It was then that I realized only I could take charge of my credit and get it fixed…
The first thing I did was try a so-called “professional” credit repair agency, but…
Your credit score is your key to loans, leases and other life necessities. In most cases, you need a credit rating of "fair" or better to secure a loan. A "fair" FICO score is 650.
FICO Scoring
Your credit history determines your FICO score.
The Fair Isaac Corporation credit score is determined based on a person's history of defaulting on payments, her current debt-to-credit ratio, the type of debt (student loans versus credit card charges) and the length of her credit history.
History of "Good" FICO Scores
The number of a "good" credit score has gone up in the past few years. A 2010 real estate guide on BankRate.com now estimates that any FICO score below 740 may be subject to increased interest rates.
How to Improve Your FICO score
Check your credit reports carefully for errors.
There are many ways to bump your FICO score, including having a stable job (one where you've been employed for at least two years), good credit, and lowering your debt-to-income ratio and debt-to-credit ratio. You should also contact your credit agency and check your reports for inaccuracies, omissions, inconsistencies and other errors.
Breakdown of Your FICO score
Your age, marital status, religion, and other personal factors do not affect your FICO score.
FICO scores are broken into five parts: payment history (about 35 percent of your score), how much you owe (30 percent), length of credit history (15 percent), new credit (10 percent), and other minor factors (10 percent). Under the Equal Credit Opportunity Act, your credit score does NOT have anything to do with your race, age, nation of origin, religion, color, welfare status, sex or marital status.
Credit Reports and FICO Score
You can see your FICO score for free if you apply for a mortgage or home equity loan.
You can get a free credit report from each of the three credit reporting agencies (Equifax, Experian, and Transunion) every year, but the free report does not include your FICO score. You can pay to find out your FICO credit score by visiting myFICO.com. If you apply for a mortgage or home equity loan, you can access your credit score for free.
Credit repair is one of the few projects that make sense to do on your own. Companies or credit repair clinics are an unnecessary expense. Also, by rebuilding a credit history on your own, you gain more experience managing credit, which can lead to a higher score in the future. Rebuilding a credit score is possible; there are no secret tips, just the need to act like a responsible borrower.
Check Your Credit Report
Pull your report to find out the cause of your poor score. Your report lists all negatives. If you have missed payments, consider automatic bill pay. You cannot eliminate the history of delinquent accounts, but you can build good history by becoming current on them.
Fix Any Credit Report Errors
Your credit report probably has at least one error it. Most errors are fairly inconsequential, such as an incorrect mailing address, but one in four reports contains a serious error that drags down your score, such as a charge-off that belongs to someone else. If you see anything wrong, dispute it immediately. Even a small error could cost you a loan when it paints you in a negative light, such as a report that does not contain a current employer.
Use Credit Responsibly
Do not stop using credit; this would probably lower your score. The FICO formula likes to see borrowers who use several accounts at once, not those who cancel all but one account. Consider a new credit card account to build good history without tacking on more debt. Retail accounts usually have the lowest credit requirement, but secured cards are even easier to obtain, because you place collateral on the limit.
Follow a Budget
People with bad credit scores tend to carry a lot of debt. Go over your budget and trim as much frivolous spending as possible, such as eating at restaurants, enjoying nights out or any other nonessential. Create a budget that pays down your debt as fast as possible.
Tip
Make sure all current and future lenders report to the three major credit bureaus. If a current lender does not report to all three, there is nothing you can do except move your account to a creditor who will report your good payment history.
Credit checks are usually necessary when borrowing money. Some risky, high-interest loans such as payday loans and car title loans do not require credit checks. However, standard loans from banks, credit unions and other traditional lenders virtually always require a credit check. The lender will review information on the credit report and the credit score.
Credit Scores
Credit scores are three-digit numbers ranging from 350 to 850. Scores of 720 or higher are outstanding and usually lead to quick approval if the borrower meets other standards for income and employment. Scores in the 700s or higher are preferred by lenders, but credit is available at almost any credit score, depending on the lender's guidelines. However, the lower the score, the higher the interest rate, typically. Home mortgages are widely available for credit scores of 620 or higher, and the Federal Housing Administration has loan programs for people with even lower scores.
Credit Reports
Credit reports provide detailed information about a borrower's credit history, including the number of accounts and the type of accounts, such as credit cards, installment loans, mortgages, signature loans and automobile loans. The payment history for each loan is presented along with balances, credit limits and the number of times the loan was paid late. Special notations are also included, such as accounts that were closed because of nonpayment and listed as charged-off and placed with debt collection agencies. Court information such as bankruptcies and monetary judgments are also listed.
Free Reports
People can check their credit reports for free by viewing and printing copies from Annual Credit Report. The website is authorized by the Federal Trade Commission to offer free credit reports under the terms of the Fair Credit Reporting Act -- a federal law. Three free credit reports are available each year, including one from each of the major credit reporting bureaus -- TransUnion, Equifax and Experian. Credit scores are available separately, for a fee, by following information listed on the credit reports.
Regular Reviews
Creditors checking a borrower's credit for the first time must obtain permission from the borrower. However, once an account is open, the creditor can regularly review the borrower's credit to make decisions about increasing or reducing credit lines on unsecured accounts such as credit cards. The creditor can also use the reviews to consider the borrower for other credit offers.
Employment
Credit checks can also factor into the hiring process for jobs. Some employers, including insurance companies, financial services firms and banks check credit as a condition of employment. Employers checking for credit may search only for serious credit problems such as bankruptcies or judgments. People applying for credit or a job should first check their credit reports for errors. The Fair Credit Reporting Act forces credit bureaus to correct mistakes after being notified by the consumer.
An individual's credit score, which is intended to rate the likelihood that he will pay off a loan, is calculated using a number of different factors related to the person's credit history. These include the amount of credit he has taken out and his record in paying back these loans on time and in full. A car repossession badly damages this score.
Features
According to Bankrate.com, when a car is repossessed, a record of the reposition stays on a person's credit report for 7 years, from the date you missed the first car payment that sent you into permanent delinquency. For example, if you missed a car payment in September, restored the balance in October, and then missed another payment in November, never to return from delinquency, the record would date from November.
Effects
Since a person's credit score is composed using a number of variables, the amount of points that a repossession will cause a person's credit score to drop will vary depending on the rest of the person's record. The amount a person's score drops will also depend on the specifics of the repossession, such as the price of the car and by how much the note was delinquent
Considerations
According to the financial reference website AutoLoansDaily.com, a car repossession will not just lower an individual's credit score, but will lower their "auto loan specific" credit score, meaning the score that companies use when determining the terms at which to offer an individual a car loan. This may prevent an individual with a repossession on their record from receiving a car loan at reasonable interest rates for up to seven years.
Expert Insight
According to John Ulzheimer -- a former employee of Equifax Credit Information Services, a leading credit scorer, and the Fair Isaac Corporation, the inventors of the modern credit score -- a person who is having trouble meeting payments on a car would be wise to find an alternative to letting the car be repossessed. Not only will your credit rating be harmed, but it may be expensive, as the lender will likely force the borrower to pay the balance on the car's price after it is resold, any costs incurred reselling it and any costs of repossessing the car itself.
Solution
The only means of repairing a repossession's damage to a credit score is time. However, although the repossession's harm will only fully cease after 7 years, the harm can be moderated if the borrower pays the rest of his loans on time and in full, thereby bolstering the rest of his record.
If you forget to make a payment to your credit card company or a defaulted debt you owe ends up with a collection agency, that negative information will subsequently appear on your credit report. Your credit report follows you wherever you go in the U.S., and potential lenders and creditors will all want to review your credit report before conducting business with you. Fortunately, even if you have made considerable financial mistakes in the past, you can improve your credit rating and stop fearing requests to pull a copy of your credit report.
Instructions
1
Pull a copy of your credit report from Equifax, Experian and TransUnion. You can pull one copy of each report for free every 12 months at AnnualCreditReport.com -- the only website with formal approval from the Federal Trade Commission to provide consumers with their free annual credit reports.
2
Review your credit report for mistakes. Missed payment notations when you made payments on time or collection accounts that do not belong to you can drag down your credit score. In addition, misspellings of your name or an error in your Social Security number could result in someone else's debts appearing within your credit history.
3
Dispute any errors you discover with the credit reporting agency maintaining the errors. You can dispute credit reporting errors over the phone, by mail or online.
4
Offer to pay off old collection accounts in exchange for the company deleting its negative report from your credit history. Collection accounts over $100 cause considerable harm to your credit rating.
5
Send a "goodwill letter" to any current creditors who are reporting late payments to the reporting agencies. A goodwill letter is merely a formal request that the company withdraw its negative reports due to your status as a longstanding customer or the fact that you almost always make timely payments.
6
Pay down your credit card debt or request a higher spending limit from the credit card company. The credit scoring formula compares the amount you owe to your credit limit. If the resulting ratio is above 30 percent, your credit score will suffer as a result. Paying down the debt or requesting a higher credit limit helps keep this ratio low.
7
Set up automatic bank drafts for accounts you pay each month. This reduces the chance that you will forget to make a payment and incur a missed payment notation on your credit report. Regular on-time payments build your credit rating over time.
8
Ask that a loved one with a positive credit rating add you to his credit card account as an authorized user. Once this occurs, the credit card company will report his credit card history on your credit report -- boosting your credit rating.
Your credit reports detail your credit-related activity and the manner in which you handle certain financial obligations, such as credit cards, vehicle loans, personal loans and mortgages. The TransUnion, Equifax and Experian credit bureaus include some demographic information in their records, such as how long you have lived at your current address and how long you have worked for your current employer. Lenders like to see residence and job stability, but they pay the most attention to credit use and account repayment.
Payment Dates
Fair Isaac Corporation (FICO), which produces the credit score most often used by lenders, considers timely debt payment the most important element in calculating your score. Thirty-five percent of your credit score is based on your payment history, according to FICO's consumer information website, and your score goes down every time your payment is late. Lenders who see too many delinquencies on your credit reports may disqualify you from new credit accounts, because it suggests a high probability that you cannot handle another account.
Inquiries
Inquiries are a normal part of your credit records, because lenders review your reports when you apply for new accounts. Too many applications -- and too many resulting inquiries -- within a short time are negative items, because you appear to be desperate to obtain credit, and, statistically, it makes you a higher risk for bankruptcy. The MyFICO website warns that six applications within a few months means a consumer is eight times more likely to file bankruptcy. If you are shopping for the best rates for such things as student loans, mortgages or car loans, submit all your applications within 30 days. The scoring formula recognizes that you are shopping around for one loan and considers all those applications one inquiry for credit score calculation.
Defaults
Lenders often disqualify you from obtaining new accounts if they see defaults on your credit reports. Creditors write off bills if you do not pay for at least 180 days, according to MSN Money columnist Liz Pulliam Weston. Charge-offs show that you ignored your financial responsibilities, which makes other banks and finance companies reluctant to do business with you.
Repossessions
Car loan contracts give finance companies the right to reclaim vehicles from non-paying borrowers, according to the Federal Trade Commission (FTC). A repossession goes on your credit reports, along with the late loan payments that led to seizure of your car. The creditor may also sue you for the difference between your loan balance and the amount of money recouped from selling the vehicle. All those activities are reported to TransUnion, Equifax and Experian and hurt your credit score and your ability to obtain credit.
Legal Actions
Various court actions may disqualify you from getting credit, including judgments for unpaid bills, court orders for wage garnishment, house foreclosures and bankruptcy. Most court actions only stay on your credit reports for seven years, the FTC advises, but bankruptcies stay for an additional three years. Your ability to open accounts is affected most severely during the initial years after judgments, foreclosures and bankruptcy. Lenders may be willing to take a chance on you if you rebuild credit for a year or two with secured credit cards or other accounts available to high-risk borrowers.
A credit score is a number between 300 and 850 that lets lenders know if you're a risky or a responsible borrower. This complex number is derived by a number of factors. The credit bureau determines: Do you pay your bills on time? Do you pay your bills at all? Do you have enough credit? Are you approaching your credit limit? Can you manage a diverse credit portfolio? It may sound confusing to calculate, but you can get a copy of your credit report to see what your history says about you. On this report, you should look for a number above 760, which is considered "Good Credit." If your score is in the 600s, you'll want to take steps to achieve a better score. If you're below 600, your access to loan opportunities is already limited.
Why Do Credit Ratings Matter?
In a nutshell, your credit rating lets a loan issuer, a bank, a mortgage company or another lender know how risky you are, as a borrower. This determines where your interest rate is set and how much money you will pay in the long run. In some cases, your credit rating may be so low, lenders will decide not to loan you money at all. They can see if you've paid your bills on time, how often you've missed payments, if you owe child support or have a tax lien against you, and if you've overcharged your limits and tried to settle for less. For you, this little three-digit number could mean $200,000 extra on your mortgage or $2,000 extra on your auto loan. A bad credit rating could get you turned down for credit cards, student loans, small business loans or other lines of credit. A good credit rating means you are a responsible borrower, which is something you can feel proud of -- and something that will save you money.
Tip 1: Pay Your Bills
This cannot be overstated: Not paying your bills on-time is the quickest way to kill your credit rating. According to the Fair Isaac Corp, 35 percent of your overall score is calculated by bill payment activity. You must pay at least the minimum monthly payment listed on your statement and you must pay this on-time. Missing one payment can take off as much as 50-100 points from your score. If you miss an entire month on all your bill payments, you can expect to see your score drop down almost 200 points.
The good news is that the last 12-24 months weigh most heavily when calculating your score, so even if you've had some trouble paying on-time in the past, it's not too late to start improving now. There are many solutions if you have trouble remembering your deadlines. You can start keeping a calendar with due dates written on it or program a reminder in your cell phone a week in advance. You can also set up automatic bill payments from your checking account or dabble with computer programs, like Quicken, to stay on top of your finances. If you find you're always coming up short at that particular time of the month, ask your creditor for a new due date. Most are happy to oblige.
Tip 2: Pay Down Your Debts
The next biggest factor in your credit score (30 percent) is the amount of your balances. On your statement, you should look at your "total available credit" and be sure the actual balance is not more than 25 percent of that amount. So, for example, if you're being offered $5,000, your current balance should never be more than $1,250.
Many consumers get roped into the "minimum monthly payment option," which can keep them spiraling in debt for decades. Here is an illustration: according to MSN Money Magazine, the average household credit card balance is $8,000. The Index Credit Cards list says the average interest rate is at 12.65 percent. Your minimum monthly payment would be around $32, which seems reasonable, but it would take you 109 payments or more than 9 years to pay down this debt! To make matters worse, you will also pay an additional $2,720 in interest charges! Many credit card companies also charge a "transaction fee" of $5/month for every month you are carrying a balance too, so that will tack on another $545 over the long run.
Ideally, financial experts say you should be paying off your balance in full each month, so you don't have to pay the credit card companies an extra dime. However, this is often easier said than done and many of us are already extended well beyond our means. As strange as it may sound, the easiest way out of debt is through hard work: taking a second job or working over-time to bring in more income. You will also need to make some sacrifices -- like eating out less often or possibly selling some possessions on a Website like eBay. Using a debt calculator is a great way to see what you should ideally be paying each month to get rid of your current balance. For instance, to pay off that $8,000 balance this year, you'd need to pay $714/month instead of the suggested $32. During this time, you will save $559 in interest fees.
There are several different strategies for paying off large debts. To start, determine what you can afford to pay by making a list of your fixed expenses (rent/mortgage, utility bills, minimum monthly payments, food, transportation costs) and subtracting these expenses from your monthly household income. Now, pay off all your minimum monthly payments. Then, spend the remaining balance on the highest-interest debt until that card is gone, then aggressively focus on the next card. This is a good method if you're paying thousands extra on interest charges. Or you may also choose the "Debt Snowball Method," which has you pay off the smallest debt first just to cross it off your list and feel that sense of accomplishment. This method works best if you need the motivation or if you have a lot of card balances to tackle. If your debts are insurmountable, you may want to consider debt settlement to consider your debts forgiven at a reduced cost.
Tip 3: Look for Errors
In 2004, a US PIRG report discovered that one in four Americans had serious errors on their credit reports. The result was 25 percent of Americans denied access to new credit or given exorbitant interest rates. Some of these errors include: misspelled names, incorrect addresses, listing the same debt more than once, listing files that were past the statute of limitations, reporting false delinquencies and missing positive information.
Consumers can contact the three credit bureaus -- Experian, TransUnion and Equifax -- to get a free copy of their credit report each year. The Fair and Accurate Credit Transaction Act of 2003 says that you are legally entitled to a free annual credit report from each agency. The official government website to obtain these reports is www.annualcreditreport.com. (Note: Beware of the commercials advertising these reports because they often automatically sign you up for a monthly credit monitoring service, which you must later cancel.)
Once you have access to your credit report, you may dispute any credit inaccuracies. You may do this by writing a letter to the bureau, calling their hotline or simply clicking a "dispute" button online. Once you file your dispute, the credit bureau will investigate and ask your creditors to provide proof that the information is accurate. If they do not respond or do not have proof, the negative information will simply be dropped from your report and your credit rating could shoot up as much as 100 points overnight! Often creditors are so inundated with requests they won't even bother to prove your debt. Be careful not to abuse this privilege, however, or your account may be flagged for "frivolous disputes" and you won't be able to argue legitimate mistakes.
Tip 4: Have a Balanced Credit Portfolio
Having too many credit cards accounts for around 10% of your score, as does having the right kind of accounts. A creditor is looking to see that you have a few different credit accounts -- both unsecured lines (like a credit card) and secured lines (like car loans or a mortgage). The average American has anywhere from five to ten cards in their wallet. However, there is no "magic number" when it comes to the ideal amount of credit. You will simply want to make sure that you have more than one type and that you are not using more than 25 percent of your limit on each. If you have a lot of credit cards that are maxed out or above their limit, you'll appear like a risky, out-of-control borrower. Be aware that closing old accounts is also a bad move because it lowers your total available credit, thus making it appear as though you're spending more of your limit. Instead, keep your accounts open and rotate your activity to keep your portfolio active.
At A Glance: The Breakdown
The breakdown of your credit rating is as follows:
-35 percent: Payment History (This means paying all of your bills on-time every month) -30 percent: Amounts Owed (This means keeping your balance down to 30 percent of what's been offered) -15 percent: Length of Credit History (This means keeping old accounts open) -10 percent: Credit Inquiries (This means not scrambling for every credit offer you can find all at once) -10 percent: Credit Types (This means having a diverse mix of monthly loans and credit cards)
The PLUS score differs slightly from the FICO credit score. The PLUS score was developed to be more consumer-friendly than the FiCO score, which financial institutions use in making lending decisions.
Scoring Scales
The PLUS scoring scale ranges from 330 to 830, while the FICO scoring scale runs from 300 to 850.
Significance
The FICO score simply summarizes the individual's credit risk for the lender, while the PLUS score shows consumers the approximate impact that different actions, such as paying down a debt or opening an account, would have on any type of credit score.
Producer
The three major credit bureaus (TransUnion, Equifax and Experian) use an algorithm developed by the Fair Isaac Corporation to come up with their credit scores. These scores are all called "FICO scores," but different bureaus sometimes come up with different scores, because they may have slightly different information in their credit reports. Only Experian offers the PLUS score.
Misconceptions
The PLUS score may use similar factors and calculations, but it is not the same as a FICO score. Lenders do not give you a lower rate if you come in with a PLUS score that is higher than your FICO score.
Considerations
If you want to learn more about how different events affect your credit scores, a PLUS score may prove beneficial. However, if you are considering applying for a loan, you should be concerned about checking your FICO score.
Credit scores are an unavoidable part of modern life. They effect what interest rate you get on loans, and whether or not you get a loan at all. A good credit score can save you literally thousands of dollars over the life of a loan. A bad credit score, on the other hand, can cost you thousands of dollars. Repairing your credit after a period of financial hardship can be difficult and time-consuming, but the savings makes it well worth the effort.
Instructions
1
Review your credit report and find the negative items. Are they legitimate debts? Mistakes on credit reports are common, so be sure to check carefully. If you have legitimate negative items on your credit report, note who the original creditor is and who the current owner of the debt is. Frequently debt is sold to collection agencies.
2
Contact the current debt owner. This is either the original creditor or the collection agency. Ask that they provide valid proof that they own the debt and that the debt is valid. They must provide this proof in writing within 30 days of your request. Make sure to send your request in writing. Keep a copy of your letter and request a return receipt as proof they received your letter.
3
Follow up with the original creditor if the first two steps fail to remove the negative item. In some cases, you can make arrangements to provide payment in exchange for deleting the negative item. Make sure you get this agreement in writing before you render payment. If they have not agreed in writing to delete the item, you will have no ability to force them to do so. This is referred to as "pay for delete."
If you don't know your weaknesses in any given aspect of your life, how are you supposed to improve? In the same vein, you must know your weaknesses as a credit user in order to raise or maintain your score, and this is where credit reports become an essential tool. A credit report lists every bank account and line of credit you've ever had, and monitors your history as a consumer. It judges your creditworthiness based on bill payment history, ratio of debt to credit, number of accounts open, length of credit history and history of bankruptcy.
Your One Free Report
Every U.S. consumer is entitled to one free credit report every 12 months, and there is only one authorized source for this free report: annualcreditreport.com. This website allows you to choose through which of the three main agencies you'd prefer to obtain your report: Experian, Equifax or Transunion. You can obtain one free annual report from each of these agencies, so technically you can obtain up to three free credit reports in any given year.
Exceptions
You can obtain your credit report for free more than once a year in a few situations. If your identity is stolen or fraudulent charges have been made to your accounts, you may obtain a free report. You also qualify for a free report if information in your report has caused a person to taken adverse action against you, if you are on public assistance and if you are unemployed but plan on applying for work in the next 60 days.
How to Get Your Report
Order your report in one of three ways: online, by phone or by mail. To order online, go to annualcreditreport.com and submit an online form. You need your personal information and recent addresses to access your report. To order by phone, call 877-322-8228. To send a request by mail, print out the Annual Credit Report Request form (see Resources) and mail it to:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-6281
Dealing with Inaccuracies
If you've found an error on your credit report, it's your right and responsibility to dispute it. Credit reporting agencies are bound by law to maintain updated and accurate information on your report, but people make mistakes and sometimes an inaccuracy will pop up. If this happens, write a dispute letter explaining what you believe is wrong and why it should be removed, and make a request for its removal. Attach copies of any documents that support your point. Contact the FTC at 877-FTC-HELP for assistance in compiling your letter.
Fair Credit Reporting Act
The Fair Credit Reporting Act protects the privacy of consumers and gives them the access they need to their credit history. For example, you have the right to know whether information in your report has been used against you --- maybe you've been denied a mortgage, a car loan, or even a job. Whoever denied you credit must tell you the name, address and number of the agency who provided the information. The FCRA also allows you to know what's in your file and what your credit score is (which will cost a fee), and to dispute information in your file.
Your credit score is a number that is calculated by the credit bureaus based on a scoring system created by the Fair Isaac Corp. Your score is dynamic and can change constantly. When you do something that could affect your credit, it may take some time before the changes reflect in your credit report.
When Your Credit Score Changes
Your credit score is tied to your credit report and is basically a numerical summary of your report. The calculation of your credit score is based on a number of credit factors. When one of these factors changes, your credit score will be updated almost immediately. Your score could potentially change on a daily basis depending on when items are reported on your credit report. Until the item hits your credit report, your credit score will not be changed.
Creditor Reporting
To gather information about you to create a credit score, the credit bureaus rely on creditors to report your actions. Any time you make a payment or open an account, the creditor typically reports it to the credit bureaus at some point. This means that it is up to the creditors to do their part and contact the credit bureaus to report this information. In some cases, creditors may not contact the bureaus unless something goes wrong, while other creditors report your actions very frequently.
Frequency of Reporting
Your payment history with your creditors will typically be updated on a monthly basis. This usually occurs on the first day of the month from the time that you open your account. On your credit report, next to each account, a statement is included about the current status of your account. For instance, it may say "30 days late" or "current." When each creditor contacts the credit bureau to report the status of your account, it can alter your credit score.
Credit Score Factors
Your credit score can be altered by many different factors in your credit report. For instance, your payment history is one of the most important factors that can influence your score. When you open a new credit account, it can also impact your score. Paying down a large amount of debt can also influence your credit score. The number of accounts that you have open can play a role in what your credit score is. Anytime one of these factors changes, your score could be updated.
Although utilities rarely show up on a credit report, they are considered a credit account because you receive service in advance of payment. Having poor credit or a bad utility payment history may result in a utility provider denying you service. You can still hook up utilities with poor credit, but you may need outside help. At the very least, the utility company must explain its rejection.
Identification
Utilities often ask that applicants put down a deposit, usually between $25 and $100, if an applicant has poor or no credit history. You may be able to avoid this deposit if you can find someone willing to guarantee payment on the account, suggests the Federal Trade Commission. If the utility company rejects your application, it must send a letter giving the specific reason. The utility company cannot deny service because of race, gender, religion, national creed or origin.
Proving Ability to Pay
Sometimes a utility company may reject you based on a former spouse's inability to pay. In this situation, you can make your case to the utility company that your spouse was to blame for the bad credit and that you are willing and/or able to pay. This can include proof that you never saw the utility bills, that you paid them when you saw they were overdue or that you were separated at the time of the delinquent bills.
Pay As You Go
Some utilities allow you to prepay for service, such as cellphones. Electric companies, however, do not usually offer this service. Some apartment complexes include all utilities, such as gas, electricity and water, with the rent. Alternatively, some apartments pay for a few utilities except for electricity.
Improving Credit
If a utility company rejects you due to poor credit, review your credit report for errors. You might have an account that belongs to someone else on your report. Regardless of your history, you should always aim to improve your credit rating. Pay your bills on time and, if you have to use credit cards, plan to pay the balance at the end of the month.
If you have issues that need to be addressed with a credit-reporting agency, you may be able to contact the credit bureau for resolution in several ways. Some of the services that a credit-reporting agency handles include allowing you to opt out of pre-approved offers for credit and insurance products; install a fraud alert; handle a credit dispute; add a security freeze on your credit report; get a free credit report; or purchase a credit-monitoring service. Many complaints, disputes or requests for additional services can be done online, by phone or via email or post.
Instructions
1
Explain the reason you are sending a letter to the credit bureau; be brief and to the point. The reason you are writing could determine which address you use for a specific credit-reporting agency.
2
Check each credit bureau website, which will provide the correct department address based on your request. For example, Experian may have two different addresses for two separate requests, such as one for a security freeze concern, and anther that handles credit fraud alerts.
3
Include verification information with your request, such as a copy of your driver's license, recent utility bill and a copy of your social security card. If you are disputing information on your credit report, send your request by certified mail, with return receipt requested. Credit bureaus have deadlines when resolving disputes and this serves as dated proof that you sent the information.
4
Order a free credit report to make sure any concerns you addressed were resolved. There are three credit-reporting agencies: Transunion, Experian and Equifax. You are allowed one free credit report every 365 days, from each of the agencies. To get your report, put your request in writing to: Annual Credit Report, P.O. Box 105281, Atlanta, Georgia, 30348-5281. This address conveniently allows you to order all reports from all three agencies at once.
It takes a lot more than just a quick Band-Aid to fix your credit situation --- especially if your credit is very poor. You must enact a full-fledged systematic plan for getting your credit in order. Like a bruise or a cut, a bad credit past may hurt and leave a mark; but over time it can heal.
Instructions
1
Admit that you have a credit problem -- that is the first and most important step. If you want to heal your credit instead of slapping a Band-Aid on the problem you must recognize and acknowledge the problem to avoid making the same mistakes in the future.
2
Pull your credit report to get a comprehensive view of your credit situation. You can get one free report each year from each of the major bureaus, which are Transunion, Equifax and Experian. Review all of your accounts, the amounts due and payment history. If you notice a discrepancy, dispute it with the bureau with a phone call or by sending a letter regarding the matter.
3
Call each creditor listed and attempt to make amends. Explain your financial situation and ask for a settlement agreement. Ask for help from a credit counseling service if necessary to negotiate settlements. You have to clear up these old issues in order to properly heal your credit going into the future. If you do not, it usually takes seven to 10 years before credit issues drop from your credit report.
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Analyze your income and expenses next in a budget format. Make sacrifices in your everyday spending patterns to free up more money for paying off your debts and saving.
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Commence with paying your open accounts on time and in full. An important part of healing your credit is changing your current behaviors so that in the future creditors and employers can see your positive past payment behaviors.
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Enact a debt payoff plan if you have outstanding credit card and loan balances. Dedicate any extra money you have available each month after expenses to put toward your principal balance on these accounts to get rid of the debt as quickly as possible. The lower your percentage of debt owed compared to credit available (debt utilization ratio) the better for your credit score.
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Put any extra money you have available away for a rainy day or to save toward one of your goals. Avoid making purchases unless you have the cash on hand. Stop using credit cards. If you do want to use credit cards for reward points, pay off the balance in full each month.
Regularly checking your credit report is advantageous for countless reasons. Identity theft and reporting mistakes can lower your credit score, making it hard for you to obtain financing or credit cards. Staying on top of your credit history is the best way to recognize mistakes early. Fortunately, there are quick and hassle-free ways to acquire a one-time credit report.
Instructions
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Use snail mail to request your report. Draft a letter requesting a free credit report and send this letter to Annual Credit Report Request Services P.O. Box 105281 Atlanta, GA 30348-5281 Include your name, social security number and address. According to the Federal Trade Commission, this company is the only one authorized to provide consumers with one free report a year.
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Or you can ask for a report by phone. You can contact Annual Credit Report by phone to request a one-time credit report. The number to call is 877-322-8228.
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Or you can view one-time credit reports online. One-time credit reports are viewable online if you have Internet connection. Visit Annualcreditreport.com and follow the instructions to order and download your personal credit report.
When you apply for credit the lender involved normally reviews your credit report as part of the application review process. A lender can use information contained in your report to approve or decline your application. Technically, lenders can share your credit report with you but most lenders do not share credit report information with credit applicants.
Credit Reporting
The credit reporting bureaus Equifax, Experian and TransUnion have to comply with strict state and federal laws that govern the way consumer credit reports are compiled and how the bureaus share information contained in those reports. Banks are not consumer reporting agencies and bank employees are not trained to understand the way each bureau compiles its credit reports. Therefore, to avoid liability issues relating to misinformation, or the misuse of accurate information, most banks do not allow employees to talk to loan applicants about their credit reports.
Credit Reports
The credit bureaus gather information from your creditors as well as other businesses and vendors that submit reports pertaining to late payments and debts that you have failed to payoff. Credit bureaus also keep records of any individuals and entities that request copies of your credit report. If you and your lender both request copies of your credit report, you and the lender both receive different versions of the report. The report you receive does not show your credit score while the report the lender receives does not contain details of all the entities that have checked your credit. Therefore, to avoid confusion related to the different ways credit bureaus provide information to vendors and consumers, lenders do not normally allow loan officers to even discuss credit reports in depth.
Declined Applications
When you have a credit application declined by a lender due to information contained in your credit report, you are legally entitled to a copy of that report. However, you do not obtain that report from your lender. Instead, your lender must send you an adverse action notice that lists the reason the application was declined and the contact information of the credit bureau that provided the report. You have 60 days from the date of the declination in which to contact the credit bureau in question and obtain a free copy of your credit report.
Credit Reporting Services
Some banks offer credit monitoring services that are usually operated in conjunction with third party vendors. These services enable you to see your credit score once a month and send you notification emails whenever your credit report changes. You can view the information through your bank's Internet banking website. However, banks buy data for these reports on your behalf from Equifax, Experian and TransUnion. Consequently, your bank are acting as an intermediary between your and the credit bureau and you can obtain the same information regardless of your particular bank. Do not confuse your bank allowing you to access information from the credit bureaus with your bank actually providing you with that information.
As if dealing with losing a home isn't bad enough, foreclosure also turns an excellent credit score to average or worse. You cannot hide a foreclosure, and just about any creditor will frown upon this incident when reviewing a credit application. However, you almost always have options that affect your credit less than a foreclosure and some can even save your home.
Points it Costs
A foreclosure always costs points on your credit score, but your rating before the foreclosure is just as important in determining how many points you lose. Higher scores usually experience a bigger drop. Fair Isaac Corp., which developed the credit scoring system, said in 2010 that a score of 780 would likely drop to 620 to 640 and a score of 680 would fall to 575 to 595, according to CNNMoney's Les Christie.
Considerations
Foreclosure is worse than missing a few payments and better for your score than a bankruptcy, but this does not mean it improves your chances at acquiring another mortgage later on in life. Mortgage providers usually consider a foreclosure worse than a bankruptcy that does not include a home, according to John W. Schoen of MSNBC. Fortunately, the credit agencies only report a foreclosure for seven years, while bankruptcies can stay for 10.
Misconception
No credit repair company can remove a foreclosure from your record through any legal means. The only way to expunge a foreclosure from your record is to wait out the seven years. At the end of the seven-year limit, you can dispute the foreclosure if it does not automatically fall off your report. Keep in mind that each passing year curtails the importance of your foreclosure, so it is at its weakest during year 7.
Tip
Try to get through to your lender's loss mitigation team -- most mortgage providers do not let their customers talk to loss mitigation until the borrower becomes several months late on his payments. They might be able to offer a plan or advice to get your mortgage current, such as a modification of your loan. The Federal Housing Administration might approve you for an interest-free loan that does not need to be paid until you sell the house or completely pay off the mortgage.
It may seem logical to assume that since you have never taken out a loan, don't have a credit card and never even borrowed money from your relatives, you ought to have a perfect credit score. Unfortunately, it doesn't work that way. If you have no loan history, you don't have a credit score at all, which is a completely different animal than having perfect credit.
Credit Score Purpose
The purpose of a credit score is to provide lenders with a way to determine whether you'd be a good credit risk. If you consistently pay your bills on time, don't overextend yourself with credit and have been doing this for awhile, you are going to have a very good, if not near-perfect, credit score. This is important if you want to be approved for loans, get the lowest interest rates possible and, in some cases, to look good to potential employers.
How to Build Credit
A Catch-22 exists with credit scores. If you have no credit history, it's difficult to get a loan. If you can't get a loan, you don't build a credit history. There are ways around this, though. A secured credit card is one option. To get one, you deposit money into an account, which serves as your credit line. Once you start using the card, the creditor reports your activity to the credit-reporting agencies. If you use the card responsibly by paying back your bill on time and by not going over your limit, you start to build good credit. But, if you are irresponsible with your card, by making late payments, missing payments or trying to spend more than your limit, you'll wind up with a poor credit score. After you've proved that you can be responsible with the secured credit card, most credit card companies will let you have an unsecured card and will refund your deposit. Expect this process to take about 18 months.
More Ways to Build Credit
Another way to build credit is open a department store credit card or a gas card account. These cards are typically easier to get than a bank credit card. Check the interest rate on your department store card because those cards traditionally have high interest rates. Your best course of action when you use a department store card is to pay it off at the end of the month and not carry a balance. Make sure the gas card you get does not require you to pay it in full every month because those types of gas cards do not help your credit score any. Get the kind that you can carry a balance on. You don't have to carry a balance, but the revolving type of gas cards report to the credit-reporting agencies.
Achieve a High Score
When you start building credit, strive for a high score by paying your bills responsibly, but don't necessarily stress over-achieving perfection. The difference between a very high score and a perfect usually makes no difference in your life, according to Dana Dratch of Bankrate. A very high score gets the same low interest rates on loans as a perfect score. It's very rare for anyone to have a perfect score. In fact, Maxine Sweet, a vice president at Experian, has never seen it. The ways to get your score at its highest are to pay your bills on time, keep your balances low and only take new credit when you need it.
A mathematical formula used by nearly every lender determines whether you receive a loan for a house or car. The use of credit scoring models are a recent development in the financial world. Today, almost every lender uses the same closely guarded scoring model, although the general parameters are available to the public.
History
Before the 1970s and 1980s, credit scoring models were non-existent, according the Public Broadcasting Service. Instead, lenders and loan officers had to use personal judgment, such as a person's appearance, job and street address when assessing a loan application. Human judgment cannot reliably ascertain credit risk as well as a mathematical model based on verified data.
The FICO Score
The most widely used credit score model was developed by the Fair Isaac Corporation. The actual FICO is one of the biggest secrets in business, but the Fair Isaac Corporations offers a general idea of its make up. You payment history, such as late and on time payments, make up 35 percent of the score. The amount owed, which includes the number of accounts, makes up 30 percent. How long you have had credit, any new credit accounts and the variety of accounts make up the remaining 35 percent, according to FICO.
Meaning
When calculating your score, a credit scoring model compares your financial data to the past performance of people with similar histories. Your credit score is a standardized result that determines the likelihood of you defaulting or being late on a loan payment, according to Lending Tree. The higher your score, the more likely you will repay your lender.
Considerations
The score you receive from a credit reporting agency is not necessarily the one a lender sees, but merely an approximation, according to MSN Money Central. Also, the credit reporting agencies have "secret" scores that the public cannot see. A bankruptcy scores calculates the chances of you going bankrupt and the transaction score estimates the odds of a fraudulent transaction.
Negative information can turn a good credit score into a poor score very quickly. Paying off accounts with negative information gives you peace of mind and some optimism as you move on from your mistakes. However, these good vibes don't necessarily translate to an improved credit score.
Credit Score Basics
Your credit score is a snapshot of your credit history. It lists all of your open and closed credit accounts as well as pertinent information about these accounts, such as your payment history, your current and highest balance and any collection activity or public records. Each of these factors plays an important role in determining your credit score, which can frequently change.
Effect of Negative Information
Credit scores take years to build up, but can easily be destroyed with just a few bad decisions. For example, making one payment 30 days past due can lower your FICO credit score by more than 100 points. Allowing a card to reach or exceed its limit can cause a drop of nearly 50 points. While these items can and should be avoided, they do happen and they can hurt your credit for years.
Paying Off Negative Items
If you allow a card to go more than 30 days late, but then make the payment, your credit score won't receive an immediate improvement. Your account will be considered current; however, your credit report will still show your late payment, possibly for the next seven years.
Avoiding Negative Items
It's best to avoid negative reports altogether. If you think you might be late on a payment, call your credit card company or bank as soon as possible and try to work something out. Even if you're late by a couple of weeks, it's better than going 30 days past due and getting reported. The same principle holds true if you're in fear of foreclosure or collections activity. Communication with the lender can help thwart problems before they arise.
Credit scores are used by potential lenders to make decisions regarding extension and terms of credit. These scores are determined by weighing different factors of your credit history.
FICO Score
The most commonly used type of score is a FICO score, named after the company that developed software for the credit-scoring system used to calculate this score.
Score Range
FICO scores range from 300 to 800. The higher the number, the better your credit score. Any number more than 700 is considered good.
Score Calculation
Scores are calculated based on information from these categories: payment history, amounts owed, length of credit history, types of credit accounts and new credit accounts.
Negative Information
Negative credit information, such as late payments or charge-offs, remain on your credit report for seven years, during which time they will impact your credit score. Bankruptcy stays on a credit report for 10 years.
Score Ranges
Prospective borrowers with credit scores of more than 700 can expect to get the best credit terms and rates. A score of less than 600 is considered higher risk, and borrowers in this category will pay higher interest for credit.
Our credit scores are vital nowadays. We need a good credit score for buy a house, a car, and sometimes even to score that awesome job. There is not a magical way to improve your credit score, unfortunately. I've tried! However, with self-discipline, focus, and goal setting, you can be on your way to a higher credit score.
Instructions
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Improving your credit score is something that takes time. I've been able to improve my credit score over 200 points within the last 3 years by following these steps.
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Pay your monthly bills on time.
Yes, you have probably heard and read this over and over. For good reason, it WORKS!! One late payment on your credit report is looked at as negative and can knock quite a few points from your credit score. As soon as you get that bill in the mail, pay it. Better yet, sign up for automatic recurring payments if available.
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If you are just starting out and have a skimpy credit report, consider opening 1 or 2 credit accounts. Don't charge more than 25% of your credit limit. Of course, it is best to pay your balance in full every month. You don't want to over do it, however; it is good to have a healthy mix of accounts that are in good standings to build your scores up.
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Don't get enticed! We see it everywhere.."No payments for 12 months!!", "0% interest for 6 months!". Stores are always trying to get consumers to apply for their credit cards. Don't fall into that trap. Multiple inquiries on your credit report will definitely lower your credit score. It's not worth to save 10% on your purchase with a Target card if that card is charging you a 20% APR, plus lowering your credit score. Stick with 2-3 solid accounts and take care of them.
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Keep your balances low.
Lenders don't want to see maxed out credit accounts. Try to keep your balance less than 25% if possible. If it is more than that, stop charging now and work on paying off the balance.
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Negotiate a lower APR with your credit company.
If you have been a loyal customer for some time, call the customer service number on the back of your card and negotiate a lower APR. Chances are they will oblige, considering you have been making your payments on time. A lower APR will not only save you money, it will also make your monthly payments work harder towards your principal. Therefore, lowering your balance and getting that credit score up.
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Check your credit reports.
Get a copy of all 3 credit reports from Transunion, Experian, and Equifax. Carefully go through each and every entry on your report. If there are discrepancies, dispute them. Once it is fixed, you will be mailed an updated report, look over and check for accuracy. This this over and over until your credit report if completely accurate.
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Don't close all your paid accounts.
It used to be a myth that it is best to close accounts that you aren't using. This couldn't be further from the truth. Length of credit history plays an important factor on your credit score. You really don't want more than 5-6 inactive and open accounts. However, you want to keep the ones that you have had the longest. This will help you to be seen as more credit worthy.
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Avoid debt consolidation and bankruptcy.
Obviously, bankruptcy will hurt your credit score. However, alot of people don't realize that debt consolidation is harmful to your credit and credit score as well. Lenders look at debt consolidation as you not being able to manage your credit and money on your own. If you are overwhelmed with debt, you may be better off negotiating a debt settlement directly with your creditors.
If you pay a bill late, it could result in a blemish on your credit report. Companies often report late payments once they reach 30 days past due. Because companies typically consider delinquencies in terms of 30-day periods, your credit report may receive additional delinquency notes if your payments remain overdue for 60 days or more.
Length of Record
A 30-day delinquency may stay on your credit report for seven years. Positive information remains on your report for the same amount of time, though some credit-reporting agencies may keep positive information for up to 10 years. The seven-year reporting period begins when your creditor reports the 30-day delinquency.
Effect of a 30-Day Deliquency
A sole 30-day-late notation on your credit report may not cause a dramatic plunge in your credit score or your ability to obtain credit and services from companies that consider it. Instead, companies may be more likely to turn you down if your report shows a pattern of repeated delinquency or also lists 60- and 90-day delinquencies. However, you may want to have it removed if you feel that it will hurt your chances of obtaining new credit.
Removing Delinquency Errors
If you feel a 30-day delinquency has been added to your credit report in error, you may dispute the adverse information by contacting the credit bureau that reported the incorrect information. Disputes are typically made in writing. The credit bureau will investigate your dispute within 30 days and remove the delinquency if it was added in error. If the 30-day delinquency report is correct, it may remain on your report for seven years or more.
Contacting a Creditor
You may be able to have a 30-day delinquency removed from your credit report by contacting your creditor and asking the company to correct the reported information. Explain why you were late and ask the creditor to remove the adverse information from your report. Though creditors aren't required to correct accurate delinquency reports, some may be willing to do so, especially for those who usually pay their bills on time. Others may be more likely to agree to change delinquency reports if the request is made during repayment negotiations.
A fraud alert can be placed on your credit report to prevent new accounts from being opened in your name without your consent. By contacting the three major credit bureaus, you can protect yourself if you think you've been a victim of identity theft.
Function
The fraud alert tells lenders that fraud has occurred or may occur in your name and requires them to take steps to verify identity before extending credit or opening new accounts.
Types
The initial fraud alert appears on your credit reports for at least 90 days and can be placed even if fraud is only suspected. The extended alert remains for seven years, but proof of fraud must be provided through an Identity Theft Report, an official police report of the crime.
Placing a Fraud Alert
A fraud alert can be placed through any of the major credit bureaus--Experian, Equifax and TransUnion. The bureau you contact will report your information to the other two bureaus.
Benefits
Both types of fraud alert entitle you to free credit reports from each bureau. You may also opt to have only the last four digits of your Social Security number appear on your reports.
History
Fraud alerts are a provision of the Fair and Accurate Credit Transactions Act of 2003, an amendment of the Fair Credit Reporting Act.
Checking your Canadian credit history is important. Check it regularly so you can monitor whats in your credit file. There may be errors that need correcting. Errors have a negative effect on your credit. You can also see area where improvements could be made. Disclosure reports by mail are free but do not include your credit score. In order to get a detailed credit history in Canada, a fee is charged. There are two credit reporting bureaus: Equifax Canada and TransUnion Canada.
Instructions
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Apply online to check your credit history in Canada. This provides you with a full report. Application is simple and quick. You can view your report as soon as your details have been verified. Click on either credit reporting bureau (see Resources). Click on See My Credit Score or First Time?, depending which bureau you have selected.
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Complete the application form carefully. Errors will invalidate your application. Click Continue and review your application. Click Continue and enter your payment details. As of 2010, charges are Equifax $23.95, TransUnion $22.90. Fees may alter and could be different in certain provinces. Both bureaus provide your credit history and credit score in Canada.
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Click Continue to complete the process. Wait while your personal details are verified. Your fee will be debited to your card. Provide a login name, password and password reminder. Click Submit. You can check your credit history instantly.
Credit score companies determine the risk of an individual when giving out almost any type of loan. A high score can lead to paying less interest on a loan and possibly paying less for insurance. Low scores indicate that negative information is present on the credit report.
Credit Companies
Three major credit scoring companies--Equifax, TransUnion and Experian--each use a slightly different rating system to determine a credit score. In addition, the information each of these companies receives varies just a bit, which impacts scores as well.
Annual Credit Report
The Fair Credit Report Act mandates that credit scoring companies must give those who request it a free copy of their credit report each year. Some consumer advocates recommend staggering these reports. Individuals also may buy their score from each of the companies for about $8 per copy. Credit companies often include information on improving the score.
Improving Credit Scores
Credit scoring systems vary, and the information used to determine scores is complicated. Several relevant factors include: paying bills on time, the amount of credit one has, how long a person's credit history is and if any new credit is on the report.
