June 2010 ~ Personal Finance and Money Management

Wednesday, June 30, 2010

Does a Credit Report Lower My Credit Score?

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In the world of consumer lending, lenders rely on credit reports and credit scores to determine if a borrower is worthy of a loan. Your credit report forms the basis of your credit history and tells lenders what you've done in the past with respect to using consumer credit. Companies that create credit scores use the information in your report to calculate your individual score, but a credit report itself is not a credit score.

Every time you apply for a loan, pay credit card bill or do anything in which a lender extends you credit, this information gets reported on your credit report. The companies that create credit reports sell this information to creditors because creditors want to know whether they can trust a borrower to repay a potential loan. To help lenders do this, companies also develop credit scores, numbers that represent how safe or risky a potential borrower is.

What raises or lowers your credit score is the information contained on your credit report. If, for example, you have several loans and have never made a late payment or defaulted on the loan, you will generally have a very high credit score. On the other hand, if your credit report contains a litany of negative behavior, such as making numerous late payments and filing bankruptcy, your credit score will be low.

When you apply for a loan, your creditor will look at your credit report as part of the loan application process. Creditors typically do this in one of two ways, with a "soft" or "hard" pull. A soft pull is one in which the creditor merely looks at the information. A hard pull is one where the creditor not only looks at the information but also tells the credit reporting agency that it has looked as part of the loan application process. A hard pull itself can lower your credit score, but typically not for very long and not by very much.

Just as your behavior as a creditor changes over time, so does your credit score. If you've had a bad credit history in the past, that doesn't mean your report will be bad for the rest of your life. As long as you can prove to lenders that you have become a responsible borrower, that information gets reported on your credit report, and it will have an effect on your credit score. The higher your credit score is, the more likely it is you will be approved for a loan.

Does Paying a Bill Earlier Get Better Credit?

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Credit scores rate a person's willingness to repay a debt, so you may think that paying bills early would boost your credit score faster than someone who just pays on time. Unfortunately, this is not true. You should pay your bills early, anyway, to avoid accidentally defaulting on your accounts and damaging your credit rating.

When your creditor reports that your account was paid by the billing due date, this is the only action that matters. Paying a few days early is no different than paying at the last minute in the Fair Isaac risk model (FICO), which most lenders use to rate your credit history.

Paying your bills as early as possible avoids the possibility that you might forget to make a payment on the due date. Even if you intend to pay a bill, you can still miss a payment because of circumstances beyond your control, such as a family emergency or technical glitches with your bank account.

You may see a faster increase to your credit score by paying bills early. The credit bureaus tend to update their databases every month or so. If your creditor reports your account as paid a few days after this date, it could take longer to update your report than if you paid early. For example, if a bureau updates your report on August 1, and your creditor allows you to pay until August 3, your report probably won't reflect an on-time payment until September. If you paid the bill early, say on July 30, the creditor can report an on-time payment before the bureaus update your report on August 1.

Set up automatic bill payments if your bank allows it. You can also call a lender and ask them to change the payment due date on your bill to give you another few days to hedge against missing a payment. Maintain a savings account so you can meet your debt obligations even during times of unexpected expenses. If your lender does not impose early payment penalties, paying off an entire account at once increases your credit score faster than if you pay the minimum each month. Also, you pay less in finance charges, so you have more disposable income to tackle other debts.

Can I Remove Inquiries From My Credit Report?

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Your credit reports are made up of data compiled by the Equifax, TransUnion and Experian reporting agencies, which sell your information to financial institutions and other lenders when you attempt to get credit. These inquiries become part of your records for two years, but too many can hurt you. The MyFICO scoring website warns that six or more applications within a few months mark you as a higher bankruptcy risk. You may be able to remove some of those inquiries.

Your right to free annual credit reports allows you to see which inquiries currently appear on your three credit reports. The Federal Trade Commission explains that AnnualCreditReport.com is the official source for no-cost, no-obligation reports once every year. Each bureau provides a key so you can easily read the report entries and determine which ones represent lender inquiries. This data may differ on each report, since some creditors use only one bureau for their credit checks.

The website of the Illinois Attorney General advises that you can often remove credit bureau inquiries by questioning the lender's authorization to review your credit records. The Fair Credit Reporting Act entitles you to proof of authorization, so write a letter to the bank or other company that made each inquiry and ask for that proof. Explain that you want the inquiry removed from your credit reports if the company cannot fulfill your request. Some requesters may provide validation, but many will remove the entry because that is the easier option compared to reviewing, copying and mailing their records to you.

You do not have to worry about negative effects from multiple inquiries generated while you are rate shopping for car financing, a mortgage, a student loan or other account for which you are seeking the lowest possible interest. MyFICO advises that credit scoring models recognize rate shopping and consolidate all similar applications made within a month so they only count as a single inquiry in your score. Credit checks done over a wider time span are considered individually.

Inquiries generated by credit applications are different from your own credit report reviews. You make a "soft inquiry" when you request your reports from Equifax, TransUnion and Experian, the Lendingtree loan site explains. Marketing companies also create soft inquiry entries when they purchase your data to send you offers. Do not worry about removing these types of credit checks because lenders cannot see them when processing applications and they are not figured into your credit score.

How Does a Credit Report Affect Getting a Customs Brokerage License?

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Customs brokers help control items entering the U.S. and must be well versed in the hundreds of laws that apply to imports, so a clear background is critical for anyone who wants a customs broker license. To become a customs broker, you must be at least 21, not a current federal employee and possess good moral character. Although consumer credit reports are more common in the lending industry, employers such as the U.S. government also check reports to judge the moral character of a potential employee.

Credit reports, along with additional records such as a criminal history, help government officials verify an applicant's identity, but, more important, those reports help gauge an applicant's integrity. Customs brokers control millions of dollars of goods entering the U.S. A poor credit history, especially if it includes serious negative entries such as a tax lien or bankruptcy, may indicate the applicant is in poor financial standing and may be more prone to accept bribes or sell information.

Nothing on a credit report automatically disqualifies an applicant from becoming a customs broker. The hiring manager assesses an applicant's entire profile. A credit score damaged by late payments to unexpected medical bills, for instance, might hurt the an applicant's chances less than a poor credit rating resulting from poor financial management. The government cannot discriminate against an applicant only because of a previous bankruptcy filing.

The June 2009 Custons and Border Protection (CBP) application -- which is the most current application as of the time of publication -- allows applicants to explain any serious derogatory items in section 18. Applicants should note if the acquisition of bad debts was beyond their control and that all attempts were made to resolve the situation. For instance, an applicant can argue that filing bankruptcy was a responsible action, because he used a government process to handle the debt rather than ignore it.

Start repairing your credit well before you apply to the Customs Border Patrol. Even if your credit history only slightly impacts your ability to obtain a license, a good credit history is helpful in other facets of your life. For instance, a poor credit score may prevent you from obtaining loans at favorable interest rates, and other employers may reject an application based on a poor credit history. The first step to repairing your credit is repaying as much debt as possible and paying bills on time. Before you even get to the background check, you must pass the customs broker licensing examination.

TransUnion Credit Scores: Risk Score Factors

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When you purchased or shopped for your TransUnion credit score you probably did not see an option for a true FICO score -- the most common credit score in the lending industry. But do not be alarmed, the TransUnion tally is a legitimate credit score. TransUnion sells credit scores that rate you based on the same factors as the hugely dominant FICO model.

TransUnion sells EMPIRICA scores instead of a FICO score, but these basically rate you the same way. The Fair Isaac Corporation owns the FICO trademark, so TransUnion cannot sell a FICO score, but it created its EMPIRICA formula with the Fair Isaac Corporation, so it calculates risk on the same factors, with minute differences in the weight of those variables that probably do not cause more than a few points in variance.

Because credit scoring models rate your willingness to repay a debt, payment history is the most important factor and counts for 35 percent of your score. A few sub-factors fall within this category. Public records, such as judgments and liens, collection accounts, time since your last delinquency, and the total number of negative and positive accounts count for a large, but unknown weight in payment history.

The amount of debt you hold can be the easiest category to tackle, because you can pay off debts immediately. In general, revolving, unsecured accounts affect this category the most, since you have more leeway to pay these accounts than a loan secured by property. Also critical to this category is the portion of your credit limit you use, or credit utilization. A high credit utilization can take over 45 points off of your score.

The length of your credit history counts for 15 percent of your score overall. Generally, the longer your history the better, although if you have a short credit history the credit bureaus do not compare you to borrowers with a longer, more diverse credit history, so you can have a high score as a young borrower. TransUnion gives some weight to the oldest of certain types of accounts and looks at when you last used them.

The FICO scoring system dings your score when you have too many recent new accounts, so it pays to have many old accounts, which also boosts your length of credit history. You also receive a boost to this category when you improve your credit after severe incidents, such as bankruptcy. Credit inquiries, which dings your score up to five points, also fall into this category.

You should have a mix of installment and revolving loans to max out the types of credit used factor, which counts for 10 percent of your score. The presence of certain accounts, such as consumer finance accounts or high-interest short term loans, can lower your score.

TransUnion reports certain items for a different amount of time than the other bureaus, which can lead to variance among scores from all three national credit agencies. Experian, for example, reports unpaid tax liens for 15 years, while TransUnion reports them indefinitely. TransUnion also sells variants of the FICO/EMPIRICA model specialized for certain loans. The TransUnion FICO Mortgage score, for instance, rates your willingness to repay a home loan.

How Will Paying a Delinquent Account Affect Your Credit Score?

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When you get more than 30 days behind on debt payments, whether they are car loans, credit cards or mortgage payments, the default is almost always reported to the three main credit bureaus. These derogatory reports negatively affect your credit score for a period of seven years. This is true whether the delinquent account is ultimately paid or not. Paying your account will have a more positive impact on your score than leaving it unresolved. In the short term, however, it won't improve your score. If the debt has been written off by the company, you should consult a lawyer or credit counselor before paying, as the payment could reactivate the debt and actually hurt your score.

Creditors report debt and repaying information, both good and bad, to the three main credit bureaus: Equifax, TransUnion and Experian. Each company maintains a report on each debtor, and these reports will be viewed by future potential lenders to tell them what kind of a credit risk you are. Payments on most debt that is over 30 days old are reported to the bureaus. Each delinquency affects your overall credit score and lowers it. Your credit score determines whether you can apply for new debt and the interest rate on that debt. As an account becomes more delinquent, it has more of a negative impact on your score. Payments on these overdue amounts will also be reflected and will increase your score slightly, but it will take time for the age of the delinquency to lessen the impact on the report.

Once accounts are seriously delinquent and already reported to the bureaus, you may be able to work out a settlement with the lender to reduce the total amount owed and the interest rate. The company's main goal is to recover at least some of its money and the company often is willing to settle for less. Before discussing a settlement with your lender, you should comb through your budget carefully to make sure that you can faithfully make the regular payments to which you will be committing. If the lender agrees with your proposal, a legal settlement will be drawn up and noted on your credit report.

If your delinquency was caused by an illness or other unforeseeable event, you are allowed to make notes in your credit files so that lenders will see the reasons behind the delinquent reports. This can sometimes make a bad report seem less risky in a lender's eyes. While each lender will look at the same score, each will interpret it differently and will assign greater or lesser importance to each item.

Keeping your credit score healthy means monitoring it regularly. You are allowed to have one copy of your credit report annually for free. Make certain that you agree with everything reported. If there are errors, you should report them to the bureaus along with any proof you have to back up your claim. For example, if an account is still shown as outstanding and you paid it, provide copies of the payment receipt to the bureaus and they will correct it.

How Soon Does a High Credit Card Balance Affect Your Credit Score?

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Just because a credit card company gives you a high limit, does not mean you should use all of it -- doing so can destroy your credit. The damage to you credit can be long lasting and immediate, because it can take years to pay off a large credit card loan since interest rates are high on unsecured lines like a revolving loan.

The credit reporting agencies will find out about a high credit card balance as soon as the lender updates your account. Most creditors send information once a month, so expect this to affect your score in about a month, according to credit counselors Paul N. Ellinger and Angela C. Lyons of the University of Illinois at Urbana Champaign.

The Fair Isaac Corporation, designer of the credit scoring formula adopted by most lenders, keeps the exact importance of your credit card obligation to your available limit -- known as credit utilization -- a secret. Credit utilization, however, is part of the amounts owed category of the FICO score, which counts for 30 percent in the FICO formula.

Most consumers have a different, albeit close, score from each of the three major credit bureaus -- Experian, Equifax and TransUnion -- because lenders can report to whichever agencies they choose. It is possible that a credit agency may never find out about your high credit card balance or even that you have the account.

You can update your account immediately, especially if you want to apply for a loan, after paying your debts by calling a "rapid rescoring" service. This type of service usually comes from a credit rating agency independent of the big three. They can correct information on a report in as little as three days or as long as two weeks.

How to Delete Accounts Off Credit Reports

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A negative account on your credit report can lower your credit score and make it harder to obtain credit. While it is not possible to call a credit bureau and tell them what accounts you'd like deleted from your credit report, there are ways accounts do get deleted from a credit report. You do not have control over which accounts are deleted but you are responsible for initiating the process. The entire process begins with a credit dispute filed with the credit bureau in question.

Instructions

Review your credit report carefully and look for any errors associated with the accounts you wish to have deleted. The Fair Credit Reporting Act allows you to dispute any information on your credit report that is not reporting correctly. The error can be anything from a wrong name, incorrect type of account, incorrect balance or any other mistake.

Write a dispute letter to the credit agency. The address will be located on the credit report. List your name, the credit report file number -- this is located on your credit report, the last four digits of your Social Security number and your date of birth. This will help the credit bureau verify your identity. Include a short sentence explaining that you are writing to dispute certain items and list each incorrect account.

Let the credit agency initiate the credit dispute. The credit agency will send a request to the creditor and ask him to verify or update the account with correct information. If the creditor fails to respond within 30 days from your dispute, the credit agency will delete the account. The account will remain on your credit report if the creditor responds and verifies the information and updates the information. The credit agency will mail you a letter once the investigation is complete. You should hear within 45 days of submitting your dispute.

High Utilization of Credit Lines vs. Insufficient Utilization Information

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Using too much of your credit limit --- and, sometimes, not using enough of it --- can damage your credit score. A high utilization of credit lines, however, is far more dangerous than insufficient utilization, because it means a large debt burden. Fortunately, you can solve utilization problems relatively quickly as opposed to other credit problems, such as late payments, which can take years to recover from.

A high utilization of credit lines means using too much of your limit. Most experts put the maximum utilization limit any consumer should have at somewhere between 30 and 35 percent of the maximum limit on any particular card, and the aggregate limit across all credit card accounts, according to Gregory Taggart of Bankrate. Insufficient utilization occurs when a consumer does not use a credit card account at all, and the issuer declares it dormant.

High and insufficient credit utilization affect the ratio of credit used to credit available --- a major component of the "amounts owed" category in the Fair Isaac risk model. Maxing out a credit card, for instance, costs up to 45 points on a score of 780. Insufficient utilization does not have a direct negative impact. Instead, it raises utilization and thereby lowers a score. If, for instance, you have $2,000 in credit card debt and a $10,000 total limit, then a card with a $2,000 that goes dormant would raise your utilization from 20 percent to 25 percent, because the limit on dormant cards is not included in credit score calculations.

Credit card issuers like both scenarios less than the credit reporting agencies. Consumers who do not use an account cost the issuer maintenance expenses; and people who use too much risk defaulting or declaring bankruptcy. The credit card company might lower the credit limit or close an account that falls into either a high or low utilization category.

When you receive a rejection for credit because of high utilization, trim your budget to funnel more money into credit card debt. Start with the account that has the highest interest first. Alternatively, you could ask the lender for a limit increase, but this might be a tough sell if you are already close to maxing out the card. If you have insufficient utilization, put a small charge on the card every few months and pay it off immediately --- you do not need to carry a balance for the creditor to report data to the bureaus. You could also have a thin credit profile or insufficient credit history. In this case, you need to add a trade line to your file, such as an auto loan or another credit card.

How to Increase or Raise Your Credit Score

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If the thought of raising your credit score seems farfetched, think again. Its actually quite easy to do. It is simply a matter of putting certain principles into practice and allowing some time. Consistent effort over time can take you into the credit score stratosphere, even above 800.

Instructions

Do not ever pay anything late. Simply plan ahead. If you know you lack the money for a certain bill, borrow it from your parents, friends or get a cash advance on a credit card. Always pay on time. If you start now, your score will rise in just a few months.

Have about six or seven credit cards that you rotate using every few months. Pay them in full each month, if you can. Never carry a large balance, never more than 10 percent of all your available credit. Apply online for a higher credit limit from time to time. Applying for new cards will cause your score to go down at first but it will come back higher a few months later. Never cancel a credit card. This will cause your available credit to go down and hurt your score.

Pay down your balances. It doesn't matter to the credit reporting agencies if you pay your credit card bill in full or carry a balance. The agencies calculate the average balance owed each month in relation to the total amount of credit you have. The lower the percentage, the higher your score.

Get a car loan. After a few months, get another loan at a different place and pay off the first loan. Do this over and over. Paying off a loan will cause your score to increase. The financial institute does not know or care that you are paying off one loan with another. There are usually no origination fees or prepayment penalties with car loans so this will not cost you a thing. If you have more than one car loan, pay all but one off in full.

Go to AnnualCreditReport.com and get your credit report for all three credit reporting agencies. You can do this for free one time per year. You will have to pay extra to get your actual score but you should do it to know where you stand.

Call the collection company and try to make a deal, if you have items in collections. The company will always take less to settle, usually 10 to 50 percent. Get the offer in writing before you pay anything. Make sure they will agree to report the item as paid to the credit reporting agencies. If it's still on your report after a month, you will have to dispute it.

Get your credit score every six months to see how things are working. Keep an eye out for negatives. You would be surprised how many mistakes can get on your credit report.

Refrain from having your credit checked too often. Every time someone checks your credit, except you, your score drops a bit. Thus, when browsing cars or boats, do not give the dealer any personal credit information just to see if you can get a loan.

Does a Joint Credit Card Score Affect Both People?

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A joint credit card account is one in which two individuals are both full account holders on a credit card. Both individuals have a credit card issued in their name, the purchases all go onto a common bill and both of them are held legally responsible for repaying that debt. Therefore, the joint credit card account will affect each of their credit scores.

A joint credit card account appears on the credit reports of both account holders. The account information, including the date on which it was opened, the credit line, the outstanding balance and the payment history, all goes on both reports. Therefore, positive history will help both account owners and negative history, such as late payments, will hurt both account owners. Even married couples have separate credit reports, so a joint credit card account is a way to build credit for both the husband and wife.

A joint credit card affects all aspects of each account holder's credit score. Opening the credit card results in a credit inquiry that will slightly lower the credit scores, as will the new account. Having a credit card can increase the scores by diversifying the types of credit and, over time, increasing the average age of credit accounts. Paying the bills on time helps the account owners' credit scores, whereas missing payments hurts both credit scores. The last portion of the credit score considers the account balance, specifically the ratio of the balance to the limit. Therefore, both account owners need to pay attention to keeping the balance to a low percentage of the credit limit.

People wishing to open a joint credit card together should carefully determine how they will use the card and pay the bills. Because both individuals are responsible for payment, they should agree on what expenses are acceptable to pay for with the card. In addition, they should pay the bill from a joint account or specify the agreement by which they will pay each month. Otherwise, they may find themselves missing payments and damaging both of their credit scores. In addition, they should consider that a joint credit card account is difficult to close because the company will rarely allow one person to just remove his name and obligation. Instead, they will need to pay it off in full or transfer the balance to one or more individual accounts.

Getting a joint credit card is not the only way to have two people spend on the same credit card account. Many credit card issuers allow an account holder to add authorized users. These users get a credit card linked to the account, but they have no legal responsibility to pay the bills. This arrangement puts the primary account holder at risk because the authorized user has no consequences for overspending. The account history sometimes appears on the credit report of the authorized user, but the user can request at any point to have that account removed from his credit history.

Does Child Support Affect Your Credit?

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Making child support payments can put a serious strain on your personal finances, not only through the payments themselves but also in your ability to borrow. Falling behind on child support payments can lower your credit score, which in turn makes it more difficult for you to borrow money at a low interest rate.

Making child support payments as scheduled generally does not affect your credit. This is because the agency that collects payments, or your child's parent if you make direct payments, does not report on-time payment history to the credit bureaus. Information that is not on your credit report cannot affect your credit score.

If you fall behind on child support payments, your state child support enforcement agency will contact you to try to secure payment. If you fail to comply as requested, the child support agency will report the lack of payment to the credit bureaus. This will lower your credit score and make it more difficult for you to obtain credit in the future. In addition, once you have to start paying child support to a collection agency, the agency reports whenever you have a late payment, which further damages your score.

If you fall behind on child support payments, stay in touch with the agency that collects payments. Pay as much as you can afford to and explain the situation that led to your delinquency. If you are cooperating as much as you are able, the agency is less likely to report the late payment to the credit bureaus. If your financial situation has changed since the initial child support order, you can initiate a petition with the court to reduce your payment amounts so you can keep up more easily and not damage your credit.

Although on-time child support payments do not affect your credit score, they might still affect your ability to obtain credit. Some lenders, especially for mortgages, calculate the ratio of your debt obligations to your monthly income. Mortgage lenders typically require your total debt obligations, including your proposed mortgage payment, to be less than 36 percent of your gross income. Court-ordered child support payments count as part of your debt, so these payments can decrease your borrowing power.

How Much Does a Hard Credit Pull Lower Credit Score?

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Soft credit inquiries, which do not indicate a need for credit---such as an employer checking your credit or a preapproved credit card offer---never hurt your credit score no matter how many are on your record. Hard credit inquiries, ones you initiate, usually have a minimal affect on your credit score. An excessive amount of hard inquiries, however, have the potential to hurt your credit.

A single hard inquiry will not ding your credit score more than five points, according to NHACA Financial Investing. Hard inquiries ding your score because FICO score models show that needing to add any line of credit to your financial portfolio presents an increased risk of you defaulting on a loan.

The more lines of credit you open in a short period of time---usually less than a month---the greater hard inquiries hurt your score, according to the Fair Isaac Corporation. Statistics from the Fair Isaac Corporation show that opening six or more credit lines increases your risk of declaring bankruptcy eightfold. The rest of your credit history determines how much an inquiry or inquiries hurt your score.

Inquiries stay on your credit history for two years, but only affect your FICO credit score---the standard in the lending industry---for the first year on your credit profile, according to Bankrate.com. Alternative credit scoring models, such as the VantageScore, factor in hard inquiries whenever they are on your credit history.

Pulling a hard inquiry on your own credit profile will not lower your score, according to TransUnion's True Credit. If you plan to open a new account, put in all applications within two weeks---multiple inquiries for the same type of credit are beneficial because it looks like shopping for the best rate. A hard inquiry at the time as a negative mark, such as a late payment, compounds the impact of a hard inquiry.

How Paying Off an Auto Loan Affects Credit Score

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Your auto loan is an important component of your credit history, and paying it off affects your credit score. The exact impact on your score depends on your overall credit use. Your credit score fluctuates depending on your financial activity, and is affected by everything from opening and closing accounts to missing a credit card payment.

An auto loan is a secured loan, which means there is an asset to guarantee repayment. The lender can repossess your car and sell it to regain some of its investment if you stop making payments. This is in contrast to unsecured accounts like credit cards that have no collateral. Lenders view secured loans as less risky, so they are more likely to be granted to borrowers with a marginal credit score than a new credit card. Your credit score is a three-digit numerical summary of your credit worthiness. The FICO score is the most commonly used source for credit reporting.

Your auto loan affects your credit score in the same way as your other accounts. By making your car payment on time every month you support the foundation for a good credit score. FICO states that payment history makes up 30 percent of a credit score. The Repair Bad Credit Report website explains that paying off your auto loan is not particularly helpful for your credit score because it doesn't affect your available credit lines. Your score is partially based on the ratio of credit available to you, to debt you owe. So, instead of paying off your auto loan early, it is more effective to pay down credit card debt.

It may be a good idea to pay off your auto loan even if it doesn't raise your credit score. Compare the interest rate to your credit cards and other loans. Pay off the highest interest account first and channel the money you were paying monthly toward your other bills. This will raise your credit score in the long term as you maintain a good payment history and improve your credit used to credit available ratio.

Your auto loan only affects your credit score for seven years after payoff. Then it is dropped from your records. The account payment history prior to payoff will have less importance as time passes. FICO explains lenders place more importance on recent credit items than old ones.

It may be smarter to refinance your auto loan than to pay it off. You may have gotten stuck with a high interest rate if you bought your car when your credit score was low. Philip Reed, a senior editor for the Edmunds automotive website, advises your monthly payment will go down and you may save thousands of dollars over the life of the loan if you rebuild your credit for several months and get refinanced by a new lender at a better rate. Pay the new auto loan on time to maintain your improved credit score.

Can a Paid Charge-Off Be Suppressed in New York?

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Nearly anyone who has taken out credit or incurred a debt has had that activity logged on a credit report by one or more companies, known as credit reporting bureaus. These companies are responsible for keeping track of an individual's borrowing habits and recording them. If a creditor charges off an individual's purchase, he may report this charge-off to a credit reporting. Even if the charge-off is later paid, the record of it remains on the report, in New York as in other places.

A credit report consists of a list of debts that an individual has taken out and when he has paid them back. If an individual has a debt remain outstanding for too long, then the creditor may write it off---also called charging it off---as uncollectable. If the creditor reports this action to a credit reporting bureau, then it will be listed on the person's credit report, causing his score to decline.

If a charge-off is recorded on a person's credit report, then his score will drop, as the fact that he did not pay back a debt makes him appear less creditworthy. However, if the person does pay off the debt at a later date, the creditor may report this payment to the credit reporting bureau. This late payment will cause the person's score to rise, although it will still remain lower than if he had never incurred the charge-off.

A person cannot suppressed a charge-off, whether in New York or in any other state. Credit reporting bureaus will not remove an item on a credit report unless it is factually incorrect. For example, if a person did actually pay back a debt, but the report lists the debt as being charged off, the bureau would fix this. However, the person cannot have the record expunged if the debt was in fact charged off.

A charge-off will must only removed from a person's account when the credit reporting bureau is legally required to remove it. This happens according to federal law, which requires that all negative information---except for the listing of bankruptcies---be removed from a person's credit report after seven years, at which point it can no long affect a person's score negatively. This seven-year period begins on the day the record was last updated.

Can the Report Date Change on a Disputed Item on Your Credit Report?

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While some people review the accounts on their credit report for the correct balance, an accurate reporting date can be the most important detail on an account. Federal law dictates how long the credit bureaus can list a negative item. If you see a wrong date of last activity, you can and should dispute it with the credit bureaus.

You can dispute anything on your credit report, including the reporting date, under the Fair Credit Reporting Act. The credit bureau with which you make the dispute must investigate your claim within 30 days or else you automatically win your case in most situations. In practice, disputes take less than a month because the bureaus automate most cases with a system that re-requests a report form from your lender via an electronic computer link.

On positive information, the date of last activity has no bearing on your credit score. However, for negative items, the reporting date can become critical because it can determine when the item will be removed from your records. For example, if you miss a payment on your credit card and eventually the creditor writes down the debt as a bad account, the first missed payment becomes the initial date of delinquency. The bureaus generally can only maintain such information for seven years from the initial delinquency, according to Debtors Unite. If the creditor sells an account, the date of last activity may change, but the bureaus still can only report the account for seven years after the initial delinquency.

Keep records on any loan account so you can provide evidence of your claim for an incorrect posting date. An incorrect reporting date can be a sign that a debt collector or creditor lost your records. Thus, you should dispute the entire account. Creditors must be able to verify an account as well as prove its accuracy for a credit bureau to report it.

Asking the creditor to correct an erroneous posting date may be quicker and less time-consuming than going through credit bureaus. Once you correct the reporting date, keep an eye on your credit report and track when your negative accounts are due to fall off. This way you can know when your credit score should increase, or at least use it as motivation to incur no more negative items in the future.

How Can a College Girl Without Credit Establish Credit?

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When you apply for credit, the finance company or bank reviewing your application checks your credit score to determine whether you have a history of paying your bills on time. College students often struggle to obtain credit because they have no prior credit history and lenders have no data upon which to base credit underwriting decisions. Nevertheless, as a student there are certain steps you can take to quickly establish a credit history.

Since 2009, federal law prevents banks from offering student credit cards to people under the age of 21 who do not have an income source. If you work part time and have minimal expenses, you can qualify for a student credit card in your own right even if you have no prior credit history. Typically, student credit cards have low line limits and very high interest rates. However, by using the card and paying your monthly bill on time you start to build a credit history and eventually that enables you to obtain other low-rate credit cards.

If you have no income source and rely on student grants and parental contributions to cover your college costs, you can still obtain a student credit card or loan if a parent or guardian agrees to act as the co-signer. The co-signer must have good credit and sufficient income to cover his own existing debts as well as your student credit card or loan. The debt technically belongs to both of you and you are both liable for paying it off, which means some parents are reluctant to act as co-signers for fear that their child will run up the debt and not pay it off.

Generally, banks run your credit when you apply for any type of loan. However, you can qualify for a cash-secured loan regardless of your credit history or lack thereof. Cash-secured loans normally entail opening a certificates of deposit and the bank issuing you a loan with a balance that amounts to less than the sum of money you deposited into the certificate of deposit (CD). You pay interest on the loan but earn interest on the CD. The lender keeps your CD if you fail to pay off the loan and loan payments are reported to the credit bureaus, which means you quickly establish a credit history.

If you lack the funds to open a cash-secured loan and your parents do not wish to co-sign on a student credit card, you can establish your credit by becoming an authorized signer on someone else's credit card. An authorized signer has access to a credit account and any activity on the account impacts the credit score of the authorized signer as well as the person who originally established the account. Industry insiders call this method of establishing credit "piggybacking." Parents and guardians sometimes prefer piggybacking vs. co-signing because they can more easily monitor the account.

What Is a Credit History Used For?

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A person's credit history provides information about his reliability. A credit history request does not always follow an application to borrow money, although that is its main use. The credit history is useful in any situation where the person is responsible for cash or property that belongs to someone else. The electric company may request a credit history even though a homeowner must pay his bill at the end of each month.

Utilities often require a credit history to determine whether a homeowner is likely to pay her bill on time. If the homeowner has a poor credit history, a utility such as the water company may require her to provide a deposit that will cover the water bill for several months. The water company might ask for a smaller deposit from a customer with a high credit score, according to the Consumer Federation of America.

An auto insurance company uses credit history both to judge whether a client will pay her auto insurance premiums promptly, and predict whether she is likely to cause an auto accident. A high credit score provides evidence that a driver is responsible, so she may perform other responsible behaviors such as driving under the speed limit and taking her car to the auto shop for regular maintenance.

An apartment manager frequently asks a prospective tenant to provide his credit history. The apartment manager needs to predict whether the tenant will pay for the damages if he accidentally breaks a window or knocks a hole in the wall, as well as whether the tenant will pay the rent on time.

An employee uses her employer's property to perform her job. A bank might request a credit history from an applicant for a bank teller job, because the bank teller distributes cash to the bank's customers. The bank wants to make sure that the teller does not have an incentive to steal cash because she has large, unpaid bills.

A credit history can not be used to conduct sexual, religious or racial discrimination. A business that asks an applicant for her credit score should be able to show that the applicant's credit history is relevant for a business purpose, and that it asks for a credit history from any applicant in similar circumstances, to avoid the appearance of discrimination.

Does Getting Turned Down for a Mortgage Affect Your Credit Score?

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A rejection for a mortgage technically lowers a credit score, but so does an approval. The fact that you need to add debt to your credit profile to get a loan and that the creditor inquired into your credit file is what does the damage. Unlike other types of loans, putting in more applications, possibly in anger, won't hurt your score if you do it soon enough.

Any time you apply for a mortgage, the lender usually does what is known as a hard inquiry into your credit file or a credit check for which you volunteered. Thus, getting turned down or approved lowers your credit score. However, the impact is no more than five points and some borrowers many see no difference in their scores, according to MyFICO.com.

Perhaps the biggest effect of a mortgage rejection is the damage to your self-esteem. You could think that you have bad credit forever and not try to improve your credit profile and reapply later or think you are incapable of handling credit, suggests Fox Business. On the contrary, most people have excellent credit -- so it is attainable by most everyone -- and rebuilding a credit history to match other excellent borrowers might take as little as two to three years.

In 2011, the FICO formula gives consumers a 45-day window to apply for as many mortgages as they want with all the inquiries counting as a single inquiry for credit scoring purposes, according to MyFICO. Thus, it cannot hurt you to apply at other places, but you may not receive a favorable interest rate if you have a poor credit history.

When you cannot get a mortgage and feel down because of your credit score, it might help to stop checking it for a few months to avoid seeing a low number while you rebuild your credit history. In the meantime, check your credit file with the national bureaus and look for weaknesses. Do not add new debt to your credit history and pay down as many outstanding loans as possible. You could go to a credit counselor to help set a monthly budget and deal with creditors to possibly get lower interest rates or monthly minimums so you can meet your debt obligations every month.

How to Get an Unverified Debt Removed From the Credit Bureau

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Credit reporting agencies, also known as credit bureaus, maintain a file listing all of your debts and your payment history on these accounts. You have a right, under the Fair Credit Reporting Act, to dispute any piece of information on your credit report that you believe is incorrect. When the credit bureau investigates the dispute and the company that holds the debt does not verify that the debt belongs to you, the credit bureau must remove it from your credit report.

Instructions

Obtain a copy of your credit report from each of the three major credit bureaus: TransUnion, Experian and Equifax. If you have not already done so in the past year, you can get free reports through the Annual Credit Report website.

Circle any debts on your credit reports that do not belong to you.

Write a dispute letter to each credit bureau. In each letter, list the incorrect debt or debts that appear on that bureau's version of your credit report. State that these debts do not belong to you and request that they be removed from your credit report.

Staple a copy of your credit report with the disputed item or items circled to each of your letters.

Mail the letters to the credit bureaus through certified mail with a return receipt requested. This provides you with a paper trail of your dispute for future reference.

Does Unemployment Deferment Affect My Credit?

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Borrowers with federal student loans and many types of private student loans can apply to defer payments while they are unemployed. This deferment keeps borrowers from defaulting on the student loans during times of little or no income. Unemployment deferment does not have negative effects on your credit score and might even help you to keep your score up while you are unemployed.

Putting your student loans into deferment status while you are unemployed does not directly affect your credit score in any positive or negative ways. Your lender will continue to report your loans as being in good standing while you are in deferment, even though you are not making payments on them. Therefore, nothing will change about how your credit score is calculated.

Deferring payments on your student loan helps you to keep your credit score from dropping. If you do not enter deferment, you might make late payments on your student loan that would lower your credit score. Lenders usually report late payments 30 days after they are due, and each late payment notice on your credit report lowers your score slightly. Entering deferment protects you from this credit-score damage.

Not all lenders offer deferment during unemployment. By putting your student loans in deferment, you free your limited savings and income to put toward other bills that still require payments. If your deferment allows you to make on-time payments on all of your other credit accounts, this protects your credit score from the damage that would result from late payments on your credit cards, auto loan, mortgage and other bills.

If you defer your student loans, pay attention to the ending date on the deferment. If you are still unemployed, you can reapply for another time of deferment. Otherwise, you need to make payments again. If you miss a payment after deferment, this will hurt your credit score. In addition, unless your student loan was subsidized, interest accrues during deferment and gets added to the amount you owe when you exit deferment. This might slightly reduce your credit score at that time because part of your score considers the amount you owe. The reduction should be very small, though, and you will bounce back quickly as you begin paying down the balance again.

The Best Simple Ways to Build Your Credit

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Your credit score has a far-reaching impact. It can help you secure loans and get credit cards. It can even mean the difference between getting or not getting the job of your dreams. Those with no credit or poor credit can take some simple steps to build credit. Building good credit requires slow, steady attention to details.

One of the simplest ways to ensure a rising credit score is to pay your bills on time. Whether a mobile phone bill or a credit card note, timely payment shows that you are a responsible consumer. If you fail to make one payment on time, it may take several months of on-time payments to get your credit score back to where it was. Further, timely payments mean less interest charged and no late fees, making it easier for you to continue making timely payments.

Your credit score will improve if your cards are not maxed out. Try to keep your credit cards at 30 percent or less of their limit. An even better way to build your credit is to never carry a balance at all. While there is no difference from the credit card company's end between people who carry a balance and those who don't, having a credit card with a small balance that you can pay off quickly is a way to stay out of trouble. This will help you avoid penalties on your credit score.

Secured credit cards are a way for people with no credit or poor credit to increase their credit score. Regular credit cards allow you to charge up to a predetermined limit. Secured credit cards require you to put down a payment upfront that is your credit limit. If you make regular payments for a year to 18 months, credit card companies will generally promote you to a standard, unsecured credit card.

You can build your credit score off someone else's by a process called "piggybacking." This means that you are added to another person's credit card or get someone to cosign for you on a credit card or a loan. Make sure you are piggybacking with someone who has good credit -- sharing an account with a relative who never pays her bills on time won't do you any good.

Don't have more credit available than you need, whether you are using it or not. Having 10 credit cards will count against you. Your credit report will show you as carrying a lot of credit, and this may concern potential creditors. Only have as many credit cards and outstanding account as you actually need.

Does Adding My Name to a Title Help My Credit?

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Credit improvement requires a history of payments made on or before the deadlines, low credit card balances and a mixture of various account types, according to MSN Money writer Liz Pulliam Weston. You cannot help your credit rating without any accounts. Having your name on credit cards and loans is different from having it on a home or car title, which does not affect your credit score.

Big purchases like homes and cars are usually financed, and the account history goes onto your Experian, Equifax and TransUnion credit reports. Your name goes on the title as owner of the house or vehicle, although your lender shows up as a lien holder until you pay the owed balance. A person can add your name to their house or car title, but this action will not affect your credit unless you are also on the loan. The only things that go into your credit score are payment-related activities, debt load, credit history length, new accounts and the types of credit you use, according to the Fair Isaac Corporation scoring company.

You can buy a big-ticket item with another person as your co-signer if your credit is not good enough to qualify you individually. The loan is granted solely on the strength of the other borrower's high credit score. Both names then go on the title, but your credit is helped by being a co-borrower if all of the loan is consistently paid on time. You and your co-signer are equally responsible for loan repayment, and both credit ratings are ruined if you make habitually late payments or default completely on the loan. You both lose the home or car, even though your names are on the title, if the property gets foreclosed or repossessed because of nonpayment.

You do not have to get a mortgage or car loan with another person to help your credit, because almost everyone qualifies for a secured credit card. You guarantee a secured account with your own funds by making a bank deposit in the same amount as your credit line. You use the credit card to buy things just as you would any other account and make at least the minimum monthly payment, and the bank reports this activity to Equifax, Experian and TransUnion. Eventually your card is converted to a traditional credit card if you prove you will pay on time for 12 to 24 months.

Having your name on a house title does not directly help your credit, but home ownership looks good on credit applications. Most lenders ask whether you rent or own a house when you apply for a new account. Owning a house is a sign of stability, especially if you have lived there for a long time.

Should I Increase My Credit Card Limit to Raise My Credit Score?

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More available credit may help you secure a loan.

An application for a larger credit limit that gets approved can be beneficial to your credit score. It shows potential lenders that a credit card company trusts you to make payments on time. Typically, people with delinquencies on their credit history do not have high limits.

Credit card companies sometimes give people huge credit limits that become temptations. While a $40,000 limit means you have a strong credit history, it does not insinuate that you should begin maxing out your card. Just making the minimum payments each month can leave you paying off debt through retirement.

Apply for a larger credit limit without plans to spend more. If you can spend 10 percent to 20 percent of your credit limit each month and pay the balance in full, your credit score can improve.

How to Compute Credit Report Scores

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The Fair Isaac Corporation developed the algorithm to calculate the FICO credit score, the most widely used credit score in the United States. However, the company only releases the factors that are used in the calculation, maintaining the exact formula as proprietary information. Having a high credit score benefits you because lenders will be more likely to offer you offer you credit at lower rates because you pose a lower credit risk. The FICO credit scores range from 300 to 850, with 850 being a perfect score.

Instructions

Consider your payment history. The FICO algorithm bases 35 percent of your total credit score on how you have made payments in the past. To get a higher score, you should have made all of your payments on time. When you have payments that are late or past due, the formula considers how late the payment was and how long ago the missed payment occurred. For example, a 30-day late payment five years ago would adversely affect your score more than a 90-day late payment in the past six months.

Consider the amount of money that you owe on your various accounts, because it accounts for 30 percent of your credit score. The score takes into account the amount you owe, how much of your available balance you are using and the types of accounts you owe money on. For example, owing $100,000 on a mortgage does not have nearly the negative effect that owing $100,000 on unsecured credit lines like credit cards would. Also, owing $3,000 on your credit cards looks much worse if your total credit limit is $3,500 than if it is $10,000.

Consider the length of your credit history, as it accounts for 15 percent of your credit score. The longer you have maintained a variety of accounts, the higher your score will be. Higher credit scores will usually require different types of credit lines such as a mix of installment loans and credit cards.

Consider how much credit you have recently applied for, because it counts for 10 percent of your credit score. Each time you apply for a new line of credit and your credit report is pulled, an inquiry is recorded on your credit report and remains on your report for two years. The more inquiries you have, the lower your score will be.

Consider the mix of credit you use as it counts toward 10 percent of your score. Higher scores will result from using a mix of credit types rather than relying on only one, such as a credit card.

Online Canadian Credit Report Information

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Getting a credit report online is a quick way to get a detailed view of your recent credit history. While there are fees involved in obtaining a credit report online, the benefit is that you're able to see your credit report instantly, without the delays that often accompany ordering a free credit report by mail or telephone.

If you're a Canadian, you can get your credit reports online from Equifax or TransUnion, the only two agencies registered to offer credit reports in Canada. The Financial Consumer Agency of Canada (FCAC) recommends that you check your credit report periodically with both credit reporting agencies, as each agency keeps its own records; your report may differ slightly between the two.

Your online credit report contains information on what kind of credit you already have, how well you make payments on that credit, and any recent credit inquiries made about you. Debts can include credit cards, bank loans or mortgages. The report also gives details on any debts that you didn't pay and that were sent to a collection agency; any bad checks you've written or credit-related legal convictions are also detailed in a credit report (see Resources for sample credit reports).

Both Equifax and TransUnion offer extra online services related to credit reports. With Equifax, a basic credit report costs $15.50 as of 2010. For $23.95, you can get your credit report along with your credit score and analysis (a credit score is a number between 300 and 900 that lenders look at to get an idea of your risk as a borrower). Equifax also offers online credit monitoring for $14.95 a month. This service automatically alerts you to any changes in your credit report and provides regular summaries of changes in your credit report.

TransUnion offers a basic credit report for $14.95 (as of 2010) and a credit report with a credit score for $22.90. The agency also offers online credit monitoring and a personalized debt analysis for $14.95 per month.

Only you, or a party to whom you've given permission, are allowed to see your credit report. Of course, any time you apply for a credit product such as a loan or a mortgage, you'll be expected to extend this permission to the lender by signing a consent form. It's also common for landlords to ask for this permission on rental applications.

The FCAC recommends that you check your credit report at least once a year: There can be incorrect information in your credit report that you can have corrected by contacting the credit reporting agency. Also, checking your report regularly can help you avoid the negative consequences of identity theft. If you see mystery loans or other types of credit showing up on your credit report, you should contact the credit reporting agency immediately.

Does Paying Off a Tax Lien Increase a Credit Score?

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Although a tax lien is one of the most damaging items in any person's credit history, it is also one of the easiest to counteract. If you can pay off the tax lien, you may be able to get the IRS to withdraw it from your credit history within days. However, this is not a perk that applies to all tax liens, so you should avoid them in the first place.

Paying a tax lien does little to improve your score other than removing some debt from your credit history. However, unpaid tax liens can stay on your credit history indefinitely unless the credit reporting bureau or state law limits the reporting time limit. Only a few states and agencies deviate from federal reporting standards. At the time of publication, Experian reports unpaid tax liens for 15 years, and California only allows bureaus to report unpaid tax liens for 10 years. Federal law limits the reporting time period for paid tax liens to seven years. Paid tax liens become less important as they age, so the sooner you pay a lien, the sooner your credit score recovers. Any tax lien can take over 100 points off of your score, according to Jeanine Skowronski of the financial website Mainstreet.

In 2010, the IRS issued a new policy on tax lien withdrawals to motivate consumers to pay off their liens. In return for payment in full, the IRS will withdraw a tax lien from the public record -- making it non-reportable to the national credit bureaus. The IRS filed 1.1 million liens in 2010, so this regulation could drastically improve the average credit rating in the U.S., according to Matthew Scott on the DailyFinance website.

IRS rules on withdrawing a paid tax lien do not apply to state and local liens. Paying a state and local lien only removes some debt from your credit profile, unless the taxing authority also has a program that lets you eliminate a tax lien from the record. Also, tax liens in general are dangerous to your financial health because the taxing authority might use aggressive collection tactics, such as levying your bank account.

If you want the IRS to withdraw a lien, you can only do so by filing Form 12277. Also, pay your tax lien in full. The IRS probably will not withdraw your lien if you negotiate a compromise that results in you paying less than the total amount due. In the future, contact the taxing authority before it has forced payment by filing a lien. Most agencies offer automatic extensions on paying your tax bill.

How to Create a New Credit File

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Creating a new credit profile is a way to parallel your current credit standing and personal debt profile. A second credit profile will not relinquish your responsibility to your current debts and financial responsibilities, but it will create an alternate profile. The only legal method to create a second profile is through a Federal Tax ID number, usually created through a new business.

Instructions

Understand that a new credit profile does not release you of your requirement to maintain, pay and monitor your personal credit file. A new credit profile is simply that: a second profile that further illuminates your pay history and financial responsibility.

Develop a business idea and begin to write up a plan that will lead to a profitable, sustainable venture. Without a solid business idea, a plan for growth and revenue, and a model that shows that the idea will have permanence and viability in its market, you'll be unable to obtain a Federal Tax ID number.

Visit the IRS website in "Additional Resources," below, to fill out an application with the IRS to obtain a Tax ID Number. You'll need facts and figures about both yourself as well as intimate details about your business. Now wait. Your Tax ID number may take as long as six weeks to arrive. This number is important not just for creating a business credit profile, but also for filing taxes.

Continue business operations. Understand that a lending institution will most likely not loan money strictly based on the company's credit profile until at least three years of growth, strong revenue, profitability and viability can be proven on paper. However, you can most likely borrow money against a business in a secured fashion, not strictly on credit, and begin to build that credit profile.

Borrow against the business. After a few years of sustainable growth, approach lenders to get unsecured credit based solely on the business profile.

How to Remove a Validated Late Payment From My Credit Report

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The credit report regulations outlined by the Fair Credit Reporting Act allow disputes of unjustified late payments in your Equifax, TransUnion and Experian files. The credit bureaus must erase disputed data they cannot validate, according to the Federal Trade Commission, but the delinquency remains if your lender verifies its accuracy. You are better off approaching the lender directly to get the late payment removed from your credit reports, especially if you are a long-time customer with an excellent prior payment record.

Instructions

Check your previous account history to confirm your standing as a good customer. Do this by reviewing your paper statements or checking your account online if your bank allows Internet access to your records. An excellent account history gives you leverage to ask for the late payment entry to be removed from your credit reports, according to Jim Wang of the Bargaineering financial site.

Call the lender and ask for the appropriate address to which you should mail a late payment removal request. The customer service number should be on your statements, or on the back of your card if you are dealing with a credit card account. The agent may try to handle the issue, but insist on an address to put the request in writing.

Write a letter asking the lender to erase the late payment from all three credit report files as a goodwill gesture. State the number of years you have had your account and cite your excellent prior payment records. Include the reason for the delinquency, if appropriate, Wang advises. For example, mention that an unexpected expense came up or that you simply forgot to mail your check on time. Mail the letter to the appropriate address.

Follow up with a telephone call if you get no response to your letter within 30 days or if the lender responds by denying your request. Ask the phone agent for the name and address of someone to whom you can appeal the decision.

Check your three credit reports if the lender agrees to remove the late payment from your records. Free copies are available once a year through AnnualCreditReport.com, the FTC advises. Complain to the lender if the delinquency still appears a month or two after the removal agreement.

What are Credit Repair Clinics?

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If you have ever been denied credit, it may be beneficial to order a copy of your credit report to dispute erroneous or outdated information. Credit repair clinics can help those who find task to appear daunting.

Credit repair clinics dispute undesireable items on a consumer's credit report with credit reporting agencies such as Equifax, Experian and TransUnion.

For a fee, credit repair clinics will dispute a consumer's credit file by ordering his credit report, looking for outdated information and incorrect information, such as accounts with incorrect balances, and writing dispute letters to the credit bureaus to remove that information.

The main benefit of using credit repair clinics is that they perform the administrative aspects of disputing your credit file for you, thus saving you time and energy. In addition, credit repair clinics are typically familiar with laws, such as the Fair Credit Reporting Act and the Fair Debt Collections Practices Act and know how to use these laws to ensure that outdated or erroneous information is removed from your credit file.

Many consumers believe that credit repair clinics are capable of removing negative or accurate information from credit reports. According to the Federal Trade Commission (FTC), however, a credit repair clinic cannot legally do this. In addition, the FTC advises that with the proper knowledge, you can dispute your own credit for free

Be aware of credit repair clinics that ask for up-front payment before performing credit repairing services. In addition, steer clear of clinics that suggest that they can get you a new credit file using an Employer Identification Number (EIN), as this illegal.

Will a Savings Account Boost My Credit Score?

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People who have problems with their credit sometimes also have issues with their savings accounts. In most cases, credit accounts and savings accounts are completely unrelated, meaning that a savings account unfortunately doesn't do much to raise a dinged credit score. There are, however, connections between savings and credit that may let a savings account work in your favor.

Credit accounts function with money from a creditor. For instance, if you have a credit card, the credit card company fronts you anything spent on your credit limit whenever you make a purchase. You pay the credit card company back with your money later. With a savings account, you aren't borrowing from anyone. All the money in the account starts as yours. For this reason, having a savings account won't help your credit, as savings accounts aren't credit accounts.

Banks typically don't report to credit bureaus unless you have a credit card through them. Instead, they report to ChexSystems. This agency looks at how you handle your checking and savings accounts. If you manage your savings account poorly, such as overdrawing your balance, the negative activity shows up on your ChexSystems report.

Lenders sometimes look at your ChexSystems report just as they do your credit report. If you have too many negative items on your ChexSystems report, creditors and lenders may raise what you're paying in interest, opt to close your accounts or deny your new credit applications. All of this makes it harder to keep up financially, making the likelihood of becoming delinquent on accounts and lowering your credit score higher.

Savings accounts do not directly help your credit. However, a good ChexSystems report can complement evidence on your credit report that you're getting your finances back in control. With good savings account management, your positive ChexSystems report may make creditors and lenders willing to keep working with you. If you can keep those relationships going, you'll lengthen your credit history and therefore possibly help your credit score.

Accuracy of Employment Credit Checks

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Employers that use credit reports tend to pull them from three major, private credit reporting agencies, but most of these reports contain at least one error, according to a 2004 U.S. Public Interest Research Group study. The high rate of errors means it is critical for job seekers to review their credit reports and correct mistakes before looking for a job.

The only difference between an employment credit check and consumer credit check is that an employment credit check does not include an applicant's name and credit score, and the bureaus do not list the inquiry on the person's credit history. Equifax, Experian and TransUnion provide the majority of employment and consumer credit checks, according to the Privacy Rights Clearinghouse. The commonly cited U.S. PIRG study claims that 80 percent of credit reports contain at least one error.

As of the date of publication, the Federal Trade Commission is in the process of completing a study of the accuracy of credit reports, which the agency should complete by December 2012. In the meantime, a few states, such as Illinois, bar employers from eliminating candidates from consideration from a job based solely on the applicant's credit history. Also, the FTC issued an interim report in December 2010 that declared the issue of credit report accuracy as so questionable that employers should exercise extreme caution when taking into account a job applicant's credit history.

Inaccuracies in a credit report can benefit a potential applicant. For example, a 2009 study by the Consumer Federation of America and the National Credit Reporting Association found that 20 percent of consumers with a score in the range of 575 of 630 benefited from reporting errors, such as the bureaus omitting a collection account or civil judgment. On the other hand, 20 percent of people in that same score range had errors that damaged their credit history.

The federal government requires the national credit reporting bureaus to give consumers one free report each year under the Fair Credit Reporting Act via Annual Credit Report. Consumers can dispute anything, even incorrect demographic data like job history and telephone number. If a consumer wants to dispute an item on his report, he should identify the problem, such as by printing off a report and highlighting the error, and including evidence to support his claim, such as a copy of a canceled check. Sending a certified letter guarantees the bureaus receive a dispute claim and that the consumer has record of each bureau accepting the letter.

Information You Need to Report Unpaid Bills to Credit Bureaus

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Businesses that wish to report unpaid bills to the credit bureaus, must be members. The credit bureau may have you fill out an application. You also need the proper equipment that allows you to transmit the data. There are alternative ways that allow you to report to the bureaus.

To report information to the credit bureaus, you must fill out a data furnisher agreement and pay the necessary fees. There are monthly fees as well.

Any information you submit, transmit or send must be in the Metro 2 format. This is the format accepted by all of the credit reporting agencies, according to datalinxll.com.

You also need an office set up in a designated space. Sometimes representatives of the credit bureaus visit businesses to make sure they are legitimate before approving them.

Many small businesses such as doctor offices are not members of the credit reporting agencies (credit bureaus) because of the expensive fees. They turn over their delinquent receivables to collection agencies, many of whom are members of the credit bureaus. The collection agency reports the information to the credit bureaus.

If you begin legal action against a debtor and you win a judgment, this becomes public record, which is recorded and indexed at the court house. A public record of this sort can appear on the debtor's credit file.

Factors Affecting Credit Scores

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If you have a good credit score, that means it's easier for you to get credit cards and loans and to qualify for favorable terms. If you have a bad credit score, it can prevent you from getting any loans, making big-ticket purchases or being able to get a Visa or MasterCard. You need to know the factors that affect a credit score if you want to know why yours is high or low and if you want to improve it.

According to Fair Isaac Corp. (FICO), the biggest factor that affects a credit score is a consumer's payment history. This history accounts for a full 35 percent of the score. If a consumer pays his bills on time, this will have a positive effect on the score. If he is late on his payments, his score will go down. A consistent history of late payments has a much greater effect than only one or two incidents. The length of time also has an effect. Payments that are delayed by 60 to 90 days or longer have a more serious influence than those that are late by 30 days or less.

The amount of money owed by a consumer is the second most important factor influencing her credit score. In addition to the balances, FICO says the types of accounts also play a role. The number of installment loans such as a mortgage or auto loan is weighed against the number of revolving accounts, such as credit cards or store accounts. This accounts for 30 percent of the credit score.

Three other factors make up the remaining 35 percent of a consumer's credit score. FICO says the length of a consumer's credit history is worth 15 percent of the score. A longer history has a better effect than a brief one because it gives a more accurate picture of the consumer's long term fiscal performance. The types of credit used and the number of new accounts make up 20 percent of the credit score.

The five factors that affect a credit score are calculated to come up with a three-digit number, which can run up to 850, with the best scores running between 720 and 850. According to FICO, consumers with this score typically have no problem getting credit and qualify for the lowest interest rates. Those who score between 700 and 719 may pay more interest, but they can still readily open new accounts. Scores between 675 and 699 carry a higher interest penalty, while those whose scores fall below 675 may have trouble getting credit and will pay extremely high interest rates if they do.

According to FICO, the majority of Americans have a credit score between 750 and 799. Another 18 percent of the population scores between 700 and 749. Only 13 percent have a score of 800 or over, and only 7 percent score 549 or below. Consumers who have a low credit score can boost it by improving their payment history because that factor wields the heaviest influence.

What Does a Docketed Judgment Do to a Credit Rating?

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Prospective lenders and creditors use your credit rating as a risk assessment tool when deciding whether to do business with you and how much interest to charge you on financial transactions. If a previous lender sued you and holds a civil judgment against you as a result, your credit rating suffers and future lenders may determine you too risky to work with.

As soon as the judge hands down a decision in favor of the creditor, a court judgment exists against you. The judgment does not, however, appear on your credit report immediately. The creditor must file the judgment with the court clerk before the court's decision becomes docketed and added to the county public record.

If the creditor has yet to docket your judgment, paying the debt you owe in full could prevent the legal decision from ever appearing on your credit report. Each county has its own set of rules that govern this process. Once a judgment is docketed, however, the credit bureaus will pull it from the public records database and add it to your credit files.

Judgments are always derogatory, but the degree to which a docketed judgment hurts your credit depends upon your current credit report. There is no hard and fast rule dictating how many points you will lose after a judgment appears on your report. This depends entirely on your current credit score. In general, the better your credit is prior to the judgment, the more points you stand to lose afterward.

A docketed judgment remains a derogatory entry for the full period of time it appears within your credit history. Unlike most credit entries, however, the length of time a judgment appears on your credit file before being removed varies by state. According to the Fair Credit Reporting Act, if your state's enforcement period -- the amount of time a creditor has to enforce a judgment in your state -- exceeds seven years, the judgment remains on your credit report for the duration of the enforcement period. If the enforcement period is less than seven years, the judgment remains for seven years before being deleted.

A judgment has the greatest negative impact when it's initially inserted into your credit file. As time passes, the judgment influences your scores less and less before finally aging off your credit report entirely. This is because recent items influence your credit rating to a greater degree than older entries. Once the credit bureaus delete the judgment from your credit files it will no longer impact your credit scores at all.

Credit Improvements

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Credit scores reflect your financial health. They tell a lender how well you manage your financial obligations and credit. It is easier for a borrower with high credit scores to obtain a loan than one with low scores. Improving your credit scores can translate to lower loan fees and better rates when purchasing insurance. Property managers use credit scores when evaluating a renter's application, as do some employers, when considering an applicant for employment or promotion.

The three major credit-reporting agencies are TransUnion, Experian and Equifax, and each may report a different credit score for the same individual. Before you make credit improvements, you must understand what is on your credit reports, as well as your credit scores. You are entitled to receive one free credit report each year from each of the three major credit-reporting companies. To obtain free credit reports, visit AnnualCreditReport.com.

After receiving a copy of your credit reports, read each one carefully. Look for inaccurate negative information. Your report might also have negative, yet accurate information, which you can have removed. Certain negative items, such as foreclosure or bankruptcy, stay on a report for a set number of years. Sometimes credit reporting agencies fail to remove the negative items after the time frame. Each credit-reporting agency has its own procedure for removing information from your credit report. Removing negative information whenever possible raises your credit scores.

Some negative information on the reports needs to be resolved before having it removed from your credit reports. This involves contacting the party that reported the item, such as an unpaid medical bill or other unresolved issue.

Paying a creditor one day late can adversely affect one's credit scores. Another consideration is your ratio of debt. The greater span between your open credit and what you've actually borrowed improves credit scores. For example, if your credit card limit is $5,000 and you have only charged $1,000, you will look better from another person with the same credit limit who has charged $4,900.

When establishing credit, it is necessary to have creditors, such as a credit card or car loan. While you need to have creditors, it is a bit of a balancing act, as having too many can be a problem, as can having none. Paying off credit cards improves your credit, yet canceling the card after paying it off can lower your credit score because it lowers your total available credit.

How to Get Credit Marks Off of Your Credit Report

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You probably realize that it's important to maintain a good credit history. When you buy a car or home or apply for a credit card, your credit report is the key element that determines how much money you qualify for and what your interest rate will be. In some cases, utility providers and employers may also check your credit history before offering you service or a position. As a result, you should establish and maintain a good credit report. Sometimes, however, you still end up with a few blemishes on your report. Don't lose hope, though--learn how to have those marks removed form your credit history.

Instructions

Obtain a recent copy of your credit report from all three credit reporting agencies. Since each agency is different, your reports may contain conflicting information, so it's important to check all three.

Review each report carefully. Take note of any issue that you feel is incorrect.

Contact each of the credit reporting agencies in writing. Identify all of the issues you are disputing and request that they be removed or corrected. If you are requesting a correction, make sure to provide the correct information.

Provide your name and address as well as the reason for your disputes. Include a copy of the credit report from the specific credit reporting agency you're contacting, with the items in question referenced.

Send your letters by certified mail so that you can verify they were received. You should also keep copies of the letters for future reference. If you have a secure connection, you can also file a dispute online at each of the credit card bureau websites; however, experts recommend filing a formal dispute by certified mail.

Contact the appropriate creditors by mail to let them know you are disputing the information. If you have any documentation that supports your dispute, you should also include those items in your letter.

Wait for the issue to be resolved. Usually this takes about 30 days. If the credit reporting agency agrees with your dispute, the issue will be removed and you should receive a new copy of your credit report showing the updated information.

What Happens When You Walk Away From a Student Loan?

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Students often borrow money to pay for college. Some students have difficulty paying back those loans, which could be substantial depending the amount owed. The U.S. Department of Education, the loan guarantor on non-private loans, offers deferment, forbearance, income-sensitive payments and cancellation options to help students avoid default.

Your student loan creditor, the financial institution that loaned you the money, reports information about your defaulted student loan to the credit bureaus: TransUnion, Equifax and Experian. Such information can result in a low credit score. Having bad credit and a low credit score could prevent you from being approved for credit cards, mortgages and auto loans. You could also have difficulty renting an apartment if you apply for housing in a development that pulls credit reports as part of the application process.

The government can garnishee your wages without a judgment by as much as 15 percent if you walk away from your student loans. The DOE can also garnishee your Social Security benefits when you retire by the same amount. Any tax refund your receive could be confiscated during the time your student loan is in default. The DOE, however, does allow you to dispute a wage garnishment order or to start repaying your student loans before the garnishment order goes into effect.

Some federal and private-sector jobs perform background checks on potential employees before making job offers. You could lose job opportunities if you have bad credit as a result of not paying your student loans. Some companies may even allow you to start working on a preliminary basis while they conduct a background check and then terminate you if your credit report shows adverse information.

The DOE can sue you and place a lien on your property if you refuse to pay your student loans. You could end up being forced to repay your student loans, plus legal fees, if a judge rules against you.

Wednesday, June 30, 2010

Credit Reports

Borrower Activity

Credit Inquiries

Other Considerations

Identification

Benefits

Considerations

Tip

Tuesday, June 29, 2010

Review

Removal

Considerations

Types

Importance

Considerations

Explaining Bad Credit

Tip

Monday, June 28, 2010

About EMPIRICA Score

Payment History: 35 Percent

Amounts Owed: 30 Percent

Age of Credit History: 15 Percent

Recent New Accounts: 10 Percent

Types of Credit Accounts: 10 Percent

Considerations

Sunday, June 27, 2010

Understanding Your Credit Report

Negotiating a Settlement

Adding Notes to Your Credit Report

Monitoring Your Credit Report

Identification

Effects

Considerations

Tip

Instructions

Saturday, June 26, 2010

Identification

Effects

Considerations

Tips

Friday, June 25, 2010

Instructions

Both Credit Reports

Credit Score Effects

Considerations

Joint Owners vs. Authorized Users

On-Time Payments

Late Payments

Solutions

Considerations

Thursday, June 24, 2010

Identification

Potential

Time Frame

Tip

Definition

Effects

Considerations

Time Frame

Alternative

Monday, June 21, 2010

Credit Reports

Charge-Offs

Suppressing Charge-Offs

Expiration

Sunday, June 20, 2010

Identification

Importance

Considerations

Tip

Saturday, June 19, 2010

Student Card

Co-Signer

Cash-Secured Loan

Piggybacking

Friday, June 18, 2010

Utilities

Auto Insurance

Landlord