the first ten days, your credit card will not be charged.

Experian

8

Visit the Experian website (see Resources) and select Get Your Credit Report and Score on the home page. Experian does not allow the Fair Isaac Corporation to calculate FICO scores for consumer use. Only lenders can access Experians FICO scores. Your consumer credit score from Experian may differ from your Experian FICO score.

9

Enter your name, address and email address in the spaces provided and select Submit and Continue.

10

Enter your Social Security number, telephone number and date of birth. Select and enter a user name and password. Select a secret question from the drop-down box and enter your answer in the box below.

11

Enter your credit card information and read Experians privacy policy at the bottom of the screen. Click Submit Secure Order.

12

Download your Experian credit report and score and print the documents for your records. Your credit card will be charged $1.00 for this service.

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Do Credit Checks by a Landlord Ding Your Credit?

Landlords often perform credit checks, because your credit history reflects your reliability to make payments. However, this credit check lowers your credit score. Apartment managers can perform a credit check even if you do not specifically grant permission to do so. The effect on your credit is minimal, so you may not have to worry unless you have poor credit.

Identification

Credit checks by a landlord appear as a hard inquiry and affect your credit score, according to Bankrate. Hard inquiries usually occur when you submit an application for something. Conversely, a credit check not related to an application, called a soft pull, has no effect on your score.

Effects

A credit check negatively affects your score by no more than five points and only for a year, according to Bankrate. The FICO scoring model scores range from 300 to 850, so five points probably won't affect whether a lender will extend credit to you or require you to pay a higher interest rate.

Potential

While an individual credit check is relatively harmless, too many credit checks could cause noticeable damage to your score, because reliable borrowers do not submit frequent applications for credit. The FICO formula weighs credit checks based on the rest of your credit information, so you should keep inquiries to a minimum.

Tip

Review your credit report and any inquiries to make sure any checks resulting from a rental application are correctly assigned to you. If someone pulls your report even though you never applied for a residence, you can write a letter to the landlord asking him to remove the inquiry, or you can dispute the inquiry directly with the credit rating bureaus.

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What Is a Bad Credit Report?

Credit scores are used by creditors as a predictor of how likely an applicant is to repay his or her debt to the company in a timely manner. This score is just one part of your credit report, which contains information on your use of credit and your employment and payment history. Having a good credit report increases the likelihood that you will be able to secure good credit terms.

Definition of Credit Report

A credit report contains information on all unsecured and secured credit accounts in your name, and includes activity that has taken place in the last 7 years. The information includes accounts that you have paid in full, as well as any that were discharged by a creditor.

Definition of Credit Score

One very important component of your credit report is a FICO credit score. This is a number between 300 and 800 that potential creditors use to assess your creditworthiness.

Negative Information

Information that negatively impacts your credit report and your FICO score includes late payments, charge-offs, a high debt-to-income ratio, bankruptcy, accounts that are in collection, and using the maximum (or close to) amount of credit available to you. This information remains on your report for 7 years from the date of activity, after which it is erased, except for bankruptcies, which stay on a report for 10 years.

Bad Credit Score

In general, any credit score below 580 is considered bad. If your credit score falls below 499, it may be very difficult or impossible to get credit and you can expect to pay very high interest rates.

Improving Bad Credit

The fastest way to improve a bad credit report is to pay your bills on time. If you are unable to do so, contacting your creditors to make arrangements may help and you will see your credit score begin to increase over a period of a few months of timely payment.

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How to Check Someone's Credit Report

A credit reports can tell you a lot about people. It tells you if they are responsible with their bills, if they pay them on time, and even where they have lived during their lifetime. That's why many companies are starting to use people's credit report in hiring decisions, loan decisions and even when granting them auto or home insurance. It today's world, knowing how to check someone's credit report can tell you much about their character in a matter of minutes.

Instructions

1

Get permission from the person. It's illegal to check someone's credit report without getting his or her permission. If you do, you could suffer legal ramifications. If the person doesn't want you to check his or her credit report, ask to get an official and recent copy that you can look at.

2

Subscribe to a service that gives you access to credit reports for a monthly or annual fee. This is especially useful for landlords because they are always checking credit report before they let people move in. With a subscription service, you can simply log on to your online account or make a phone call to get someone's credit score and history.

3

Use other services that check credit reports. If you just need to check your credit report or a family member's report, there are many services online that will give you access to all three major credit bureaus.

4

Have the social security number and other information handy. Before you can request someone's credit report, you need to have his or her personal information. Make sure the names are spelled correctly and everything else is accurate, or else you won't find the actual report. For instance, a recently married woman may forget to provide her maiden name instead of her married name.

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Credit Report Facts

Your credit report is critically important in its ability to help or harm you in making certain financial transactions. It can help you buy a home or car or make those actions nearly impossible. It can make you attractive to employers and insurance companies or cause them to shy away from you. You should learn what credit reports contain and how you can check your own report and exert some control over its contents.

Definition

The Federal Reserve Bank of San Francisco (FRBSF) defines a credit report as a record containing a list of a consumer's credit-related activities. This includes things like inquiries made for credit applications, current and closed accounts, and payment histories for each account. It also lists certain court actions that affect your finances, like foreclosures, repossessions and bankruptcies. These reports are compiled by three national agencies--Equifax, Experian and TransUnion. Each is an independent company that compiles and provides its information separately.

Purpose

Credit reports are used by lenders to make financial decisions. They give a good indication of whether a customer is likely to repay a loan, credit card or other new account based on past credit history, current open accounts and other information. The lender uses this information to decide whether to open an account and how much to charge as an interest rate. Insurance companies also use credit reports to decide whether to sell a consumer a policy and where to set the premiums. Some employers review credit reports as part of the hiring process and may reject applicants based on a poor credit history.

Compilation

Your credit report is compiled based on information from your creditors, according to the FRBSF. Credit card companies, loan agencies, banks, retailers and others give the credit bureaus regular reports on your account status. This typically includes things like your credit limit, amount owed and payment history. The bureaus may also get public records from the court system. Your report is continually updated as this information changes each month.

Access

The FRBSF explains that access to your credit reports is limited. They may only be reviewed by lenders considering you as a potential credit customer, employers making hiring, promotion or retention decisions, insurers considering you for a new policy or renewal, government agencies investigating your financial status for a legitimate reason, and others to whom you have given permission, like landlords considering you as a tenant. Companies can buy limited information to extend credit and insurance offers unless you opt out through the optoutprescreen.com website, which is maintained by the credit bureaus for this purpose.

Warning

The Federal Trade Commission estimates that 16 percent of consumer credit reports may contain inaccuracies. The credit bureaus do not audit them, so consumers must review their own reports and dispute the mistakes. The Fair Credit Reporting Act requires the credit bureaus to maintain the annualcreditreport.com website to provide free report copies every 12 months upon request. Mistakes can be disputed, and the bureaus have 30 days to get validation from the creditor. They must clear the disputed information from the report if they are unable to do so in that time frame.

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Digging Into Your Credit Report

Your credit report determines if you get approved for new credit cards or loans and what kind of interest rate you get. Creditors report all kinds of information about you to the three major credit-reporting bureaus, Equifax, TransUnion and Experian. You can benefit by checking your own credit report at least once a year. Looking at your report will show you where to improve, what accounts you should pay off and what you did well in the past.

Who Reports

Any of your creditors can report information about you to the credit bureaus. Credit card companies, loan companies and mortgagors report your history. However, some retail credit cards and gas cards may not appear on your credit report. CNNMoney reports that as of 2011, your landlord can report your rent payments to your Experian credit report. Generally, banks do not report information about your checking or savings account to your credit report unless you default on the account. Utility providers, wireless service providers and cable TV companies also report only if you default on your account.

What's Included

Your credit report will show every credit account you have that reported any information on you in the past seven years, according to Bankrate.com. Credit card companies report your total available balance, your total debt and your payment history. Loan and mortgage companies report your loan amount, the amount paid and payment history. Anytime you apply for new credit, it will appear as an inquiry on your credit report. If you've had serious credit problems, such as bankruptcy, this also appears on your report. Bankrate.com reports that as of 2008, bankruptcy can stay on your report for up to 10 years.

Calculating Your Credit Score

Your credit score rates your financial past in a three-digit number based on your credit report. Fair Isaac Corp., the company that developed the FICO credit score, uses several key points from your report to give you a ranking. MyFICO.com reports that payment history makes up 35 percent of your score, the amount you owe makes up 30 percent, the length of your credit history makes up 15 percent, how often you applied for credit makes up 10 percent and the types of credit you have make up another 10 percent.

Tips

You can get a free copy of your credit report from each of the three credit bureaus, Equifax, TransUnion and Experian. By law, the companies must give you one free report each year. You can order your copy through the Annual Credit Report website (see Resource). Once you review your report, you can improve your history and credit score by keeping a low balance on your credit card, paying all of your bills on time and rarely applying for new credit cards or loans.

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How to Get a Credit Card After Chapter 7 Bankruptcy

Although tricky, obtaining credit after a chapter 7 bankruptcy isn't impossible. In fact, applying for a credit card immediately after a discharge is a key way to begin rebuilding your credit history and bouncing back from a credit mishap. And while you may be unable to acquire an unsecured credit card, several lenders offer prepaid or secured credit cards, which can put you on the path towards a solid credit rating.

Instructions

1

Show proof of income. Regular income plays a role in credit approvals. Obtain employment and keep copies of your income statements or bank statements to provide lenders with your proof of income.

2

Find a bank. Credit unions and banks provide secured credit cards. Call local financial institutions to inquire about the application process. Double check to ensure the bank reports secured credit accounts to the credit bureaus, which is essential to boosting your low credit rating after a bankruptcy.

3

Inquire about fees. Secured credit cards include fees such as a security deposit and annual fee. Know the fees before submitting an application.

4

Open an account with the bank. Upon deciding on a bank, open a checking or savings account with the institution.

5

Deposit funds with the lender. Pay your security deposit to begin the application process. Typical fees range between $300 and $500.

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How to Prevent Divorce from Destroying your Credit Score

Signing divorce papers sometimes does not signal the end of your emotional anguish. Among other things, the potential exists for financial ruin. Many have indeed seen the detrimental effects on their credit reports for many years following. To prevent divorce from destroying your credit score, it is important to proactively take a few important actions.

Instructions

1

Understand that even if the judge orders your ex to be responsible for a certain debt, this does not legally exonerate you, if your name is on the original loan. For example, if your ex is ordered to make full payments on a car he has taken that is in both your names but fails to pay, the lender will still come after you for the money. Plus, it is your credit report that will reflect the late or missed payments. You could sue but even a victory will not restore your credit score.

2

Gather a list of all your joint debts. Omit nothing. If you had an amiable divorce, you can make this list together.

3

Demand in the divorce paperwork that your ex refinance all debts into his name. Give a time limit. If possible, you may want to wait to have the divorce finalized until your ex has done this.

4

Confirm with your creditors that you are no longer legally responsible for the debts and get this confirmation in writing. It is surprising how quickly your name can "reappear" on a debt once it is assigned to a collection agency. Always keep written proof.

5

Monitor your credit reports. The last thing you want is for your ex to stop payment on a debt but it is your credit that takes the hit. It should not happen if the debt has been refinanced; however, this does not mean that it never happens. This is why you need to keep your proof on file so you are absolved of all obligation.

6

Beware of credit score carelessness. If your ex cared little about his own credit score, he will certainly regard yours the same. However, if he was always meticulous about financial matters, there is no reason why he would not continue this way with debts from the divorce.

7

Do not accept the excuse, "My credit is too low to refinance these into my own name." Bad credit score lenders are everywhere. Though he will probably pay a much higher interest rate, it is highly unlikely that his score is too low to refinance at all. Let him know this point in a civil way. Do not budge on these terms, especially if your ex has a low credit score. However, you cannot expect your ex to refinance his debts if you are not willing to refinance your own.

8

Return to court, if necessary, to have the divorce decree enforced. Don't be afraid to do this. It is your credit score on the line and that determines your financial worth to every current and future lender. Do not just sit back and allow someone else to destroy that.

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List of Massachusetts Credit Reporting Agencies

Credit reporting agencies are private companies that collect and document an individual or business' use of credit. This credit history generates a credit score used as a rating of reliability for prospective employers, business partners, credit granting institutions, banks, mortgage brokers and landlords. The Fair Credit Reporting Act allows consumers to request free copies of their credit reports annually from the three major credit reporting agencies: Equifax, TransUnion and Experian. In addition to these national bureaus, smaller regional agencies offer services for local businesses and individuals, including in Massachusetts.

Strategic Information Resources

Strategic Information Resources in Springfield offers credit reporting services for bankers, lenders, landlords, employers and credit unions. SIR's verification services include Social Security numbers, tax returns, employment and deposits. SIR also provides marketing lists, vesting and property reports and closing services for equity lenders, as well as business credit services and management appraisal solutions.

Strategic Information Resources

155 Brookdale Drive

Springfield, MA 01104

413-736-4511

nextgeninfo.com

Central Credit Union Fund

Central Credit Union Fund in Auburn has been in business since 1932. CCUF offers investment services, including rates and market news, shares and terms certificates, brokerage and security services, SimpliCD and MemberMatch loan participation. CCUF also offers a variety of loan and liquidity products including lines of credit and settlement, term and amortizing loans. CCUF also provides payment and technology services.

Central Credit Union Fund

15 Midstate Drive, Suite 215

Auburn, MA 01501

508-832-0080

ccuf.dgcommunications.com

The Credit Source

The Credit Source in Seekonk provides a variety of credit reporting services to prospective employers and landlords, lenders and businesses as well as credit analysis, skip tracing and adverse action reports. TCSI tailors its services to the client, offering individual- or business-centered reporting and providing related support including debt collection and classifieds listings.

The Credit Source

60 Mayflower Drive

Seekonk, MA 02771

508-336-8814

tcsicredit.com

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Explanation of Credit Ratings

Your credit rating, or your credit score, is the number that determines how credit-worthy you are. It is used when you apply for new credit cards, or for mortgage loans, car loans and student loans. Landlords and employers may also look at your credit score, or your credit report. There are three different bureaus which store the data and information used to determine your credit rating: Equifax, TransUnion and Experian. These credit reporting agencies receive data from lenders, which is then used to calculate your FICO score (named for the Fair Isaac Corporation). Credit ratings, or scores, range from between 300 and 850. According to whatsmyscore.org, most Americans have a credit rating in the 600s or 700s.

FICO Score Formula

Your credit rating, or your FICO score, is made up of several components of your borrowing history. Ten percent of your score is based on how many different kinds of credit you use. 10 percent is based on how much new credit you apply for. 15 percent is based on the length of your credit history. 30 percent is based upon what you owe. The last 35 percent is based upon your payment history.

Payment History

The payment history factor of your credit rating makes up 35 percent of your score. This factor obviously considers how responsible you are in making payments on your debt. Creditors report payments that are 30 days late, 60 days late and 90 days late. Even one late payment can lower your credit rating. The payment history factor also considers things like foreclosures, bankruptcies, short sales, settling debt for less than what is owed and judgments obtained against you. These adverse actions can remain on your credit report for up to 10 years and dramatically lower your credit rating.

Amount Owed

The amount of money you owe, and who you owe it to, is also an important factor in determining your credit rating. This component of your credit report is determined in two ways. First, creditors look at your debt to income ratio. The more money you make, the more money you can borrow without lowering your credit score. Second, creditors look at your debt to credit ratio. Using less of your available credit is preferred to borrowing the maximum amount of money available to you. For example, if you have two credit cards, each with a $100 limit, and you borrow $50 on each card, you will have a higher rating for debt/credit than a person who has one credit card with a $100 limit who borrows the full $100 on that card.

Age of Credit and Inquries

Your credit rating can also be affected by opening new credit cards or taking out new loans. This affects your credit rating in two ways. First, opening new accounts lowers the average age of your credit history, which makes up 15 percent of your score. Second, each time you apply for new credit, the lender requests a look at your credit report. This request, called a "hard pull" or "inquiry" shows up on your credit report. Too many inquiries can lower your credit rating because lenders become nervous that you are living beyond your means and/or borrowing more than you will be afford to pay back.

Types of Credit

The final component which affects your credit rating is the types of credit you have. It is better to have a mix of different types of credit and loans. Unsecured debt, like credit cards, should be mixed with secured debt like mortgage loans and/or car loans. This shows lenders you have a history of being responsible with all different types of credit.

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How to Remove Derogatory Credit Remarks From a Credit Rating

Removing derogatory remarks from your credit rating will help your credit score improve, and will help your chances at obtaining any type of financing, an apartment or even a job. So many aspects of life in today's society depends upon one's credit rating. The three major credit bureaus--Experian, TransUnion and Equifax--all assign you a unique credit rating depending on your credit history. By taking the time to remove derogatory remarks from your credit report, you will be in much better financial shape.

Instructions

1

Obtain a copy of your credit report from each of the major credit bureaus. Each report will be unique and will require you to analyze each one separately. You can order your credit report directly from each bureau, or once a year you can obtain a free copy of your credit report from each bureau at Annualcreditreport.com.

2

Highlight any false derogatory credit remarks from your credit report. You will need the name of the account, account number, and date history in order to dispute the items. Derogatory remarks are any items that state you are in collections, charge-off, foreclosure, or even any items that claim you have made late payments or been over your credit limit. Any of these items on your credit report will result in a lower credit rating.

3

Draft a letter to each bureau, explaining that the derogatory items on your credit report are incorrect and you insist they be removed. Include a copy of your driver's license to help speed the process along of verifying your identity. By law, if the credit bureaus cannot verify the information from the original creditor within 30 days, the item must be deleted from your credit report. You will be notified within 45 days of such decision, whether deleted or verified.

4

Go to the post office and send each letter to each credit bureau via certified mail. This is important to keep track of the 30-day time frame in which each bureau has to respond. Keep your receipt and the signature cards returned to you after they're signed by a bureau representative. These are your evidence of your timeline.

5

Keep the updated copy of your credit report that will be mailed to you after the credit bureaus complete their investigations. If items were verified, you can immediately dispute the item again. This process can repeat every 30-45 days. Be sure to follow the steps precisely, sending certified mail each time and keeping track of the dates received.

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Debt Settlement's Impact on Your Credit Score for Point Reduction

When your debt situation gets to the point that you consider a debt settlement -- offering a creditor a partial payment to call a debt even -- the impact of a settled account is probably insignificant on your credit score. Debt settlement does the most damage when you go into negotiations with an average or better credit score. If you want to keep as many points as possible, avoid settling, because you cannot predict what effect it will have.

Identification

The impact of debt settlement or any other negative item is unpredictable in the Fair Isaac risk model, because the formula contains dozens of variables. Even small changes in your credit picture can have a large ripple effect. What is known about the FICO model is that negative items do more damage to high scores, because the borrower has more to lose. If you had a score of 780, for example, debt settlement could reduce your score up to 125 points, but usually no more than 65 points on a score of 680, according to Ellen Cannon of Bankrate.com.

Considerations

Lenders usually refuse to negotiate a debt settlement until the lender is seriously delinquent -- typically after about two or three months of no payment. If the lender writes down the account as noncollectable in his ledger or sells it off, the delinquent account will be the most important item. A charge-off or collection account is in line with a bankruptcy, so a settlement on your credit file probably makes little difference, according to Maxine Sweet, head of Experian's Public Education division.

Benefits

Debt settlement's short-term negative impact might be a better long-term solution to poor credit. If you are drowning in debt and frequently miss payments, you score will always be in the dumps. A settled account and any other negatives except bankruptcy and an unpaid tax lien disappear in seven years. Also, you can get a fresh start on your debt profile if you negotiate most of your debts.

Tip

Whether or not you have great credit, go to a licensed credit counselor before opting for debt settlement. The counselor may have choices that satisfy your creditors and protect your credit score. A common option is the debt management plan in which the counselor talks all of creditors into a single payment, which the manager handles and divides amongst them.

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The Effect of a Revolving Account on a Credit Score

Credit scores are a useful tool that lenders use in determining creditworthiness. The higher the scores, the less likely a person will default on any type of loan or obligation. How a person uses his revolving credit lines has a big effect on scores. Abusive use of credit lines, in which they sit near "maxed-out" condition, will injure scores and effect whether you are approved for a credit request. Your timing with what is going on in the marketplace comes into play. When there are many defaults on loans and foreclosures on homes, an approval for any request is risky business to a lender or bank, so scores need to look their best before you apply.

FICO Core Calculations

Credit scores are based on math algorithms created from software programs that credit bureaus use in determining credit scores. Fair Isaac Corporation was the creator of credit scoring, thus the term "FICO scores." Scores are affected by each reporting from credit vendors and can change daily. The two things that seem to affect scores more than anything else is your payment history and how much you owe.

Credit Line Balances vs. Availability

A big percent of your credit scores are made up of the total level of debt you are approved for as compared to current balances. This is particularly true with revolving lines of credit, since they can move up and down throughout the month. The higher the balance, as compared to the maximum amount it can be, causes your scores to drop. The good news is that you can control this by: keeping the balances low (30 to 40 percent of the credit line) or spreading out the use of the revolving accounts to keep them all a low percentage of use.

A warning about some credit card providers: Some do not report the maximum amount that the account is approved for; rather, they report the highest use it has ever had. If it is approved for $5,000, and your balance is $2,500, this is a simple 50 percent of usage; however, if the highest use of the account is $3,000, the balance of $2,500 divided by $3,000 = 83.33 percent, which is incorrect, and injures your scores.

Payment History

Late payments within the past 12 months have the most effect on your current credit scores, and will continue to injure them each month less and less as time goes by, until the late payment is no longer relevant to current activity. Revolving lines of credit are particularly vulnerable to this, since you can get a "double hit" of injury to credit scores by having high balances on credit card or other revolving accounts, and having a late payment reported. The software considers that you are all but "maxed out" and cannot handle the debt that is created by the balances.

Time Frame

If you are paying down credit cards and revolving credit accounts to increase your scores, understand that no impact will be made to scores until the new lower balances actually reach the credit bureaus and your reports: all three of them. Credit card companies report to credit bureaus at various times of the month. You could ask each of them when they report balances, then wait a week after the date of the latest reporting card or account in the month, then access your credit scores. Do not use these credit cards in the meantime, since you want to maintain these lower balances to keep your scores as high as possible.

Warning

If you are applying for any type of credit, go to Annualcreditreport.com and request all three of your credit reports. These are all free to you once per year. You can access your scores at the same time, but there is a small cost for each of them. Pay close attention to your revolving lines of credit. Be sure they are paid down, and have no late payments showing in the past 12 months. Look for errors, duplications and outdated accounts. Dispute these for removal by calling the customer service phone number shown on page one of each report. Allow 30 days for the bureaus to respond with a corrected report. Doing this, along with paying down your credit cards and revolving accounts, will increase your credit scores.

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Important Information About Your Credit Report Order

Lenders will consider your credit report, credit score or both when deciding whether to approve you. By ordering your own credit report, you can see what information the lender sees when making their decision. You credit report contains your personal information and a detailed picture of your past credit history.

Free Access

Any time a lender denies your application, you can get a free copy of your credit report. The lender must tell you which credit bureau they used in making their decision. Bankrate reports that you have 60 days to contact the credit bureau and request a report. Under the Fair and Accurate Credit Transactions Act, all three credit bureaus must give you one free report each year. You can access your report from each bureau through Annual Credit Report.

Included Information

Your credit report will contain information on your past credit use. Any negative information you have such as a bankruptcy, a lien, collection accounts or a past-due credit card balance will appear on your credit report. Any account you have in good standing will appear on your report. For example, the credit bureaus track your payment history on your credit cards. The credit bureau will list your past payment history on your report. Any time you applied for a credit card or loan will show on your report. The credit bureaus keep a list of the name of the lender and the date you applied. Your credit report will also contain your personal information such as full name, home address, previous address and employer information.

Correcting Errors

You may find mistakes on your credit report. If you find an error, you can request that the credit bureau investigate the mistake. The credit bureau will typically complete an investigation and correct inaccurate information within 30 days, according to Bankrate. You can write a letter to the credit bureau stating which item you want to dispute. If you choose to mail your dispute, include a copy of your credit report and circle the error. You can also dispute your credit report online. Equifax, TransUnion and Experian have an online dispute form on their websites.

Tips

The credit bureaus update your credit report as soon as they receive new information from your lenders. For example, if your credit card company reports your monthly payments, your credit history will typically change every month. You should order a copy of your own credit report regularly to check for any possible errors. You can order your credit report for a small fee from each of the credit bureaus online, by mail or by phone.

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What Does My Credit Score Have to Be to Be a Police Officer?

Becoming a police officer is often seen as a prestigious and rewarding career option. Like most careers in law enforcement, candidates for the police force must undergo extensive background checks, including a credit check. While there is no specific credit score required to become a police officer, a negative credit history can hurt your chances of being hired onto the force.

FICO

Fair Isaac Company scores range from 300 to 850, with 700 and above generally considered good credit, and scores below ranging from fair to bad. Scores are composed of a variety of credit-related information, including the amount of money owed on your lines of credit, the length of your credit history and the type of credit on your report. While a good credit score is preferred, police departments are primarily concerned with a candidate's credit history.

Patterns

When reviewing your credit history, recruiters, police chiefs and sheriffs look for specific patterns, not a specific credit score. If your credit history has minimal late payments, and moderate credit usage, it can demonstrate a pattern of responsibility, a characteristic that is important for those tasked with upholding the law. A less-than-positive credit history, or one in which your spending exceeds your income, however, may signal a pattern of irresponsibility, and call into question your ability to avoid the type of ethical temptations that police officers routinely face on the job.

Debt

While debt such as a home mortgage or student loans are permissible, especially for relatively young applicants, a history of bankruptcy and debt collection is not attractive. Recruiters want to make sure that you are consistently honoring your debt obligations by paying your bills on time. Due to the nature of police work, many hiring agents often act on the belief that past behavior is the best indicator of a candidate's future performance making the best candidates those who follow through on their financial commitments.

Help

Many police departments have experienced a decline in funding, making them more selective about who they hire. If you have a bad credit history, you may be able to improve your chances of becoming a police officer by being proactive about your credit. Enrolling in a credit counseling service, and following through on your payment schedule can demonstrate a commitment to obtaining better credit, and demonstrate the type of responsibility necessary to become a police officer.

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Multiple Credit Checks When Buying a Home

When you are preparing to buy a home, one of the most important steps is to select a mortgage lender and get your mortgage set up. The lender you choose and interest rate you get will affect you for years, so you should shop around and choose wisely. As part of the process of getting a mortgage, lenders may run multiple credit checks to determine your ability to borrow.

Effect on Score

Every time a lender obtains a copy of your credit report for a credit check, that lender's name appears on the section of your credit report that lists credit inquiries. If the lender pulled your report because you applied for credit, that inquiry can hurt your credit score. In general, a credit inquiry will lower your score by five points or less.

Ignore Recent Inquiries

The credit score formula ignores all inquiries from the past 30 days that appear on your credit report. This is helpful when you are rate-shopping for a mortgage because it allows you to compare lenders accurately. If an inquiry you got at another lender yesterday dropped your score for the inquiry you are getting today, this could affect your interest rate and skew your perception of which lender is better.

Ignore Multiple Inquiries

The credit scoring formula is also calibrated to recognize when you are rate-shopping and penalize you for just one credit inquiry rather than multiple ones. The most recent version of the FICO credit score formula as of August 2011 groups together inquiries for the same type of loan within a 45-day time period and counts them as just one inquiry on your credit score. However, the older credit score formula uses a shorter rate-shopping period of 14 days. Therefore, it is best to rate-shop within a 14-day window to ensure that all of the credit checks will be grouped together and only ding your score once.

Check Your Credit

Before you even go into a lender for credit checks, you can check your own credit. The credit score formula does not penalize you at all for pulling your credit report. You can get a free report from each credit bureau through the Annual Credit Report website. When you get your reports, look over them for errors and initiate disputes if you find any. Also calculate the utilization ratio on each credit card by dividing the balance by the limit. Try to pay down balances so all cards have a utilization of about 30 percent or less before you apply for a mortgage.

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How to Fix My Credit Check

Your credit score is one of the most important numbers attached to your name. It significantly impacts your ability to secure new credit, qualify for the best interest rates and purchase houses and cars. If your credit score is subpar, you may be able to improve your score by reviewing your credit report for errors. Since an estimated 79 percent of credit reports contain errors, chances are you're being penalized for something that isn't your fault.

Instructions

1

Obtain a copy of your credit report. Go to www.annualcreditreport.com and request a free copy of your credit report. You're entitled to one free report per year from the three major credit bureaus -- Equifax, TransUnion and Experian. If you've exhausted your free options, you can pay one of the bureaus for your report or sign up for a free trial of a bureau-sanctioned credit monitoring service, such as Experian's Triple Advantage.

2

Review your credit report very carefully for errors. Use a pencil or pen to circle any errors you see. If you can, find documentation that supports your case. When you've found the errors, make a photocopy for your personal records.

3

Write a dispute letter to the credit bureau explaining that their information is incorrect and you'd like to have it removed. Be sure to include your supporting documentation. The credit bureau has 30 days to review your inquiry and notify you of their decision. If the item in question is removed, you'll receive a new copy of your report. This updated credit report can then help you to get the rates and credit you deserve.

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How to Explain Late Payments on Credit Reports

It happens to many people. You're late on paying a bill for whatever reason. What a lot of people don't realize is how those late payments can have a negative impact on your credit report. Many people go through financial hardships that cause them to be late on loan and credit card payments. Although most of these hardships are temporary, negative entries can stay on your credit report for up to seven years, or 10 years for bankruptcy. Negative items on your credit report can prevent you from getting approved for credit, so you must be able to explain your situation and convince a potential creditor to take a chance on you regardless of your past financial history.

Instructions

1

Briefly explain the circumstances that caused late payments to appear on your credit report. Avoid including irrelevant information, and never try to ask for sympathy.

2

Give the details of any personal challenges you've been through. Explain the circumstances that caused your financial problems. Explain briefly what events led to your inability to take care of your financial obligations.

3

If the problems were caused by your own carelessness and negligence, be honest and admit your mistakes. Accept responsibility for having contributed to your negative credit. Explain what lessons you learned from those mistakes and what you are doing to make sure those mistakes don't occur again.

4

Give a brief explanation of what actions you took at the time to rectify the situation. Even if your efforts did not prevent the negative credit entries, potential lenders or creditors like to see evidence that you tried to correct the problem before it got out of control.

5

Mention that you are aware of the importance of maintaining a good credit record and emphasize that you now pay your bills on time and you plan to bring your finances back on the right track.

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How to Fix Bad Credit for Free

The Federal Trade Commission states that firms bombard consumers with ads for paid credit repair services, but credit clean-up is free and can be done without any outside help. The Fair Credit Reporting Act allows you to dispute and request the removal of certain negative items. Additionally, you can pull up your credit rating by concentrating on certain financial management practices recommended by the FICO credit score company. Credit report disputes and a sound financial plan are all legal, effective and free strategies to fix bad credit.

Instructions

1

Find as many reasons as possible to dispute negative credit report entries. Negative items may be blatantly incorrect, or they may have small mistakes in things like payment dates, name spellings or account balances. You can check your TransUnion, Equifax and Experian credit reports once every 12 months for no free if you order them from annualcreditreport,com.

2

Write dispute letters to each of the three credit reporting agencies demanding an investigation of the mistakes. The FCRA gives the agencies 30 days to contact creditors for validation. The items have to be erased if they are not verified. The FTC recommends getting proof of the letter receipt dates by sending them through certified mail.

3

Catch up every delinquent account and make all future payments by the due dates. FICO, the biggest credit score company, explains that past-due payments and accounts that get turned over to collection agencies are very harmful to your credit rating. Set up electronic deductions, if possible, to avoid mail delays for your payments.

4

Pay as much money as possible every month on your highest revolving balances. Credit cards are revolving credit lines that hurt you if you run up your debt to the maximum limits. You will not make much progress by paying the minimum amount due each month, so add more regularly.

5

Leave credit card accounts open, even if you pay them off. FICO looks favorably on long-term accounts.

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Are Credit Repair Companies Legit?

When you've got bad credit, you want to turn it around as quickly as possible. With credit repair companies promising a fast increase in score, it's tempting to contact them for help. It's smart to research ahead of time, though, because most will not be the instant solution that you're looking for. In fact, some are not legitimate at all.

Legitimate Companies

When you have bad credit due to mistakes in your credit report, a credit repair company can help make the necessary disputes. You can contact the credit reporting companies yourself to have these items removed, but the Bankrate website estimates that it can take you a total of four hours in order to dispute an error. A legitimate credit repair company can step in at this point and do the correct paperwork for you.

Credit Repair Scams

Signs of a credit repair scam include asking for upfront payments, promising to increase your score and suggesting that you can get rid of negative information on your report even if that information is accurate, according to the Federal Trade Commission. Another common scam is to suggest that you "open a new credit file" -- you cannot legally do this.

Credit Repair Myths

Most credit repair companies are more misleading than outright scams. A legitimate company cannot do anything for you that you cannot do yourself. Some companies may lead you to believe that only if you go through the company can you dispute the errors and improve your credit score, but this is not the case. If you'd rather spend your time than money, you can correct the errors yourself.

Current Creditors

When the negative marks on your credit report are from creditors that you still have an active relationship with or who have sent your debt into collections, some credit repair companies will act as an intermediary. They might negotiate more favorable terms with the creditor, allowing you to pay less to settle the debt and have the negative mark removed from your credit history. You pay the credit repair company and they'll pay the creditor. If you're going to enter this type of arrangement, though, check the company's rating with the Better Business Bureau or through online reviews. Some bad companies will take your money and never pay it to the creditor, putting you in a worse financial situation.

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What Shows Up on a Credit Report?

A credit report lists information about your financial activities. If you apply for a loan, insurance or a credit card, the information will be lodged with the Consumer Reporting Agency (CRA). CRA's (Equifax, Experian or TransUnion) store the files on a huge database, which is kept private unless potential creditors, landlords or employers require the information to ascertain your suitability for credit.

Identity Information

Your credit file contains your name, date of birth, address, previous addresses, Social Security number, employment history, any known aliases and the same information about your spouse.

Credit Information

Your credit report lists any accounts you have with banks, credit card issuers, store cards, any loans you have taken and the dates when the accounts were opened. Related payment information is held with the CRAs so that potential creditors can see if you are at risk of failing to make payments. The credit file also contains utility billing information.

Inquiries

Recent inquiries made by creditors who have asked for your credit report remain on file for a year. Inquiries relating to employment history remain for two years.

Public Record Information

Any information which requires public recording is held on your credit file. This includes bankruptcies, tax liens and foreclosures. Some agencies also list monetary and non-monetary judgments.

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What Is a Plus Score Credit?

A "plus" credit score is used by the credit reporting agency Experian to give customers an idea of where their credit stands. It takes into account the person's current credit, as well as credit history for up to seven years. It is important to remember that the Plus credit score is not necessarily equal to the FICO credit score, which is the standard credit score for most lending institutions.

Function

The "plus" credit score is a simple representation of a person's overall credit history and is used to give people a general idea of how their credit compares to the rest of the population.

Source

The "plus" credit score is calculated and provided by Experian, one of three main credit reporting agencies. It only references credit information that has been reported to Experian.

Cost

The "plus" credit score is generally more affordable than the FICO score. The FICO score costs $15.95 per report, while the "plus" credit score is $14.95 per month, includes a full credit report and is often available through free trial offers.

Calculation

The "plus" credit score takes into account a variety of factors, including the person's amount of available credit, age of credit accounts, defaults and bankruptcy filings.

Misconceptions

Though the score ranges are similar, the "plus" credit score is not necessarily equivalent to the FICO credit score. The FICO score is the standard credit score that lenders reference.

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How Much Does a Collection Agency Ruin a Credit Score?

Credit scoring formulas take various credit-related factors into account, like the number of accounts you have, your available credit lines, account use and payment dates. The "Payment History" category is 35 percent of your score, and it encompasses many things beyond your payment dates. The percentage also includes things like court judgments, bankruptcies and accounts placed with collection agencies, according to MyFICO.com

Collection Agency Reporting

The Experian, Equifax and TransUnion credit bureaus draw information for your credit reports from many sources, like banks, credit unions, finance companies and other firms that loan money or issue credit cards. Collection agencies report to the bureaus when they take over accounts. You end up with two bad entries on your reports if a credit card issuer or loan company sells your debt to a collector. Your file shows the original account, including delinquent payments, and the collection entry.

Credit Score Impact

Your credit score runs from a possible high of 850 down to 300, and collection agency entries in your credit files can knock it down by at least 100 points, according to CNNMoney's David Ellis. The score reduction may cost you money if your score is already borderline from the late payments that caused your account to be sent to a debt collector. The lowered score can mark you as a subprime borrower, subjecting you to higher interest rates on loans and credit cards or causing outright rejection of your credit applications.

Solution

Collection agencies add their accounts to your credit reports and can also remove the bad entries. Come to a settlement agreement with the debt collector if you want to clean up your credit reports, and insist on erasure of the bad credit entry as part of the deal. Collectors may agree verbally just to get your payment, but they don't always follow through. Make sure you withhold or delay your payment until you get the removal promise in writing.

Considerations

Collection agency accounts are not always related to accounts that are already on your credit reports, Ellis warns. Obligations like medical bills, unpaid parking tickets, bounced checks and even old library fines can get set to debt collectors and show up in your Equifax, TransUnion and Experian records. These accounts damage your credit in the same way as collections related to credit cards and loans.

Warning

Your credit score does not completely rebound after collection removal if your credit report still shows the original account. You still feel some impact from the late payments and eventual charge-off by the original creditor before it sold the account to the debt collector.

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What Is the Minimum FICO Score for a Home Loan With FHA?

Ninety-nine percent of the U.S. population met the minimum credit score requirement to receive a Federal Housing Administration mortgage, according to Score Truth. The minimum credit score to acquire an FHA-backed mortgage is purposely low because the agency's directive is to help first-time borrowers acquire a home loan when they would not normally qualify on their own. Not all credit scores will qualify for maximum financing, but most do.

Identification

As of 2010, borrowers must have a credit score of at least 500 to qualify for an FHA-backed mortgage, according to FHAInfo.com. Almost all borrowers meet this credit score requirement, because it comes close to the lowest possible rating on the Fair Isaac risk model scale -- 300. People with a score of 500 or below tend to have several missed payments, probably more than 60 days late, collection accounts and bankruptcy on file. At a score of 500, the borrower is considered a high risk or subprime and most private lenders won't even look at his application.

Loan-to-Value Ratio

Borrowers who have a score of less than 580 do not qualify for 100 percent FHA financing. Instead, the applicant must come up with 10 percent of the property's value in cash or collateral as of 2010, according to Tami Luhby of CNN. The FHA had previously allowed anyone who qualified to receive full financing, but the FHA's reserve fund -- meant to repay a loan when a homeowner defaults -- was below the Congressionally mandated limit due to the housing crisis of 2006 to 2009.

Nontraditional Credit History

The FHA accepts nontraditional credit histories. However, the applicant must have three credit references -- at least one from Group I and Group II references -- from the past 12 months. Group I includes creditable accounts, such as rental history, utilities, cable TV statements and even canceled checks from renting a dwelling from a family member. Group II includes creditable transactions, such as insurance, school tuition, any type of lease and even bank statements that show a regular savings history.

Tip

If your credit score does not qualify for complete FHA backing, you might be able to get a down payment assistance grant from nonprofit organizations such as AmeriDream and Nehemiah, suggests FHA.com. You could wait to apply for the loan until your credit improves. Paying bills and eliminating any debt might be all you need to do. Also, ensure you meet other FHA basic requirements. You must, for example, have at least two years of stable job history with a consistent or increasing salary.

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How to Improve Your Credit Score With Effective Credit Report Repair

Improving your credit score is important for obtaining future lines of credit with lenders. There are many different ways to repair your credit report so that you can have the credit score you deserve. Staying on top of your credit is important, and it can be done easily with a little dedication. It only takes a little bit of time, and you can do it without the help of a credit repair company.

Instructions

1

Request a current copy of your credit report. You can obtain a free copy of your credit report by going to Annualcreditreport.com and requesting one (see Resources). There are three different credit reporting agencies--Experian, Equifax and TransUnion--and while they may all have slightly different information, the report will give you a good indication of where your credit stands.

2

Analyze your credit report to ensure there aren't any errors. Sometimes you may have errors on your credit report through no fault of your own, and these can bring down your credit score. Errors can be corrected by sending a dispute to the credit reporting agency in writing, as well as online at their website. Be sure to include any documentation to substantiate your claim.

3

Take a look at your budget. Some people are quite surprised when they sit down and create a budget for themselves to see where their money is actually going. Once you see how much money goes to your bills and what you have leftover, you may find ways to pay off higher interest payments to save yourself money in the future.

4

Work with collection agencies, if any, to make payment plans. If you have any debts that may have gone to collections, work with the agencies to pay off the debt completely. Look at your budget to find out how much you will be able to pay, and talk to them about your plan. If you are willing to work out something to pay off the debt, the agencies may be more willing to negotiate the balance.

5

Pay all of your debts on time. As simple as it may sound, this can help improve your credit score and your ability to work with lenders in the future. Even paying all of your debts on time for a few months in a row can improve your score as much as 20 points, which can mean the difference between approval and denial from a potential lender.

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How Often Are Credit Scores Pulled?

Lenders use credit scores to help determine whether they should extend credit terms to consumers. Credit bureaus such as TransUnion, Experian and Equifax provide a three-digit credit score to lenders upon request. Maintaining favorable credit scores could position you to obtain competitive lending terms. Generally, you should know about third-party requests to view your credit report, as your signature is required for a lender to pull your credit.

Credit Application

An applicant who submits a financing request typically authorizes a lender to pull his credit report. A lender reviews the applicant's credit rating and generally checks his credit score. Some lenders, such as auto finance companies, banks and mortgage companies, rely on credit scores to predict the applicant's risk potential. Below-average credit scores often indicate a higher chance of default, while above-average credit scores may reflect a safer lending risk. If the applicant meets the lender's credit qualifications, the lender may grant financing terms.

Background Check

Background checks are often performed when an applicant applies for a new job. A prospective employer might review an applicant's credit rating before finalizing a hiring decision. Some insurance companies require credit scores to determine certain risk factors before issuing an auto insurance policy.

Frequency

A tri-merged credit report and credit score could enable the requester to view multiple credit scores and credit data. Requesters generally initiate a single pull of an applicant's credit. Typically, credit ratings and credit scores are used to make a quick lending or risk decision. If the credit review process takes greater than 30 days, some requesters may want to pull a new credit report and credit score for the most current reporting period.

Considerations

A consumer could pull her credit score as often as needed without impacting her credit score. However, a consumer who permits a merchant or other entity to pull her credit may risk lowering her credit score for each inquiry. While shopping for a mortgage loan or an auto loan, consumers typically have a two-week period to shop for financing without significantly impacting credit scores.

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How to Rebuild a Credit Rating After Foreclosure

A foreclosure is devastating on many levels, including to your credit. Having a foreclosure on your credit report has a large negative impact on your score and your ability to get credit in the future. However, your credit is very dynamic and the foreclosure, while initially devastating to your credit, will eventually fade and in seven years will be removed. As long as you keep any other credit accounts in good standing, your credit will recover from the foreclosure.

Instructions

1

Maintain all your other accounts. Because getting new credit after a foreclosure is tough, maintaining any other credit accounts you have and keeping them in good standing is critical to rebuilding your credit. Keep credit cards, auto loans and other lines of credit paid on time and under their assigned credit limits at all times.

2

Establish new credit. This is a particularly tough endeavor, but is essential to helping you rebuild your credit after a foreclosure if you don't have any other trade lines. You will most likely only be able to obtain small loans and credit cards with higher interest rates and low limits at first, but as long as they report to the credit bureaus, they will help. Another option is prepaid credit cards. These cards are available to anyone as there is no credit check since they require you to make a security deposit in a holding account before they will issue you a card. They report to all three credit bureaus.

3

Take your time. The old adage that time heals all wounds also applies to your credit report. The foreclosure will fall off your report seven years after the process has completed. Take this time to ensure that all of your accounts are in good standing and that you are contributing money to a savings account. Having money in the bank will help you obtain a new mortgage or make other large purchases while you are in the process of rebuilding your credit.

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When Is a Credit Repair Company Allowed to Charge an Upfront Fee?

Unscrupulous companies that charged upfront fees for credit repair services led to so many complaints to the Federal Trade Commission (FTC) that the FTC banned this practice. However, some jurisdictions allow a few exceptions to this rule. Also, this does not stop businesses from trying to charge upfront fees, even when it is illegal to do so.

Identification

As of 2010, provisions in the Credit Repair Organizations Act make it illegal for credit repair companies to charge upfront fees, according to the FTC. Some companies charged customers hundreds of dollars before providing services. Furthermore, credit repair companies typically perform services or provide information freely available to anyone, such as disputing errors with the credit bureaus.

Considerations

States may have laws that allow companies to charge fees for credit repair before performing any services. Usually, these laws only allow upfront charges for professions that are heavily regulated. For example, if the state licenses credit repair companies, it may permit a licensed company to charge an upfront fee.

Warning

Despite the existence of a federal law banning most upfront fees for credit repair, this may not stop all companies from attempting to collect upfront fees. If you were charged an upfront fee for credit repair, the Privacy Rights Clearinghouse suggests complaining to the FTC. Your state's attorney general can help you recover upfront fees from a credit repair company.

Tip

Research any credit repair company or service before enlisting its assistance. This research may include checking with the Better Business Bureau for complaints about the company. A legitimate credit repair company must and will provide you with a contract listing all their services, guarantees and total cost. Often, credit repair companies are unnecessary, and you should first consider credit counseling through a nonprofit counselor associated with the National Foundation for Consumer Credit.

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How to Calculate a FICO Credit Score

The FICO credit scoring system, created by Fair Isaac Company, is the most common method used to determine the creditworthiness of a consumer. FICO provides a number between 850 and 300, which correlates with several factors of your credit history. A credit score of 720 or higher demonstrates that you are a good credit risk, while scores below 660 mean your credit might need some work. FICO score information is provided to creditors on your credit report, which can be obtained from one of three credit bureaus (Experian, Equifax or Trans Union).

Instructions

1

Keep careful track of your payment history. This accounts for 35 percent of your FICO score. Your payment history should include the type of accounts you have (mortgage, credit card, or car loans), any adverse judgments such as bankruptcy and liens, payment delinquency as well as length of delinquency and amount due and the time that has elapsed since negative information was placed on your credit record.

2

Determine the amount owed on each outstanding account. Keep this information in a bank ledger and update each month as debts are paid. One third of your FICO score is based on this figure.

3

Establish an excellent, long standing credit history. The length of time you have excellent (or poor) credit comprises 15 percent of your credit score. If you do not have a credit history, apply for a credit card and make regular payments to demonstrate that you are an excellent credit risk.

4

Assess the number of new accounts taken out. Ten percent of your FICO score is based on this figure. If you already have good credit established and are considering applying for a large loan, such as a mortgage. new credit inquiries could be detrimental to your credit score.

5

Make note of the type of credit you have established. This accounts for the final ten percent of your FICO score. Having reputable credit sources, such as bank credit cards and mortgages, as well as an excellent payment history will be beneficial in obtaining a higher credit score.

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Can You Build Up Good Credit in 6 Months?

Your credit gets ruined very quickly if you skip a few payments, have a car repossessed, declare bankruptcy or have other negative events happen within a short timeframe. Building up good credit takes longer because lenders want to see enough evidence of financial responsibility to feel confident that you will pay back your debts. You cannot completely fix bad credit in six months, but you can make a lot of progress.

Credit Report Cleanup

Credit report cleanup is the fastest way to build good credit quickly if there are significant mistakes on your Equifax, Experian and TransUnion credit reports. Every negative item that gets removed boosts your credit score because it is no longer considered in the scoring formula. Dayana Yochim of the Motley Fool advises that as few as 20 percent of credit reports are completely accurate. Use AnnualCreditReport.com to get free, no-obligation reports, circle the errors and report them to the credit bureaus through their online forms. Much of the information may be erased if the bureaus cannot confirm it with your creditors.

Debt Payoff

Pay off as much of your debt as possible if you owe a lot on your credit cards. The new balances are reflected quickly on your credit reports and positively influence your credit score. MSN Money writer Liz Weston advises reducing card balances to 30 percent of their credit limits, although getting them to 10 percent of the limits is the ideal. Put extra money on the accounts that are closest to their limits every month if you cannot put down lump sums to reduce the balances quickly. Stop using your cards while you work on paying them down.

On-Time Payments

The MyFICO credit scoring company singles out your credit repayment history as the most important part of your score. Payments make up a full 35 percent of the score total, so catch up past-due accounts immediately and make all future payments on time. Six months of timely payments shows lenders that you are focusing in credit rebuilding. Set up automatic deductions from your bank account if you have problems remembering to send money by the deadline or often have postal delays.

Considerations

Rebuilding credit involves using credit, which is hard if lenders closed your accounts for past delinquencies or due to bankruptcy. Get a secured credit card, which takes a deposit of as little as $300, if you cannot get other accounts. The bank holds your money as a payment guarantee and extends a credit limit in the same amount as the deposit, according to Pat Curry of the Bankrate website. Use the account regularly for six months, always paying at time, then ask the bank to convert it to a regular credit account. Some will do so, while others make you wait a year or two, but the prompt payments still look good on your credit reports.

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Do You Need Good Credit to Open a Cell Phone Plan?

Good credit comes from a variety of factors, according to the My FICO credit score company website. The primary factor is making on-time payments, but many lenders and companies look at your account credit limits and balances and the length of time you have used credit. and installment loans. They also consider negatives, including charged off bills, repossessed cars and foreclosed homes, and use the data to make a decision.

Qualifications

Cell phone providers extend a service to you and expect monthly payments for your telephone use. They want reassurance that you are likely to pay on time. Pat Curry, a writer for the Bankrate website, explains that they judge this by reviewing your credit score, a number compiled from information in your credit bureau records. You are much more likely to get approved for a cell phone plan if you have a good score. A fair score may get you a contract if you put down a deposit, while a bad score means rejection.

Preparation

Prepare for your cell phone plan application by checking your credit reports beforehand. You are not legally entitled to see your credit score for free, but the Federal Trade Commission advises that you get free yearly credit reports on request because of a law called the Fair Credit Reporting Act. You must order them through a particular website (See Resources) because the Equifax, Experian and TransUnion credit bureaus charge a fee for orders made through their individual websites. Evaluate your reports for negative items that bring your credit score down, including many late payments, charged-off accounts or many high balances that are near your credit limits.

Solution

Some bad credit items cannot be resolved quickly, but you may find negative mistakes that need correcting. The FTC recommends disputing errors by writing letters to the credit bureaus. which forces them to check the information with the original creditors within 30 days. If the information is truly wrong, or if the creditors do not respond, the negative data is erased and no longer counts in your credit score. You may be able to raise your score enough to qualify for a cell phone plan if you find enough errors. Dayana Yochim, a Motley Fool website writer, advises that there are mistakes in about 80 percent of credit reports.

Alternatives

You can still get cell phone service without a good credit score. Mark Huffman of the Consumer Affairs website explains that pre-paid cell phones are purchased without a credit check. You buy airtime as needed, paying for it in advance. You cannot make or receive calls once you run out of minutes until you buy additional time.

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How Fast Can I Increase My Credit Score?

Your credit score is a number that tries to quantify your credit history and practices so that lenders can quickly compare and assess you as a potential client. Recent activity counts more than old activity, but pretty much everything is there. So, while good behavior can improve a low score over time, bad behavior shows up for years.

Recent Activity

The best thing you can do is to clean up your act immediately. Pay all your bills on time, stop relying on your credit card and try to pay off any outstanding balances. Good behavior can start improving your score within the first two months.

Quick Fix

There are two ways to quickly boost your credit score. First, get a copy of your credit report and check it for accuracy. Make sure you report any erroneous information to the credit bureau and the listed creditor. If your credit report is correct, try to pay off all late bills and other outstanding debts and ask to have your report go through rapid rescoring, which can update a report within 72 hours.

Past Performance

Though old mistakes will lose importance as time goes on, even things as seemingly minor as a late payment can stay on your record for years. Credit inquiries (such as those made by a company when you open a new account) appear for two years and delinquent bills remain on your record for seven years. Bankruptcies and any other public record occurrence stay on your credit report for 10 years while a tax lien will appear for a whopping 15 years.

Tips

A couple other moves with open cards or lines of credit can make your credit usage appear more acceptable. First, BankRate.com discourages people from closing old credit cards with no balance. Those accounts establish that you have been using credit for a long period of time, and closing them reduces your borrowing history. Second, having a low balance compared to available credit ratio boosts your score, so spreading out balances between cards can help (however, watch out for high rates on some cards).

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What Is the Credit Score Increase After Deleting a Negative Item?

According to Bankrate.com, seventy percent of consumers have an error on their credit report -- which could cost them a loan or even a job. The credit rating agencies have a system in place for disputing these errors. If an investigation finds an error on your report, your credit score could see a huge increase.

Effects

Any negative item will ding your credit score. Removing an erroneous negative item will raise your score, but the severity of the error dictates how much of an increase you will see. Eighty percent of credit reports contain a serious red flag, such as very late payment or erroneous collections account. These can drop your score over a 100 points and cause lenders to deny you credit.

Benefits

If you have any suspicions about a negative item on your credit report, you should dispute it. Challenges to erroneous items cost you nothing and do not harm your score, so you only stand to benefit. Just make sure you do not flood credit rating agencies with disputes or it looks like an attempt to game the system. You should tackle one error at a time, starting with accounts that do not belong to you. Begin the next dispute after a complete investigation into the first dispute.

Warning

Even if you win a dispute against a negative item on your credit report, the blemish could come back if evidences arises that proves the negative item was legitimate. How much this hurts your score depends on the positive -- or negative -- updates to your credit in the meantime.

Tip

The most common errors you see on a credit report are with payments, such as reporting an on-time payment as 30, 60 or even 90 days late, according to the Motley Fool. A single payment erroneously reported as 30 or 60 days late won't change your score much if you have an otherwise excellent credit history. Payments more than 90 days late can hurt you as much as a bankruptcy.

Note that you can also be missing positive accounts. If your creditor does not report a positive account to the credit rating agencies, ask him to do so.

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