July 2009 ~ Personal Finance and Money Management

Friday, July 31, 2009

How Do Companies Use My FICO Score?

3:55 AM 3 comments

Determining the credit worthiness and potential risk of a credit applicant is the major function of a credit score. This little three-digit number carries a lot of weight. Employers use the score to determine the financial risk of job applicants while utility companies use the score to set deposit amounts. Although in today's tough economic climate a FICO score is subject to many setbacks, companies still use the score as an indicator of future risk.

Each of the national credit reporting agencies (TransUnion, Experian and Equifax) tracks the credit habits of consumers. They compile a grading or score for a consumer using criteria such as payment history and debt ratio. These scores are combined into a FICO score by Fair Isaac Corporation. Scores can range from 300 to 800 points. A low FICO score indicates a higher perceived risk of the individual, and sometimes leads to rejected credit applications or higher interest rates. The FICO score has five parts: Payment History, Account Balances, Length of Credit History, New Credit and Other Factors (mix of credit types, for example). The parts are weighted individually, with payment history carrying the most weight at 35 percent.

Credit reporting agencies gather information from credit card companies, banks and lenders. Payment history, timing of payments, account balances and closing of accounts are types of information that get reported. Although the agencies are not affiliated with the government, they are regulated by the Fair Credit Reporting Act, so factors such as age and race are not used or reported. Each agency calculates credit scores differently and they do not share information.

When applying for a home mortgage, car loan, credit card or any other long-term financial commitment, most consumers will face a credit check. A credit check helps a company make a decision about an applicant's payment habits. If a credit report shows a history of late payments, multiple open accounts or maxed out credit cards, a company may think twice about extending credit. If credit is extended to an applicant with credit problems, the interest rate is usually much higher than the market average.

Employers typically run a credit check on applicants applying for jobs in the financial sector. Applicants with low FICO scores are deemed a greater threat to security, as money issues may prove to be a temptation for theft.

Mortgage lenders typically review the FICO score when approving a loan; however, some companies only look at one agency score when reviewing a credit application.

If a consumer has a low credit score, the first step in raising it is to obtain a copy of the credit report. Consumers are allowed one free credit report per year from each of the reporting agencies. Consumers can call 1-877-322-8228 or visit annualcreditreport.com to order a copy of their credit reports. It is important to review and report any errors to the credit bureaus immediately.

Paying off high interest credit cards and making on-time payments raises credit scores. Paying down balances is important because having multiple cards that are at the limit lowers the FICO score. Applying for new credit cards or loans causes a small dip in the score, so it is best to avoid this during the rebuilding process. There are no magic bullets to raise a credit score; the only thing that works is time and wise money management.

How to Legally Raise Your Credit Score

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A borrower's credit score is a direct reflection of credit history. It is a quick indicator to a potential lender of a borrower's willingness and ability to repay debt. Borrowers with the highest credit scores receive the best and most favorable interest rates on loans. It is in the borrower's best interest to have the highest credit scores possible. There are numerous ways to legally raise your credit score.

Instructions

Visit AnnualCreditReport.com and pull a copy of your credit report. You will be able to pull one credit report for free per year by mandate of the Federal Trade Commission, however, additional credit reports, as well as access to your credit score, requires payment. You will have to enter your full legal name, social security number, date of birth and credit card information to verify your identity and log onto the service.

Review your credit report for any possible errors. Check payment history, lines of credit, former addresses and any other names you went by (such as a maiden name) to ensure that all of the information is correct. If there are any errors, report them immediately to the credit bureau through the website.

Note any negative items on your credit report. Negative items include collections, judgments, liens and bankruptcies. Remember that most lenders will refuse new loans to anyone with any of these items outstanding. Work to have these paid in full. While repayment of these debts will not remove them from your report, they will be marked paid in full, which is a better reflection on your score than an unpaid negative item.

Keep all debt payments current. If you are currently 30 days or more late with any creditor, contact that creditor and work towards current payments. Attempt to have any late payments removed from your report by the creditor, if at all possible.

Note your credit card and line of credit debt. If you keep your credit card and line of credit balance to less than 30 percent of the credit limit, you lessen the effect of the balances on your credit score. If your balance is above 30 percent of the limit, even if you pay it in full each month, the balance will have a negative impact on your credit score.

When You Move to Another State, Does Your Credit Report Follow You?

3:12 PM 30 comments

Moving to another state requires you to make many administrative changes, including transferring your vehicle title and registration, getting a new driver's license, paying state taxes and, in some cases, getting a new bank account. However, one thing that does not change with an interstate move is your credit report.

National credit bureaus manage your credit reports, so they are not dependent on which state you live in. Experian, Equifax and TransUnion maintain credit reports that compile all of your credit-related data in a file tied to your name and Social Security number. Therefore, moving to another state will not affect your credit reports at all.

You should manage your credit responsibly now because your mistakes will follow you, even if you move to another state. If you had a bad credit score before, you will still have that negative information on your credit report after you move. On the other hand, if you worked hard to build a good credit history, you will be able to keep it in your new state.

Credit reports contain a variety of credit-related entries that help lenders evaluate your past use of credit. Your report lists all of your credit accounts that pass along information to the bureaus, along with your payment history and account balances. Items on the public record, such as bankruptcies and court judgments, also appear on your report. One section of the credit report lists the companies that have viewed your report in the past two years. Lastly, your credit report includes your date of birth, variations on your name, your previous addresses and potentially your previous employers. The identifying information is only used to keep your file straight, and it does not affect your credit score.

While moving to another state does not leave you with a blank slate on which to build credit again, moving to another country does. Your credit report does not follow you on an international move. Therefore, if you move to another country, you will have to start from scratch with building credit again. In some cases, a lender in another country might be able to view your previous credit report and use it to influence a lending decision, according to Bankrate. However, the information on your report cannot be transferred to your credit report in another country.

What Happens to Your Credit Due to a Foreclosure?

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Your credit rating changes according your financial activities. Your score goes up and down based on accounts you open and close, your loan and credit card balances and whether you pay bills by the deadlines. Major events have a significant and long-lasting impact on your credit score. For example, foreclosure stays on your credit records for seven years, according to the Federal Trade Commission.

Foreclosure involves the repossession of a house by a mortgage lender when the borrower defaults on the loan. A mortgage is a form of secured credit, with property as the collateral. The lender takes the property and sells it to cover the debt. The process typically starts after a borrower is 90 days delinquent on his payments, according to the Lendingtree loan website. Mortgage holders sometimes work with you if you inform them you cannot pay as agreed as soon as you realize there is a problem.

Your credit score drops significantly when you go through a foreclosure. The exact point loss varies, depending on the status of your other loans and credit cards, but CNN Money writer Les Christie warns that the drop averages 85 to 160 points. Your credit also takes a hit in the months leading up to the foreclosure. Christie reports that an initial 30-day delinquency can reduce your score by 40 to 110 points, and you may lose 70 to 135 points by the time you are 90 days late.

A subprime credit score impacts your ability to open credit accounts and raises the cost of borrowing money and getting insurance policies. MSN Money writer Liz Pulliam Weston warns that banks avoid credit card applicants with scores below 675, and subprime interest rates cost cardholders who carry a balance hundreds or thousands of dollars annually. Loretta Sorters of the Insurance Institute reports to CNN Money that people with fairly good scores pay about $115 annually for car insurance. Interest and insurance rates rise as your score goes down.

A short sale is a foreclosure alternative in which your mortgage lender lets you sell your home for less than your loan balance, according to Bankrate. These sales do not hurt your credit if the bank agrees to accept the sale amount as payment in full and reports the loan paid as agreed to the credit bureaus. Lenders are not obligated to agree to short sales, although many allow this practice to avoid the time and expensive of a foreclosure. They are more likely allow this type of sale if your mortgage is already badly delinquent.

What Credit Score Do You Need to Get a Loan?

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Whether you want to buy that house you have had your eye on all year or finally buy your dream car, you will likely need a loan to finance the purchase. Trouble is, your credit history isn't very strong. In fact, maybe it's bad. Maybe you are carrying too much debt or you have a history of late payments. But to get a loan your credit score doesn't need to be top-notch. The difference is that if your score is low, your interest rate will be high.

Credit scores range from 300 to 850. The higher your score, the better your chances to get approved for a loan at favorable terms. According to a publication by the Consumer Federation of America and Fair Isaac Corp. -- the developer of the FICO credit score -- most Americans are in the 600-700 range. A good score is above 700, as lenders see that as an indication of strong financial health.

Scores at 720 or above are considered good credit and enable you to get the most attractive loans, according to CNN. Lenders will offer competitive interest rates to people with good credit. Some lenders will accept those with credit scores of 680. For buying a home, The Dough Roller states that a FICO credit score under 620 is considered sub-prime and it would be difficult to get a loan at that number. If you are offered a loan, however, you will not be offered the best interest rate.

Your FICO score is made up of five basic components. Two, however, make up almost of two-thirds of your score. Your payment history makes up 35 percent of your score, while the amount you owe lenders is another 30 percent. Credit history makes up 15 percent of your score. New credit accounts and credit applications for credit account for 10 percent of your score. Other factors, such as having a mix of credit types, make up the remaining 10 percent.

Improving your credit score can take time. The first thing to do is review your credit report to ensure everything is accurate. You can visit Annual Credit Report to request a free copy from the three credit reporting companies -- Equifax, TransUnion and Experian. If there is an error, report it immediately to boost your score. Stop making late payments. Showing you can pay your bills on time can boost your credit score significantly since it makes up 35 percent of your score. Paying down your debt is another fast way to improve your score since it weighs so heavily on the outcome.

How to Remove Credit Report Inquiries Fast

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When you apply for a new loan or credit card, the lender checks your credit report to help determine whether or not to issue you an account. Each time this happens, a notation is made on your credit report showing that a lender accessed your credit report. Having several credit inquiries on your credit report in a short period of time can have a negative impact on your credit score and keep you from getting the credit you want. Its likely you want to find a way to erase those credit inquiries quickly. However, eliminating the marks quickly is not as simple as it seems.

Instructions

Review your credit reports closely. Determine whether each credit inquiry was the result of a credit application you pursued. If you find inquiries that you didnt authorize, make a notation on your credit report.

Make two lists: inquiries that you authorized and ones you didnt. You will handle these separately.

Start with the list of unauthorized credit report inquiries. Draft a letter to each of the big three credit-reporting companies (TransUnion, Equifax and Experian) stating that you didnt authorize an inquiry into your credit report and they must remove the fraudulent listing in accordance with the Fair Credit Reporting Act. Close the letter by asking them to send you an updated and corrected credit report within 15 business days.

Draft a goodwill letter for your valid credit inquiries, kindly asking the credit-reporting agencies to remove the inquiries from your reports. Be sure to include that youre trying to rebuild your credit and that this would help the process. Also ask for a response within a reasonable amount of time, perhaps one month.

Continue building positive credit in other ways. Credit inquiries can hurt your overall score, but other factors such as payment history and the balance on your accounts count more toward your overall credit score. Make a plan to pay your bills on time and reduce your overall debt and youll soon find that your credit score increases, with or without the credit inquiries on your account.

The Three Main Credit Reporting Bureaus in the United States

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If you've ever used a credit card, taken out a mortgage or applied for utilities in your name, chances are your lender has taken a look at your credit report. Your credit report contains information about your balances, payment history and the types of credit you have. Credit reports are maintained by each of the three credit reporting bureaus: Equifax, Experian and TransUnion. These companies organize your financial information and make it accessible to lenders.

Equifax has been providing consumers and businesses with credit reporting, portfolio management and fraud detection services for over 100 years. Based in Atlanta, the company employs approximately 7,000 employees in 15 countries worldwide. Equifax offers a number of consumer products for monitoring credit reports and scores, including ID Patrol, Score Watch, Debt Wise and Equifax Complete, which allows you to access all three credit reports and provides unlimited access to your Equifax credit score for $16.95 per month (as of 2011). You can contact Equifax through its online member center, by telephone at 800-685-1111 or by mail at P.O. Box 740241, Atlanta, GA 30374.

Experian operates globally in four primary areas of business: credit services for businesses, decision analytics, marketing services and credit services for consumers. As of 2011, Experian employs approximately 5,500 employees in North America and provides credit reporting services for 215 million consumers in the U.S. alone. Consumers may choose one of four credit reporting packages, ranging from unlimited access to your Experian credit report and score to a deluxe package featuring all three credit reports, an Experian credit score and identity theft monitoring. You can contact Experian online, by phone at 888-397-3742 or by mail at 475 Anton Blvd., Costa Mesa, CA 92626.

TransUnion began as the parent holding company for a railcar leasing operation. Through the 1970s and 1980s, the company evolved and began to offer credit reporting services to businesses across the U.S. As of 2011, the company operates in 25 countries worldwide. TransUnion offers its customers credit reporting services, fraud and identity theft protection services, and credit education resources in conjunction with TrueCredit. You can reach TransUnion online, by telephone at 800-888-4213 or by mail at 2 Baldwin Place, P.O. Box 1000, Chester, PA 19022.

A credit report should not be confused with a credit score. A credit score is a numerical value that measures your lending risk based on the information contained in your credit file. Under the Fair and Accurate Credit Transaction Act (FACTA), consumers are entitled to obtain a free copy of their credit report from each of the three credit reporting bureaus annually (see Resources). You will have to pay a fee to obtain your credit score from Equifax, Experian and TransUnion.

Is Repossession As Bad As Credit Card Debt on Your Credit Report?

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Credit card debt and repossession are both usually bad for your credit, but repossession is much worse. In some cases, credit card debt can boost your credit score. If it comes down to a choice between credit card and repossession, you should almost always choose credit card debt. Ideally, you should not have credit card debt or a repossession on your credit report.

Repossession always wrecks credit history, because the lender has determined that you cannot afford the debt and must take back the property. Similar negative items can cost up to 160 points on your credit score. Credit card debt, on the other hand, might boost your score a little bit, because the credit bureaus only report positive history if the lender reports activity on the account. While you do not need to carry a balance, doing so does not hurt you nearly as much as repossession.

If carry a credit card balance from month to month, it could hurt just as much or more as a repossession. You might, for example, continually miss payments on the account. When you do not pay for six months the creditor must write down the account as a loss in his account ledger. A charge-off account or account sent to collections further damages your credit.

The credit bureaus can only report a repossession for seven years and as each year passes, the repossession becomes much less important to the FICO formula. Credit card debt is always viewed as the "worst" type, because you can discharge it during bankruptcy, unlike a secured line, which is backed by some tangible asset.

You might be able to use your credit card to pay the monthly bill on your auto loan. This lets you keep your car and you can boost your score later by paying off the credit card. On the downside, the credit card's interest rate might be higher than that on the auto loan and end up putting you in a worse financial situation. If you lose the car, you still owe any remaining balance after the lender sells the vehicle. This might result in a judgment if you cannot pay and further damage your score.

Disputed Information on Credit Reports

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You have no direct input into the information on your Equifax, Experian and TransUnion credit reports because the bureaus receive data directly from your creditors. They scan public records and court proceedings for additional information. Incorrect data sometimes makes its way into your credit bureau reports. Bob Sullivan of the MSNBC Money website warns that mistakes are present on about 16 to 25 percent of reports. If affected, you may dispute errors to force an investigation.

You are legally entitled by the Fair and Accurate Credit Transactions Act to monitor your credit reports regularly, at no cost to you, since you do not control the data that goes into them. You have a yearly opportunity to find and dispute mistakes by ordering report copies from AnnualCreditReport.com. The site provides this information free, and you may get your reports all at once or at whatever intervals you wish, as long as you request only one copy per year from each bureau. The Michigan Attorney General's office recommends requesting single reports at four-month intervals.

The Fair Credit Reporting Act, which regulates credit report disputes, does not limit disputable information as long as your complaints are not irrelevant or frivolous. You may challenge any item with any kind of mistake, although you see the most benefit from disputing negative items because the bureaus erase them if they cannot be confirmed with the data's originator. Erased items no longer influence your credit rating.

Equifax, Experian and TransUnion all accept online disputes, but the Federal Trade Commission advises that written correspondence has some advantages. Letters allow you to go into as much detail as you wish, and you can attach copies of billing statements, canceled checks and other proof. Use certified mail and get a delivery receipt for your disputes.

Disputed information on your credit reports is verified by its originator or removed by the credit bureaus, according to the FTC. The FCRA allows 30 days for Equifax, Experian and TransUnion to attempt verification, although they can remove the data immediately if they are too busy to meet the time frame. The bureaus must let you know whether they received acceptable validation or erased the disputed entries, and they give you new report copies so you can see the investigation results firsthand.

Banks, credit unions, lenders and other companies constantly report new information to the credit bureaus, opening up room for more mistakes after you clean up your reports through the dispute process. The FCRA places no limit on the number of disputes you can file, and there is no waiting period between complaints, so monitor your Equifax, Experian and TransUnion reports regularly and dispute information as often as needed.

How Much Will My Credit Score Jump by Paying Off a Credit Card?

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A credit score --- or FICO score --- says much about a consumer's credibility to repay loans and manage money. Considering credit cards as plastic loans, how those balances are paid off and whether those cards are used at all weigh heavily on a person's credit score. Maintaining a high credit score is key to securing loans, earning low interest rates on loans, and sometimes even getting a job.

Using credit reaps rewards for consumers who know how to use it in a responsible way. It helps build a strong credit history. When a potential lender examines your credit score, payment history indicates your risk as a borrower. If you pay off credit cards each month, you demonstrate responsible money management. But paying off one credit card won't necessarily boost your credit score if it is the only card you have. Credit reporting agencies use the "utilization ratio" to determine your credit score. This ratio takes into account the number of cards, their use, and their history. Lower ratios tend to result in higher credit scores.

Because the utilization ratio is determined by how much credit you use in relation to how much credit you have available, the key is to use the credit. A dormant credit card with no activity reflects no money management. A card with a monthly balance that is paid toward or paid off shows activity and can therefore lower your utilization ratio, which translates to a higher FICO, or credit, score.

Your credit report lists each card, its payment and use history, and its balance. The credit score, however, examines all cards, taking into account closed accounts. A closed account can raise your utilization ratio, which can lower your credit score. Paid-off accounts don't necessarily raise or lower your credit score; the overall result of a paid-off account is determined by the other accounts you have. Paying off an account and then officially closing it, however, can potentially damage your credit score because it closes off good credit history. A better tactic may be to pay off the balance, but keep the account open.

Credit scores are determined in part by how long you have had the oldest card. A good rule of thumb is to keep open the oldest accounts because the score is calculated by the average number of years. If you close an old card, you are lowering the average and damaging your credit history. Another caveat is not to close out accounts (even if they are paid off) within six months before you apply for a loan. Lenders want to see long, established histories of activity and good money management. Even if the account you want to close has bad history, the bad history remains on your credit report for seven years.

How to Improve Your Credit Rating If You Have Insufficient Credit History

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According to MyFico, your FICO score ranges from a low of 300 to a high of 850. The higher the score, the better. If you have insufficient, or limited, credit history, you will need to establish new trade lines in order to raise your score. Unfortunately, traditional lenders may hesitate to approve you for new credit. Subprime lenders may approve you for unsecured credit cards but at a high interest rate. There is another alternative, however, that can help you build credit and increase your credit score.

Instructions

Apply for a secured credit card. A secured credit card looks and works just like a traditional credit card, and it reports to the three major credit bureaus. The only difference is that the card is secured by a cash deposit made to the issuing bank. The bank holds this deposit in a certificate of deposit or savings account. Your credit limit is equal to the amount of the deposit. The Resources section contains a link to a list of of secured credit cards.

Charge a small amount on the card each month once you're approved. Pay the balance off each month. According to MyFico, how well you pay your bills accounts for 35 percent of your FICO score. On time payments over the course of two years will gradually increase your score. FICO gives more weight to your recent payment history than past payment history.

Order a free copy of your credit report one month after making the first payment on your secured card. Under the Fair and Accurate Credit Transaction Act or FACTA, consumers have the right to receive one free credit report each year from the three bureaus: Experian, Equifax and TransUnion. You can order the reports online at annualcreditreport.com, at the bureau's website, by phone or mail.

Check the "Accounts" section of the report to ascertain if the issuing bank has reported the new account, the credit limit, current balance and the first payment. Most issuers do this automatically, but you still want to double-check to ensure the data reported is accurate in order to facilitate the rebuilding of your credit.

File a dispute if the acccount information isn't correct. The Fair Credit Reporting Act or FCRA gives you the right to dispute incorrect or incomplete information on a credit report. You can file your dispute online at the bureau's website, by phone or mail. The bureau then has up to 30 days to investigate and make corrections.

Continue to make on-time payments on the account. Some issuers of secured credit cards will convert a secured card into an unsecured one if you manage your account well. In this case, the bank will refund your initial deposit amount plus interest, if applicable.

Check your credit score periodically to monitor your progress. You can purchase your FICO score at myfico.com. Keep in mind that FACTA gives consumers a free credit report but not a free credit score.

How Changing Your Name Affects Your Credit

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One might assume that if you change your name you could start a new credit history. Changing a name sometimes causes errors in credit reporting, usually due to an oversight on the part of the borrower. Name changes after marriage are common. Changing your name to avoid bad credit is illegal and does not work.

Changing your name has no immediate affect on your credit, because the credit bureaus track most of your financial habits via your Social Security number. One of the most common problems arising from a name change is mistakes by the credit bureau or creditor. If you change your name to a name similar to that of another person, it could cause the bureaus or lender to mix up the files.

Even if you use your Social Security number, reporting a name other than your full legal name could cause a lender or credit bureau to report the account on another person's report or not at all. In one case, a woman had excellent credit and several credit cards, but one agency did not report anything for 10 years, because of a slight change in how she listed her first name, according to a 2008 article on the online consumer issues resource, The Consumerist.

Do not attempt to fool the credit bureaus by changing your name, because they have other means of tracking you. Creditors, for example, often look at your home address. If the lender sees two borrowers with the same address, it could alert him to possible credit fraud -- a felony in the U.S. Even when it is not an attempt to defraud a creditor, using a different name tends to slow down application processing.

Alert lenders as soon as you change your name, suggests the Federal Deposit Insurance Company. Not informing the credit bureaus of a name change can hurt you if you have good credit, because the bureaus might not report the good accounts from your old name. Also, document any interaction with a creditor or credit bureau to prove your case in a future dispute. Providing proof of a name change, such as a marriage license, probably speeds up a case even if you do not need hard evidence of your name change.

What Is a Good Credit Score for a Home Loan?

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So you've saved for the down payment on that new home and you're ready to buy. Now comes the test: Can you get approval for a mortgage? To be approved, you need a credit history that gives you a good credit score for a home loan. This article explains what a credit score is, how it is used and what major lenders and the Federal Housing Administration (FHA) consider a good credit score for a home loan. At the end are tips for how to protect and improve your credit score.

There are several credit scoring systems, but the one that is most widely used and of concern to home buyers is the FICO score. It was developed by Fair, Isaacs, & Co. This is the credit score reported by the three major credit reporting companies (Equifax, TransUnion and Experian) and the one used by Fannie Mae, Freddie Mac, and (starting in 2008) the FHA. The score can range from a low of 300 to a perfect score of 850.

Your credit score is calculated based on your credit history. It represents the level of risk lenders have when they lend you money. The higher your score the less risk you represent. For most borrowing, you want a credit score of 620 or higher. You can get credit from many lenders with a lower score, but you will pay higher interest rates. For major purchases, lenders are more cautious and aren't likely to finance a home for someone with a really low credit score at any rate of interest.

The two best known home mortgage companies are Fannie Mae and Freddie Mac. They normally require a FICO credit score of 620 for a home loan. Both prefer a score of 640 or higher and will charge a higher interest rate if they make a home loan to someone with a lower score. This is pretty much the industry standard and any score below 620 is considered "sub prime." It's possible to get a home loan with a lower credit score, but you will need a very large down payment or a loan guarantee from the FHA or Veterans Administration.

The FHA exists to help people get home loans even if they have limited funds or problems with their credit history. Since the 1960s the FHA has specialized in insuring home mortgages for low- and middle-income borrowers and as of 2008, insured 4.8 million single-family home mortgages. The FHA adopted the use of the FICO score in 2008 but requires only a 580 to approve home mortgage insurance, provided previous credit problems such as late payments, collections, foreclosure or bankruptcy have been resolved and the applicant has worked to rebuild her credit over a period of time. The FHA requires a 3 percent down payment (plus closing costs).

There are specific steps you can take to get a good credit score for a home loan. The most important is to pay all bills on time, and never more than 30 days late. If circumstances are such you can't, contact your lender and make arrangements. Often lenders will not report late payments if you honor such agreements. Reduce your debt, especially by paying off credit card balances. Call the credit card issuer and ask for your credit limit to be lowered. This helps because it means you have less credit available for immediate use. Don't apply for or close credit accounts frequently. This will count against you, especially if you are turned down for credit. Avoid "credit killers." These include tax liens, having a debt go to a collection agency or to court, foreclosure and bankruptcy.

How to Report Debtors to Credit Bureaus

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Credit bureaus function as clearinghouses of information on individuals and companies via reports created from the suppliers' experiences with their customers. If purchasers of credit reports want those reports to be meaningful, they should be supplying their experiences with customers to the credit bureaus.

Instructions

Choose the credit bureau that has the closest match to your customers to do you and the credit bureau the most good. There are three main credit bureaus that report on individuals: Trans Union, Equifax and Experian. If you sell to individuals, they would be your best bet. If you sell mostly to companies, research which is the best credit bureau to join, as they have different industry specializations. Dun & Bradstreet is recognized as the largest commercial credit reporting company. It would be a good choice, if the others do not maintain reports on your customers.

Contact the credit bureau's reporting division for technical specifications on sending reports about your customers. The credit bureau will want to be sure your data can be merged easily with its data. Make sure you follow the credit bureau's format, or it will reject your reporting.

Run a test report at the beginning of one month to ensure that the credit reporting company can read and find your customers. The credit bureau will let you know of any problems, and you can fix them before the actual reporting at the end of the month.

Ask if you can have the accounts you report on monitored at a reduced rate or even for free. Since you are supplying the credit bureau with information, it should be willing to help you out with information on your accounts.

What Effects Your Credit Report Score?

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Consumers often use credit to purchase large items, such as a home or car. They also make use of credit in purchasing everyday items such as groceries, movie tickets and clothing. How well a consumer manages the debts incurred from the use of credit can have an impact on his credit score.

According to Fair Isaac, the company that developed the FICO system, how well you pay your bills accounts for 35 percent of your FICO score. This percentage reflects payments to creditors. If you're late, each late payment will ding your credit score. The later the payment, the more detrimental it is. Accounts past 120 days late are usually charged-off by creditors and this can drop your score significantly. Plus, the creditor may sell the account to a collection agency. That agency will then place a new negative account on your report, further dropping the score.

How much debt you're carrying makes up 30 percent of your FICO score. This takes into account outstanding debt on installment type loans, such as a mortgage or car loan. The lower the balance becomes on these loans, the more positive effect it will have on your score. For revolving credit, like credit cards and store cards, FICO looks at how much of your available credit you're using. The lower the balance, the better. If you max out a card, it will drop your score.

The length of your credit history accounts for 15 percent of your FICO score. The older an account is, the more it will boost your score. This is why you have to be careful when closing old credit card accounts, even if you're not using them anymore because it reduces the overall length of your history. This can actually cause your score to drop, especially if the cards you close are the oldest ones on your credit report.

New credit is 10 percent of your FICO score. FICO rewards consumers for opening new accounts. However, if you open up several new accounts at once it will have the opposite effect for two reasons. First, each new account decreases the length of your credit history and this could lower your score. Second, opening new accounts rapidly could indicate that you are having financial troubles and are trying to grab as much credit as you can. FICO considers this risky and will lower your score.

The final 10 percent of your FICO score reflects the types of credit that you have. FICO prefers that you have a mix of credit types: mortgage, credit cards, car loans or personal loans. This demonstrates how well you're able to handle different financial obligations. FICO warns, however, that consumers not rush out and open more accounts just to have a better credit mix. This could actually backfire and lower your score. Only obtain credit if it's needed.

The Negative Effects of Debt Settlement on a Credit Score

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Settling a debt for less than its full balance can wreak havoc on your credit score. There are, however, situations when debt settlement does not, by itself, decimate your score. Unfortunately, in these situations, your credit score has already been damaged severely. Settling debts for less than full balance is good news for your bank account, but highly credit score unfriendly, as these arrangements are displayed on your credit report.

Understand that debt settlement is different from credit counseling and restructure. If your financial condition becomes insufficient to make all necessary debt repayment, either you or a credit counseling company can restructure your payment levels to fit your challenged budget. Debt settlement, however, forces the creditor to accept less than full balance payment but acknowledging that your debt is "paid off." Your credit report will show that the debt was "settled for less than the full balance."

Debt settlement actions will severely damage your credit score when your accounts are up-to-date or only slightly delinquent -- about 30 to 45 days behind. Your credit score will take a huge hit. While your score decrease will be less damaging than a recorded "charge off" of the outstanding balance, the decline will be significant. Your creditor lost money. You could argue that they accepted this arrangement, which they did. However, other lenders also understand that these creditors had no choice but to accept a short pay-off.

When your credit score is not severely damaged by a debt settlement, this is not really good news for you. The only time settling a debt does not materially affect your credit score is when you are already very delinquent -- 90 days or more -- and your score has already been decimated. Once again, a settlement is better than forcing the creditor to write off your entire balance. However, a debt settlement will still decrease your credit score. A major delinquent status has already seriously lowered your credit score, so a settlement will result in a lesser decrease.

It is impossible to give all-encompassing answers to questions about the timing to rebuild credit. Credit score calculations use many factors in a complicated mathematical algorithm to arrive at your number. For example, if you had nine credit sources and had to settle only three at less than full balance, your score will recover much faster than if you had to settle all nine creditor balances. However, your settlement results will remain on your report for up to seven years after settlement date. Your creditors could voluntarily choose to mark your account simply as "paid," but these cases are rare.

How to View Credit Reports at a Government Site

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Thanks to the Fair and Accurate Credit Transactions Act, every American with a credit history is entitled to a free credit report once a year. With the increase in identity theft and the importance of good credit, it's wise to take advantage of this offer There are many credit report companies trying to claim free service, only to automatically enroll you in a monthly payment. These are unnecessary and some are flat-out rip-offs. Check your credit only at the government-approved website.

Instructions

Go to AnnualCreditReport.com. Here you can see all three of the major credit reports: Equifax, Experian and TransUnion. This is the only authorized company to provide you with these credit reports, and it will not cost you anything.

Choose your state from the drop-down menu in the middle of the screen and you will be taken to a form. Fill out your personal information to be able to view your reports.

You can also fill out a hard-copy form and mail it to Annual Credit Report. Once received, they will process your information within 15 days and send you copies of each of the three reports.

How to Get Your Annual Credit Report

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Periodically checking your credit report is a good idea. There could be old, inaccurate information that can harm your credit and should be removed. You can get a free credit report once a year, from annualcreditreport.com. This website (and it's member sites) are the only ones authorized by the government to issue free reports. Unlike other sites you will not be required to purchase a product or service, such as a credit monitoring service, when you order your report. These types of services charge monthly fees.

Instructions

Go to annualcreditreport.com and determine how you will order your credit report. You can order online, by mail or by phone. If you order your credit report online, you will be able to see the contents in minutes. Ordering by phone and mail will take longer for you to receive your report. This website will allow you to order a copy of your credit report from all three major credit reporting agencies, including TransUnion, Experian, and Equifax. You can also order credit reports from each individual credit reporting agency member site (www.experian.com), (www.transunion.com), and (www.equifax.com).

Go to annualcreditreport.com and click the link for order by mail. Click on the "Request form" hyperlink. You will be able to fill out this form with all of your personal information. At the bottom of the form, check the box next to the credit reporting agency from which you would like to receive a report. You can check all three boxes if you choose. Print the form out and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. This form can be folded but you should not staple it or affix tape to it. You can order a free report, from all three agencies, 365 days from the day you last ordered your reports.

Wait for your information in the mail. It will take approximately 15 days to process your order, and another two or three weeks before you actually receive your credit report(s) in the mail. Sometimes you need to submit additional information if the credit reporting agency feels there is mismatching information. More information is usually needed if the information you submitted does not match what's on your credit file. You may need to send a copy of your driver's license, state ID, recent utility bill, or even a copy of a passport. Initially the form should be adequate. The credit reporting agency will inform you if additional documents are needed.

What Is the Fastest Way to Bring Up Your Credit Score?

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Consumers have the resources to raise their credit scores, either on their own or with the help of a third party. The Federal Trade Commission warns consumers to avoid credit repair scams that promise to fix your credit quickly.

"The fact is there's no quick fix for creditworthiness," says the FTC. Bringing up your credit score legitimately requires time, a conscious effort and repaying your debts. The best way to raise a score is by eliminating negative reporting to the credit bureaus, but erasing accurate negative information is illegal.

The fastest scenario for raising your score involves removing negative errors or outdated information from the report. Under the federal Fair Credit Reporting Act (FCRA), you can legally do so by disputing the information in writing with the information provider. They must investigate, usually within 30 days, and make revisions accordingly, says the FTC.

You can remove false information or add good credit accounts in three business days if you have acceptable supporting documentation on hand. For a fee, "rapid rescoring" services will contact the creditor and the bureaus to verify information and get the changes made quickly. They expedite the dispute process of 30 days, and can't remove accurate negative items.

How to Fix Your Credit by Piggy-backing With Someone Who Has Good Credit

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Being added as an authorized user onto accounts of people who have good credit is a great way to quickly establish or repair credit, and does not have the score disadvantages associated with opening brand new credit cards. This is referred to as piggybacking. Though being an authorized user technically means you could use the card, having the main cardholder seize your card and never allow you access to it is a safe way for him to do you the favor of having the established history of his account.

Instructions

Ask a friend or family member if you can be added onto his credit card accounts. Explain clearly that you do not wish to use his cards, but would like the benefit of having the aged credit on your profile. Be sure that the user has never been late on a payment and has had the account open at least a couple of years before making the agreement. For maximum credit score benefit, try to get on an account that has a low utilization ratio. This simply means they are using 50 percent or less of their available credit. However, newer accounts and accounts with higher balances can still instantly age your credit, providing some help in getting established.

Have the person call their credit card company and add you as an authorized user to their accounts. This will automatically send them a card for your name, but have them cut the card and never let you see it to assure their actual account is safe.

Check your credit report within a couple of months. You can check your reports free each year by visiting Annual Credit Report (see Resources section.) By then, you should have the account or accounts reporting on your credit, with you as an authorized user, noting the original start date of the card. This is a huge benefit of piggybacking because it reflects the entire account history, not the history since you were actually added to the credit card.

How Do Teenagers Build Credit?

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In the United States, teenagers cannot start building credit until they are 18 years old. This is because until that point there is no record of their credit. However, at the moment they turn 18, it is important to teach them the correct ways to respect and take care of their credit. This will insure that by the time they are ready to move to bigger purchases, such as a house or a car, they will have the necessary credit to do so. It will also insure that they will have developed healthy financial habits for the rest of their lives.

Parents can use teen debit cards that allow their kids to use the card like a credit card. The use of these cards will teach children financial responsibility while giving them control over their spending. These cards work more like pre-paid debit cards than a credit cards. The parents can put a specified amount of money on the card, and the teenager will be unable to use more than what is available. This protects the parent from overdraft fees, and teaches the child how to properly keep track of, budget for and use a credit card.
Parents can also open up a savings account at their bank in the name of their teenager. This will teach them how to save money instead of spend it.

Since teenagers do not have a credit history yet, when they turn 18 their options will be limited. However, there are plenty of banks and credit card companies that offer student credit cards. When looking at these offers, a teenager should pay close attention to the interest rates. Many credit card companies know that most teenagers are too excited about getting a card to even care about the interest rates involved, and so many banks hike up interest rates for teens.

Teenagers should watch how many credit accounts they open. They may be temped to open as many accounts as they can, but that can actually lower their credit scores. A smart option is to apply for a checking account to start building a history with their bank. This will allow them to apply for a student credit card directly through the bank itself. Bank credit cards have advantages over most other credit card companies when it comes to use and interest rates. At most, all a teenager needs to start their credit history is a bank credit card (or low interest rate credit card from another source) and one merchant credit card or gas card.

Student loans is another great way to add a history to your credit. Regardless of whether you are paying on your loans, or if they are in deferment, a school loan will quickly build up your credit. If you are not planning on attending college, you may also be able to apply for a small loan through your bank. You will be able to do so after you have built a history with them through your savings and checking accounts. Take out a small enough loan that you can pay it back quickly and easily. Do not take out a loan if you cannot afford payments. Having no loan on your credit is better than having late payments for a loan you couldn't afford in the first place.

The key to a good credit score, even as a teenager, is paying your bills on time. Even being 15 days late on a payment can make a nasty dent in your credit history. Pay your bills early each month, and if possible pay your balance off each month as well. Never carry more than you can afford on your credit card.

Another key to building credit as a teenager is keeping your balances low. Just because your bank gave you a credit limit of $500 does not mean you need to go and spend that $500. Keep your balance below 25 percent of your limit. If you do this, you should be able to pay your balance off each month, as well as start a stellar credit history.

The habits that you learn as a teenager will carry with you into adulthood. This is why it's important to live within your means. What this means is not spending more than you can afford to. Many people get old enough to qualify for credit, and use that credit to live the high life. These same people often forget that with credit, you do have to pay everything back eventually. The worst thing you could do as a teenager is prepare yourself for a bankruptcy later. Keep in mind that you only have a limited amount of money. Save, plan and spend your money wisely, and you will have a great credit history for life.

Credit Check Tools

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When obtaining your credit report, you need to be careful about giving out your information. The Federal Trade Commission provides guidelines on which sources are legitimate and contain safe tools for keeping an eye on your credit. By utilizing these tools, you will ensure that your credit score is as high as possible.

The Federal Trade Commission recommends using the Annual Credit Report website to check your credit report each year for free. The website is operated by the three major credit reporting agencies: Experian, Equifax and TransUnion. After entering your personal information, the website allows you to see each of your credit reports and gives you the option to purchase your credit scores afterward.

You may obtain your credit reports directly from the individual credit reporting agency websites. In addition, each of the websites also offers credit monitoring services to alert you of any changes that occur to your report during the year. By getting your credit reports directly from the reporting agencies, you ensure that your inquiries are marked as self inquiries, which won't impact your score negatively.

Obtaining your credit report from any "free credit report" websites other than the Annual Credit Report site may turn out not to be free. The Federal Trade Commission warns that these websites are not part of the legally mandated free annual credit report program, and that they may charge you money after a trial period. In addition, some impostor sites collect your information and use it to sell you other products.

It's important to check your credit report regularly so that you may report any errors immediately. If you do find errors, you must report them not only to the credit reporting agency but also to your creditor in writing. You'll need to provide copies of any documentation you may have regarding the discrepancy. Potential errors reported in writing are generally reviewed within 30 days.

How to Get Rid of Bad Credit Scores

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There are countless ways to reduce bad credit and improve your relationship with creditors or lenders. People with good credit commonly receive quick approvals for mortgage loans and auto loans. What's more, a high FICO score justifies an affordable interest rate, which results in lower payments. But even if you can't qualify for the best loan now, simple changes can help you restore your credit.

Instructions

Know your credit rating. Before making credit restorations, order a copy of your free annual report from AnnualCreditReport.com. View the report online and look for areas that need improvement such as payment history or debts.

Dispute credit report mistakes. A misspelling or typo can result in someone else's information being listed on your report. Negative remarks -- whether correct or inaccurate -- lower your credit score. Write to the credit bureaus and report any mistakes on your personal file. All three have online routes for you to use to protest suspected errors.

Make automatic payments. Everyone knows the importance of timely payments in regard to credit scoring. But if you are unable to stay on top of your payment due dates, sign up for online account management through your creditor's website and your personal bank, and request automatic billpay.

Lower your debts. Look for ways to cut back and reduce your expenses (less entertainment and shopping) to pay off your credit card debts and restore your rating.

Consider a secured credit card. Speak with a representative from your local bank and request an application for one . These credit cards are available to persons with no credit and a bad credit history. Pay your deposit, and use the card to help fix your credit history.

Ask for a higher limit. Maxed-out credit accounts damage your rating. If you have a good payment history, but you're nearing your account limit, contact your credit card company and ask for a limit increase to widen the gap.

Use your oldest credit cards occasionally. Even if you're trying to pay off your credit cards and improve your history, continue to use your oldest cards for small purchases. Older cards represent a longer credit history. However, if the account is inactive, creditors may not report to the bureaus.

How to Raise My Credit Score Fast With Piggyback

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Credit is a big deal in American society. Consumers apply for credit when obtaining credit cards, mortgages, car loans and lines of credit. Some employers check credit before extending a job offer. Landlords often check credit before approving a rental agreement. For consumers with low credit scores, one way to increase that score fast is through piggybacking, where a credit cardholder with a high credit score adds another person as an authorized user to that credit card. The score of the authorized user improves once that new account appears on his credit report.

Instructions

Purchase your FICO credit score. This will serve as a benchmark when it comes to measuring the improvement in your credit. You can purchase your FICO score online at Myfico.com, which is the site run by Fair Isaac, inventors of the FICO scoring model. Myfico.com charges a fee for this service.

Allow a family member or spouse to add you as an authorized user to one of his credit card accounts. This person should have a long credit history and a high credit score.

Wait 30 days then order a copy of your credit report. The Fair and Accurate Credit Transaction Act (FACTA) of 2003 gives consumers the right to order one free copy of a credit report each year from the three major bureaus: Experian, Equifax and TransUnion. But this won't include your credit score. You can order the reports from the website that Congress established specifically for this purpose: Annualcreditreport.com.

Check the "positive accounts" section. The added credit account should appear on your report. If not, contact the creditor directly to ascertain when they will update that information with the credit bureaus.

Purchase your FICO credit score again to check its progression. Your FICO score will continue to rise gradually as more time passes with the new card in your file, so you may want to check it periodically.

How Often Can You Check Your Credit Report & Score?

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When applying for a personal loan, credit card, mortgage or other credit lines, it is important to understand what is on your credit report. Many lending institutions also view your credit score as a way of determining your creditworthiness. Individuals often think they must be denied credit to view their credit report and score; however, this is not true.

Under the Fair and Accurate Credit Transactions Act, or FACT Act, individuals are eligible to receive one free credit report each year from Equifax, TransUnion and Experian credit bureaus.

Although you are eligible to receive your credit report free each year, you can still purchase a report from each credit bureau at any time.

Your credit score is not included in your free annual credit report, or reports you purchase, unless you order it in addition to your full credit report.

Credit bureaus often ask if you wish to order your credit score when you purchase your credit report.

Keep in mind that credit is usually updated by creditors only once per month. Therefore, there is not much need to purchase more than one credit report in a 30-day span.

If you are denied credit or employment based on your credit report, you are entitled to a free credit report from the bureau that supplied information to the lender. This does not include your credit score, but is in addition to your free annual report.

Does a Co-signer Have to Have a Full-Time Job?

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If your credit history is insufficient, or you don't have the income to be approved on your own, a co-signer can assist you by guaranteeing the terms of a lease, mortgage, student loan or car loan will be met. Whether your co-signer is required to have a full-time job depends on the financial institution and/or how much you're borrowing.

The most important consideration in being approved for a loan is credit history. If your credit score is low and you need a co-signer, the financial institution handling the loan will look at your co-signer's credit history and score. Every financial institution has specific requirements regarding what it considers a sufficiently high credit score. Credit scores are weighed heavily, as they are indicators of an individual's financial responsibility. An individual with a high credit score is deemed low-risk, meaning financial institutions trust people with high credit scores to take responsibility for financial obligations, including making payments on time.

A co-signer's income is considered, as well as his debt-to-income ratio. If a co-signer works part time, a lender might deem that sufficient depending on how much the co-signer makes. As with credit scores, every lender has different requirements regarding minimum income thresholds. Generally, if a co-signer meets the lender's income requirements through part-time work, and the co-signer has a good credit score, it's likely the lender will approve the co-signer's guarantee to pay the loan in the event the primary borrower defaults.

Lenders also look to the age of the co-signer. If the co-signer is not nearing retirement age, meaning he will likely be working for years to come, lenders are more apt to approve him. If a co-signer is retired, a lender will consider the co-signer's age and assets. Sometimes, lenders will not approve a co-signer who is retired, even if he has a good credit score.

Each lending institution has different things it looks for in a co-signer. Having a full-time job might not be a requirement, particularly if a co-signer meets the minimum income requirements through part-time work. Generally, if a co-signer has stable income and a track record of paying bills on time, a lender will assume the co-signer can, and will, keep his promise of assuming financial responsibility if the primary borrower cannot.

How to Help My Credit Score

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When you are getting ready to apply for a mortgage, auto loan or new credit card, improving your credit score can increase your chances of approval. In addition, people with better credit scores are typically offered lower interest rates than people with bad credit. Although only time will lessen the effects of some negative information on your credit report, such as a past bankruptcy, you can take action to help your credit score through other methods.

Instructions

Obtain a free copy of your credit report from the Annual Credit Report website. Read your credit report and highlight each of the negative items on the report. These might be accounts that are currently past due, late payments from the past few years, recent credit inquiries or high balances on your credit cards.

Write a dispute letter to the credit bureau for each piece of inaccurate information you find on your credit report. For example, if your report shows you had a 60 days late payment on a store credit card, but you have actually always paid that card on time, write a dispute letter. The Federal Trade Commission provides a sample letter and more information about disputes.

Make payments to creditors and debt collection agencies to get current on any accounts for which you are currently past due. If you cannot afford to make payments, call the creditors and try to negotiate a lower payment plan. When making a payment to a collection agency, ask if it will notate the account as "paid as agreed" rather than "charged-off debt."

Sign up for automatic monthly payments on all of your credit accounts. If you have had missed payments in the past, developing a history of consistently on-time payments helps your credit score over time.

Lower your credit utilization ratio. This is the ratio of revolving credit you are using to your total credit line. For example, say you have a card with a limit of $8,000 and outstanding balance of $4,000. Your utilization ratio on this card is 50 percent. If you can pay down the card so its balance is only $2,000, your ratio drops to 25 percent. If you don't pay down the balance, but instead call the credit card company and get it to increase your credit line to $12,000, your ratio drops to 33 percent. If you do both of these, the ratio goes down to 17 percent.

Keep using your oldest credit accounts and avoid opening new credit accounts. Part of your credit score looks at your average account age, so the longer you have had each account, the better.

How Much Does a Judgment Hurt My Credit?

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Creditors can seek a judgment against you for failing to pay what you owe. A judgment can significantly hurt your credit profile. If you have a judgment on your credit report, getting it removed is important so that you can start rebuilding your credit.

A judgment takes place when you do not pay your bills and your creditor sues you. When the lawsuit is filed in the local court system, you have to appear in court or a default judgment will be entered against you. On your court date, the judge will hear the evidence against you and unless you can prove that you did not accumulate the debt, the creditor will win the case. Then the creditor can use the judgment to collect from you through a wage garnishment or a bank levy.

Before a creditor files a lawsuit for a judgment, several steps occur. For example, you typically have to be at least three or four months late on your payments before the creditor files suit. If you get to 30 days late on a payment, it can hurt your credit by as much as 110 points, according to CNN Money. By the time the account gets to 90 days late, it hurts your credit by as much as 135 points. Then when the actual judgment is placed on your record, it could drop your score by 50 to 150 points, depending on how high your score was to begin with.

Besides the impact on your credit score leading up to the judgment, the judgment itself also damages your credit. The judgment stays on your credit report for seven years from the time that it is entered against you in court.

If you have a judgment on your credit report, try to have it removed. When you pay off the judgment, you may be able to negotiate with your creditor to get it removed. In some cases, the judgment is still not removed. If you check your report and an old judgment that is satisfied is still on your report, you can dispute the item with the credit bureaus and get it removed.

What Happens to a Credit Score When Co-Signing?

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Debt co-signing is a way for those with poor credit to get approved for loans or credit cards by having someone with good credit back their debt obligation. The person with good credit, or "co-singer," agrees to pay the debt if the person with poor credit fails to pay, which gives creditors an extra guarantee that they will be paid. Co-singing can have several effects on credit scores for the co-signer and the person seeking the loan.

Getting a debt co-signed can be beneficial to the credit score of the person with bad credit in the long term. When you have bad credit, it can be hard to get a loan, but paying off debts faithfully is a way to build credit. Getting a cosigner can be a way to secure a loan to start making payments toward building up credit. The danger for the borrower is that co-signing implies that they may not be financially stable or responsible enough to pay for the loan themselves. Borrowers that get cosigners often start off with good intentions but end up missing payments so the debt falls to the co-signer to pay. If there is no adequate communication between the borrower and co-signer, payments may be missed or late, which can hurt the credit of both parties.

Cosigning a debt can harm the credit of the co-singer. Any co-signed debt is considered to be part of the co-signer's total debt load, which may harm credit after the loan is issued. Another problem is that co-signers often end up paying for some or the entire amount borrowed by the person they sign for. If the co-signer expects the borrower to be responsible and pay for the loan, they may unexpectedly find themselves unable to pay for all of their debts, which can harm their credit. While the borrower is likely to have bad credit to begin with, missed payments will have a more dramatic impact on the credit of the co-singer.

Co-signing is an inherently risky practice, which yields little financial benefit to the co-signer. From a purely financial standpoint, it is best never to co-sign a loan if your goal is to protect and increase your credit score. Most people co-sign loans for personal reasons, such as to help a friend or family member through a tough time. Co-signers should be aware that there is a good chance they will end up paying for some or all of the cosigned debt. Co-signing can, however, help borrowers with poor credit establish their credit, especially if they have a short credit history and are otherwise financially responsible. For instance, recent college grads often need loans but have short credit histories despite good income potential. It should also be noted that co-singing can introduce tension into personal relationships, which can cause more harm than the loan is worth to either party.

How Long Can a Creditor Report on Your Credit Report After Bankruptcy?

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After you file bankruptcy, you generally are not responsible for any of the debt you owed before you filed. As a result, your credit report will reflect your bankruptcy for a number of years, so that future creditors know that you failed to pay your previous creditors. The length of time that a negative item remains on your credit report is fixed, and it depends on the type of delinquency you committed.

If your financial condition was such that you had to file bankruptcy, you most likely missed one or more payments to your creditors before you actually filed bankruptcy. Each time you are 30 or more days late in making a payment, your creditor will report this delinquency to the credit reporting agencies. Delinquencies such as late payments remain on your credit report for seven years.

Chapter 7 bankruptcy remains on your credit report for longer than a simple missed payment, due to the severity of your delinquency. In a Chapter 7 bankruptcy, you are not only relinquishing all of your debt, you are not even offering to make any payments. As a result, your creditors can report your Chapter 7 bankruptcy to the credit reporting agencies for 10 years. Credit reporting agency Experian states that while the negative effect of your Chapter 7 bankruptcy will diminish over time, the bankruptcy will continue to appear for the full 10 years.

Chapter 13 bankruptcy does not appear on credit reports for as long as Chapter 7 bankruptcies. This is because a Chapter 13 bankruptcy reflects a good faith effort on your part to pay your creditors at least some of what you owe. As a result, your Chapter 13 bankruptcy should drop off your credit report seven years after your file your original petition.

By law, you cannot remove negative information from your credit report if it is accurate. However, you do have the right to ask for an investigation of items on your credit report that you think are inaccurate. After receiving your written notification, a credit reporting agency has 30 days to perform an investigation and provide you with a written report of the results, including a free copy of your credit report. If you find inaccurate items on your report, you should be able to have them removed using this process.

How to Increase Credit Rating

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Before a lender grants credit or loan money, the lender must access credit records. By reviewing a credit report, lenders can determine the probability that the loan or line of credit will be repaid in full. The better the credit score, the more likely you are to get approved for the credit and loans applied for. Your credit also can make a difference when applying for other such necessities as employment or renting an apartment. Improving your credit rating can save money in interest and ensure that no lender, employer or apartment manager turns down your applications.

Instructions

Pay down as much credit card debt as possible. According to CNN Money, the amount charged on credit cards can hurt a credit rating---even if payments are made on time. Carrying a high balance gives a high "debt utilization" that, in turn, results in lower credit scores.

Ask for a credit limit increase on credit cards. If you can't afford to pay down credit cards, yet have a history of on-time payments, the credit card issuer may be willing to raise the credit limit. A higher credit limit reduces debt utilization and increases credit scores.

Dispute any collection accounts or negative entries on a credit report that you don't recognize. The Federal Trade Commission recommends that all individuals regularly review their credit reports for errors. Should you find an error, notify the credit bureaus and request a full investigation. If the creditor reporting the data cannot verify it, the negative information must be removed from your credit file---increasing credit score. (See References 2.)

Write goodwill letters to each creditor reporting late payments to the credit bureaus. Late payments not only have a significant negative impact on credit scores, a history of late payments shows future lenders that you cannot be trusted to properly manage debts. (See References 3.) Write a letter to each creditor reporting the late payments and request that the notations be removed. Cite any positive aspects of the account, such as the fact that you've been a customer for five years or that you usually make on-time payments, when making the request.

Pay creditors on time. Making timely payments boosts credit scores and shows any company or individual reviewing your credit report that you possess good debt management skills and are an excellent lending risk.

Facts About Free Credit Reports

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Every consumer has the right to review her personal credit history. Regrettably, some people never order their credit report and are thus unaware of possible inaccuracies. There are several ways to acquire a report, but instead of paying for it, learn how to review your report from all three bureaus for free.

Credit reports are documents that reveal your entire credit history. Opening a credit account qualifies you to receive a credit report; from this point forward, every credit card, auto loan, mortgage or other loan you acquire is listed on your personal credit report. Compiling your credit accounts into one document helps creditors determine if you're worthy of new credit. Lenders can check your credit report and review your payment history and outstanding balances. Based on this information, they either approve or reject your application.

Credit reports don't only benefit lenders and creditors; it's vital to check your own free credit report at least once a year. This keeps you aware of your credit standing and if creditors report inaccurate information you can catch their mistake early and dispute the remark. What's more, identity theft is prevalent and fraudulent accounts on your credit report can lower your FICO credit rating and result in credit rejections or higher interest rates.

There are three ways to get one free credit report from all three credit bureaus. Annual Credit Report provides consumers with free credit reports and you can request your report online by visiting the agency's official website at Annualcreditreport.com. If you prefer to mail a request, contact the agency at: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Complete the request form before mailing it. You can also opt to call the agency's toll-free number and request a report: 1-877-322-8228.

Different companies claim to provide consumers with a free credit report. However, these advertisements are misleading when they require you to enroll in a credit monitoring program or service. Be cautious when ordering a free report from a company other than Annual Credit Report. According to the Federal Trade Commission, Annual Credit Report is the only agency authorized to provide free reports to consumers.

Who Uses Experian to Check Your Credit?

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Effective credit management is critical to financial planning. Interested parties frequently analyze your credit report to gauge your ability to handle credit. Experian is one of the primary suppliers of this information.

Experian, TransUnion and Equifax are the three main consumer credit reporting agencies. Experian compiles information related to the type and amount of debt that you carry. Further, the company documents your payment history. Experian generates credit scores that evaluate your debt management capabilities.

Creditors review Experian debt statistics prior to extending credit. Banks then decide to approve your credit application and set interest rates. Credit card companies, mortgage providers and automobile loan enterprises review Experian information before agreeing to terms.

Insurers, landlords and employers also analyze your Experian profile as a means of judging your character. These parties feel that financially stable consumers are less likely to commit fraud.

Order a copy of your credit report prior to taking out loans for major purchases. You are entitled to one free report through Annualcreditreport.com, which includes information from Experian. Verify information and dispute errors.

Third parties, such as employers, that access Experian credit information as documentation for your personality may expose themselves to lawsuits.

The Credit Implications of a Short Sale

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When you have trouble with your mortgage payment, one of the options that you have to consider is a short sale. Instead of going through a foreclosure, a short sale allows you to sell your property and move out. While this may be a more attractive option than foreclosure, it can also have negative effects on your credit report.

A short sale is a process in which you try to sell your house for less than what you owe your mortgage lender. You take care of the marketing with the help of a real estate agent. When a buyer makes an offer on the property, you have to accept it and then pass the offer on to the mortgage lender for approval. If the lender accepts the offer, the buyer purchases the property and then you move out. The mortgage lender can forgive the rest of the mortgage balance or try to come after you for it.

Going through a short sale can have a long-term impact on your credit history and your credit score. According to the "Wall Street Journal," a short sale can stay on your credit report for as long as seven years. This means that any time you apply for any financing over the following seven years, the potential lender will see that you have a short sale on your record. The short sale will likely show up as "settled" on your credit report, which lenders look unfavorably upon.

When you go through a short sale, it will have an immediate impact on your credit score. According to CNN Money, your credit score can be lowered by as much as 160 points by going through a short sale. Your credit score is one of the most important numbers that you have in your financial life. While it is not a permanent deduction, it can take some time before you can build it back up to a level that will help you get financing.

Even though a short sale can damage your credit, it is typically not as bad as a foreclosure when it comes to buying another house. Fannie Mae actually allows potential buyers who have been through a short sale to qualify for a mortgage in only two years after the completion of the transaction. By comparison, you have to wait at least five years before you can get a mortgage with a foreclosure on your record. This gives you an incentive to use a short sale instead of a foreclosure.

What Counts as an Account on a Credit Score?

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Your credit score is one of the main determining factors that determines if you are eligible to borrow money and what kind of interest rate you will receive. Your FICO credit score can range between 300 and 850 points. The higher your credit score, the lower the interest rate you can receive on a loan. Your credit score is determined by evaluating the accounts you have opened.

Revolving accounts have a different balance due each month. A credit card account is a good example of a revolving account. Other types of revolving accounts include retail store accounts and home equity lines of credit. A debit card is not considered an account on your credit report.

An installment account has a fixed payment each month. You often are under contract or are otherwise legally obligated to make payments on these accounts. An installment account may include signature loans, auto loans and home loans. A student loan also is an installment account. An installment account may have a fixed or adjustable interest rate.

Open accounts occur less frequently on credit reports than installment accounts or revolving accounts. Your cell phone account is an example of an open account. Debtors expect that these kinds of accounts will be paid in full at the end of each payment period. Other types of open accounts may include electricity, gas, water and cable.

A closed account is no longer active. It may be listed as "closed/current" or "closed/never late." This means exactly as it says -- that the account was closed in good standing. Closed accounts that were closed in poor standing will say something like "closed/90 days delinquent."

How to Acquire Aged Primary Credit Tradelines

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Building (or rebuilding) credit is both frustrating and time-consuming. Using any of the "sub-prime" credit card offers can cost you in higher interest rates and fees. With the higher score requirements of banks now, it is harder than ever to get approved for prime credit rates. Aged primary credit tradelines are older, well-seasoned accounts that someone carefully maintained to build great credit. Acquiring those aged credit tradelines before applying for new credit can increase your scores so you get better approvals and lower interest rates.

Instructions

Go to annualcreditreport.com to access your credit reports. You can do this once per year at no cost. You can also request credit scores, but there is a small cost for these. When you receive your reports, check them for duplicated accounts, outdated entries and errors. You should dispute these by calling the customer service number listed on the first page of each report, and be sure to follow up in writing. Doing so will help increase your scores. This process will take up to 30 days. Ask for corrected reports with the updates to be sent to you.

Talk with your parents, spouse or other relative about adding you as an "authorized user" on one of their old, well-established credit card accounts. Doing this will add that card account's entire history to your credit report, which will help increase your credit scores. You would not need to actually use the card to have this benefit. This process is commonly referred to as "piggybacking" credit card accounts. There are companies that "rent" this service of adding you to an account for high fees. You are taking a risk in using companies such as this since you know nothing about the owner of the card. It is much safer to work with someone you are close to, since you know that person's financial habits.

Stay in touch with the card owner to find out when she actually called her credit card bank so you will know when to expect the credit card history to hit your credit report. This usually takes 30 to 45 days, depending on the reporting cycle of the bank. Wait the allotted time, and re-pull your credit reports to see if the account is there. If it isn't, wait another 30 days, and request your reports and scores again.

Consider going to your credit union or bank and applying for a small credit card account to help you build your credit. Now that your scores have increased, you might get a fast approval.

How to Reduce a Debt to Income Ratio to Improve My Credit Score

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Several different factors impact credit scoring. Having a high debt to income ratio can lower your credit rating, and even disqualify you for a loan. Lowering your debt to income ratio is one of the keys to building a good credit rating, and by lowering your debts, you'll create more disposable income. Fortunately, there are numerous ways to accomplish this goal.

Instructions

Calculate your debt to income ratio. Collect your credit card, mortgage and loan statements and calculate your total debt payments by adding up the minimum monthly payments. Take this number and divide it by your gross monthly income to determine your ratio. A good debt to income ratio is less than 36 percent.

Assess your household budget. Gather your monthly statements and calculate your total monthly expenditures. Subtract your essential monthly expenses such as housing, transportation, insurance, food and minimum debt payments from your total take-home income to determine your disposable or extra income.

Get rid of debt. Assign a proportion of your monthly disposable income to make extra payments towards your credit cards and other smaller loans. Talk to a mortgage broker and discuss the option of paying off debt with a home equity loan or refinance. If this isn't feasible, contact a non-profit debt consolidation agency, who'll help you obtain a lower interest rate on your bills and show you how to manage your accounts until you're debt-free.

Decrease monthly expenses. Consider downsizing to lower your housing expense or trade-in your automobile for a less expensive car. If this isn't possible, cut back in other ways. Eliminate cable services, cancel your landscaping service, cut out expensive hair appointments or other discretionary spending. Establish a strict budget each month for extras like eating out and entertainment. Use this extra "found" money to pay off debts.

Increase income. Once you've done everything you can to lower your debts, brainstorm ways to increase your monthly income such as asking for a raise, looking for a better paying job, taking an additional part-time job, or making money with a side business.

Recalculate your debt to income ratio. Once you have followed the steps above, do the math to see how much you have lowered your debt to income ratio. If you have managed to bring it below 36 percent, this should have a positive impact on your credit score.

How To Report Attempted Identity Theft

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Identity theft is one of the fastest growing crimes in the country. Marsh & McLennan Companies states that nearly 3.25 million Americans have been the victims of identity theft or misuse of personal information. The crime does not just affect the consumer. The FBI estimates that businesses lose over $67 billion annually to computer crimes and identity related incidences. If you suspect any type of misuse with your credit accounts, there are steps you should take immediately.

Instructions

Contact your financial institution. Call the customer service line and ask to speak to the fraud department. Ask for fraud dispute forms. Even if a representative takes down all the details over the phone it is important that you put your dispute in writing. Log all your calls and keep a record of who you speak to.

Contact the authorities. File a police report in the area where you think the fraud occurred. Request an identity theft report. If the police don't have one, file a standard incident report. Contact the Federal Trade Commission. The FTC cannot pursue the case from a law enforcement capacity, but can share your case with other law enforcement agencies for investigative reasons.

Notify all other financial institutions you use. Contact them even if your other accounts have not been tampered with or compromised. They can place a fraud alert on your account in case the problem is worse than you originally thought.

Contact the credit bureaus. The three main credit reporting agencies are Equifax, Transunion and Experian. You only need to contact one and request a fraud alert for your credit report. The one you contact will notify the other two.

Friday, July 31, 2009

The FICO Score

Credit Reporting Agencies

How Companies Use Credit

Get Your Score

Rebuilding Credit

Thursday, July 30, 2009

Instructions

Wednesday, July 29, 2009

National Credit Reports

Significance

Credit Report Components

International Move

Definition

Credit Score Effects

Impact

Alternative

Good vs. Bad

Recommended Score

Components of Your Score

How to Improve

Tuesday, July 28, 2009

Instructions

Monday, July 27, 2009

Equifax

Experian

TransUnion

Credit Report vs. Credit Score

Identification

Considerations

Time Frame

Tip

Saturday, July 25, 2009

Credit Report Monitoring

Disputable Information

Dispute Process

Resolution

Considerations

Friday, July 24, 2009

Utilization Ratio

Pay-Offs and Your Utilization Ratio

Up-and-Down Credit Scores

Should You Close a Paid-Off Account?

Thursday, July 23, 2009

Instructions

Identification

Missing Accounts

Warning

Tip

Identification

Significance

Function

Considerations

Prevention/Solution

Wednesday, July 22, 2009

Instructions

Begin

Payment History

Debt Load

Length of Credit History

New Credit

Types of Credit

Debt Settlement

Damage to Credit Score

Little Credit Score Damage

Rebuilding Credit

Monday, July 20, 2009

Instructions

Instructions

Expert Insight

Features

Potential

Instructions

Sunday, July 19, 2009

Introduction

Preparing

First Credit Card

Number of Accounts

Loans

Paying on Time