Can Taking Out a HELOC Ruin My Credit?

A home equity line of credit, often referred to as a "HELOC" in the banking industry, provides you with the ability to purchase items on credit and pay for those purchases over time. Unlike traditional lines of credit, however, your home serves as collateral on a HELOC. If you do not pay off your purchases, the lender can foreclose on your property. A HELOC provides you with greater purchasing freedom than you previously enjoyed, but under certain circumstances it can negatively impact your credit rating.

Credit Inquiry

When you apply for a HELOC, your lender evaluates your credit history. HELOC lenders conduct a "hard pull" when requesting a copy of your credit report. A hard pull lowers your credit score by approximately five points -- not enough to significantly damage your credit score.

Some consumers do not shop around for the best rates on a HELOC due to their fear of credit damage from repeated hard pulls. The credit scoring system, however, makes provisions for borrowers shopping for the best rates. As of May 2011, the most current credit scoring formula, FICO '08, allows consumers unlimited hard pulls within a 45-day period -- preventing you from doing serious damage to your credit score when searching for the best rates on a HELOC.

Credit Utilization Ratio

The amount of debt you carry on your HELOC could lower your credit rating by negatively affecting your credit utilization ratio -- the difference between your current balance and your credit limit. The less available credit you have on your HELOC, the more your credit score will suffer since maxing out any line of credit indicates poor debt management skills and greater financial risk.

Nonpayment

Leaving your HELOC unpaid can wreak havoc on your credit score. Not only does your payment history carry more weight in determining your credit rating than any other factor, but your HELOC lender has the right to foreclose on your home when you leave your line of credit unpaid. A home foreclosure can cost you up to 300 points -- ruining your credit rating. The damage from both missed payments and a foreclosure remain on your credit file for up to seven years.

Considerations

A HELOC isn't an inherently negative item on your credit report like a collection account or a charge-off. If you manage your HELOC wisely by maintaining a low balance and making timely payments, it will boost your credit score rather than damaging it. The way a HELOC -- or any line of credit -- affects your credit scores depends solely upon how you use it.

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Does Your Age Affect Your Credit Score?

Credit scores are a numerical representation of what kind of credit risk you are. Many factors influence your credit score, including the number and types of accounts, your payment history and how long you've had accounts open. Although age by itself isn't a factor in your credit score, age can affect several key items that do directly impact your credit score.

How Age Affects Credit Scores

Your credit score does not include points related to your age. However, it does include age-related items such as the average age of credit accounts listed on your credit profile. Longer, more mature accounts have higher credit scores than new accounts. Therefore, an 18-year-old with little to no credit history will have a lower credit score than an 80-year-old with several decades of established accounts.

Average Credit Scores

According to the website BCS Alliance, the average credit score of certain age groups tends to increase with age. It cites a 2005 Experian National Score Index report that shows the average credit scores for certain age groups. The youngest demographic, ages 18 to 29, has an average score of 637. Ages 30 to 39 follow, with an average score of 654. Ages 40 to 49 carry an average score of 675, while the 50-to-59 age group average 697. Those 60 to 69 have improved credit scores that average 722, and the highest average score of 747 goes to those in the 70-plus age group.

Other Factors That Affect Your Score

Your account history is just one factor that affects your credit score. Other factors include your payment history; if you pay your bills on time your score will be higher. The amount you owe can also affect your credit score. For example, if you carry low balances your score will be higher. Applying for many new accounts can lower your credit score. Your credit score will also reflect the types of credit you have; a healthy mix of credit cards, short- and long-term loans and mortgage loans will have a beneficial affect on your score.

Educating Young People

The fact that credit scores typically increase as you get older is one reason why young people should be educated about credit. Young people should be versed in what credit is and what factors affect credit scores positively and negatively so that they can make wise consumer choices about what effect credit cards and credit have on their credit score in the long run. A good credit score often is an important factor in getting a job, renting an apartment or buying a car.

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How Do Charge Offs Affect Credit Scores?

Credit card companies spend about six months trying to elicit payments from debtors on delinquent accounts. After six months, the company's odds of collecting the debt decrease and the account is no longer worth pursuing. The credit card company then charges off the debt. Credit card company charge-offs carry negative consequences for your credit score.

Negative Effects

A charge-off negatively impacts your credit in a variety of ways. The notation on your credit report signifying that your credit card provider was forced to charge-off your debt and cancel your account hurts your credit score and is visible to anyone who pulls your report. The credit damage rarely ends there. After the charge-off, the credit card company either sells the debt to a debt collector or takes legal action against you. Both collection accounts and money judgments resulting from lawsuits further damage your credit score.

Credit Impact

It is impossible to estimate exactly how much your credit score will drop after your credit card provider charges off your debt. This is because the credit scoring formula used by most lenders---the FICO system---is not public knowledge. The degree to which any credit entry on your report affects your score rests at least partially on other information within your history. As a general rule, the more negative information your credit history reflects, the less the charge-off will impact your already damaged credit score. If you have a high credit score, however, the charge-off will damage your credit rating to a much greater degree.

Removal

Federal law requires credit reporting agencies remove charge-offs from your credit record seven years from the charge-off date. The reporting agencies must simultaneously remove reports from collection agencies that purchased the account after it was charged off. When these derogatory accounts vanish from your credit history, they no longer impact your credit, and your score will improve. Waiting seven years, however, is not the only way to have a charge-off removed from your credit report. If the original credit card account did not belong to you or the credit entry contains any errors, you can dispute the information with the reporting agencies. If your former credit card company cannot validate the entry, it disappears from your history.

Reducing the Damage

Your credit card company can modify any entry it previously placed on your credit report. In some cases, you can negotiate with your credit card company and request that it change the way the charge-off appears. For example, the credit card company can remove the "charged off" notation and replace it with "paid and closed"---which looks better than a charge-off. You must be prepared to pay off or settle your credit card balance and you must conduct negotiations before the credit card issuer sells your debt to a collection agency. After the company sells the debt, it cannot accept your payment and thus has no incentive to alter the charge-off.

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Tricks to Increase Your Credit Score

If you want to buy a home, a car, or just about any other high-priced item, you must have good credit. Building good credit takes time, while ruining credit can be done with just a few poor choices. If you find yourself with a low credit score, know that raising that score is possible. It just takes time and determination.

Pay on Time

Pay your credit card bill by the due date or before if possible. The credit card company reports the balance and payment history of its accounts to the credit bureaus monthly. Late or missed payments will be detrimental to your credit score. If you are behind in payments, catch up as quickly as possible. The longer you are behind, the lower your score will fall.

Balance-to-Limit Ratio

The larger the gap between your credit limit and your balance, the higher the credit score. Lengthen the gap between the balance and the credit limit by making larger payments. According to Liz Weston from MSN Money, keep the amount you owe on your credit cards to no more than 30 percent of the credit limit. For example, if your credit limit is $1,000, do not charge more than $300.

Check Report for Errors

Go through your credit report line by line. Look for any mistakes such as old or incorrect information, late fees, missed payments and collection notices. If you have these items on your report and they are incorrect, contact the credit bureau immediately. These small fixes can raise your score substantially.

Avoid Lowering Your Score

To avoid lowering your score, don't request a lower credit limit on your cards and don't cancel any cards before paying them off. If you do, this will lower the gap between what you owe and what your credit limit is. The shorter the gap, the lower the credit score. Do not open any new credit accounts. New accounts will also lower your credit score.

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FICO & Understanding Your Credit Score

When you apply for a loan or credit card, one of the major resources lenders use to determine whether to offer you credit is your credit score. This number is based on all of the information on your credit report and reflects how risky it is for lenders to extend credit to you. The higher your score, the lower your risk to lenders.

FICO

FICO, which stands for Fair Isaac Corporation, is one of the main companies that calculate credit scores. The FICO score range is from 300 to 850, although most people have a score somewhere in the 600s or 700s. You actually have three separate FICO scores, one from each of the three major credit bureaus. The scores should be similar to one another, unless one of the credit bureaus has information significantly different from the others.

Getting Your Score

You can purchase your credit score from a variety of sources, including through the FICO website and through the Experian, Equifax and TransUnion websites. However, the scores through Experian and TransUnion use a different calculation and scale than the FICO score. The Annual Credit Report website allows you free access to your credit reports once per year but you have to pay for your credit scores. If you apply for a loan, you can also ask your lender to see your credit report and credit score that is being used to determine whether you are approved and what interest rate you get.

Components of Score

Your FICO credit score considers five major areas of data from your credit report. The first is your payment history, which accounts for 35 percent of your score. Payment history includes not only whether you have paid accounts on time, but also whether you have settled accounts, foreclosures or bankruptcies. Your amounts owed and proportion of your credit that you use account for 30 percent of your score. About 15 percent of your score is based on your credit history length, 10 percent is based on the types of credit you use and 10 percent penalizes you for new credit.

Improving Your Score

Having a good credit score is about managing credit responsibly over time. If you have made mistakes or do not have much credit history yet, focus on getting a few credit accounts and being consistent with them. Make all of your payments on time, pay down your balances on credit cards and loans and avoid maxing out credit cards. Apply for new credit only when you need it and keep your oldest accounts open to maintain your overall length of credit history.

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What Is a Paid Charge Off?

The credit bureaus keep track of your credit history through your creditors. When you fail to pay a debt, a creditor lets the credit bureaus know by changing the status of your account to a charge off. Once you pay the debt, the creditor will change the status to paid charge off. Both statuses have varying negative effects on your credit score and financial future.

Basics

When you fail to pay a debt, such as a credit card bill, the creditor can report your account to the credit bureaus as a charge off. Bankrate reports that as of 2010, creditors typically report an account as a charge off after it becomes 120 to 180 days past due. When a creditor reports your account as a charge off, they no longer consider your debt as an asset. However, you still owe the debt and most creditors give your account to a collection agency to recoup the debt.

Paying a Charge Off

After a creditor writes your debt off as a charge off, the creditor may stop contacting you to repay the debt. Instead, a collection agency will contact you. Typically, you must pay the collection agency the debt you owe. Before paying the collection agency, request that they send you a receipt in writing that states they will update your credit report. Once you pay the collection agency, the agency will change their file on your report to "paid." The original creditor will change your file to "paid charge off."

Effects

A charge off becomes a serious black mark on your credit report and lowers your credit score. The charge-off report will stay on your credit report after you pay the debt. A paid charge off status may slightly improve your credit score. However, paying a charge off will help you look better to a potential lender. Lenders consider the status of your past debts, and having paid them will work in your favor. You may still qualify for a new credit card or loan if the status shows "paid charge off."

Tips

You should check your credit report after paying any charge off to ensure the creditor updated the status of your account. You should order a copy of your credit report 60-days after paying the debt to give the creditor and the credit bureaus time to update your information, according to Bankrate. You can order a copy of your credit report from each bureau for free once a year through AnnualCreditReport.

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How to Access Equifax Credit Reports

Equifax is one of the three major credit bureaus in the United States, along with TransUnion and Experian. The company collects financial data from banks, credit card companies and other financial institutions and keeps a record of each person's credit history. These credit histories are used to calculate credit scores that are sold to financial institutions who use them as part of the loan application process. Once per year, you are entitled to a free credit report from Equifax so that you can make sure that the information contained in the report is correct. You can request your score online, on the phone or through the mail.

Instructions

1

Go to the Annual Credit Report website (see resources) and select your state. The site is the only site authorized by the Federal Trade Commission to provide access to free credit reports.

2

Enter your name, current address (and previous address if you moved within the last two years), birthday and Social Security number and click "Continue." The website encrypts your information to prevent it being from accessed.

3

Select "Equifax" from the list of available credit reports. If you have requested your free credit report from Equifax in the last 12 months, you will not be able to order another one.

4

Call 877-322-8228 to order your credit report from Equifax over the phone. Instead of typing in your information, you will be required to answer several questions about your identity.

5

Complete the paper application for your free credit report that you can download from the Annual Credit Report website. The form requires the same information as the online application. Mail the form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

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How to Get My Trans Union Score for Free

Residents of the United States are entitled to one free credit report per year from each of the three credit bureaus---Equifax, TransUnion and Experian. In a joint effort, the three bureaus manage and maintain AnnualCreditReport.com where individuals can receive a free report, however the actual credit score is an additional fee ranging from $5.95 to $7.95 depending on the bureau. For those who wish to check their credit score with TransUnion, an option is available on the company's web site to receive the information for free. In order for you to receive the free credit score, not just the free credit report, you must opt-in to the free trial of credit monitoring by TransUnion. The service will cost $14.95/month after a seven day free trial however you may cancel at any time prior to the end of the trial and not be charged.

Instructions

Instructions

1

Open your browser window and type www.transunion.com into the address bar. Click on the big red button that says "Click Here" under the text that reads "Get your free credit score."

2

Fill out all the required information in the first section on the next page including name, email address, current and previous mailing addresses, username and password. Move to the next section and choose the reason that best matches your need to check your credit report. Complete the final part of the application which asks for a secret question and answer, the last four digits of your social security number and the date of your birth.

3

Check the box that reads "Seven day free trial." Read through the service agreement and FAQs about the free trial thoroughly. Click on the button that says "I Accept."

4

Enter your credit card information including number, expiration date and CVV number. Tick the box that agrees to the terms. Your credit card will not be charged unless you do not cancel before the free trial ends. Submit your information.

5

Open your email software and receive the confirmation message that was sent by TransUnion. Log into your account on the TransUnion web site to access your free credit report and free credit score. Review the information carefully. Print any information you would like to keep for your records.

6

Access the "Account" section of the web site and click on the link that takes you to a form to cancel your free trial. Fill out the required information including reason for canceling the service. Submit the form and wait for a confirmation via email. Save the email and monitor your credit card account to ensure that you receive no charges.

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How Much Does a Perfect Credit Score Range?

Your credit score is a simple three-digit number that has a huge impact on your ability to get loans and open new accounts. If you are able to get credit, it can also affect the interest rate you will be required to pay. Many people have no idea what a perfect credit score would be, if it can even be achieved and whether it's really necessary. While there is such a thing as a perfect score, you only need to be within a certain range to be considered among the best credit risks.

Definition

By definition, a perfect credit score from FICO (formerly Fair Isaac Corp.) would be 850. That is the best score that can be achieved, but Dana Dratch of Bank Rate says that the best scores in real life typically reach about 825.

Range

Your credit score affects your ability to get loans and the interest rate you will be charged. Low scores tend to bottom out around 300, and people in that range usually cannot get credit at all. People with scores from the 600s up can usually get credit, but they may pay a higher interest rate. If your score is above 775, Bank Rate's Dratch says that you will receive the best terms even though you don't have a perfect score.

Major Factors

Many factors play into your credit score. According to FICO, your payment history makes up more than a third of your overall score. If you tend to make late payments, you won't be able to achieve a perfect or near perfect score. The amounts you owe on your loans, credit cards and other accounts make up 30 percent of your score. If you have high balances, your FICO score can't be perfect.

Other Factors

Other factors that affect your FICO score include the amount of time you've had credit, the number of accounts you've opened recently and the types of accounts you have. If all of your credit is relatively new, or if you don't have a good mix accounts that is balanced between credit cards and installment loans, you won't have a perfect or near perfect credit score.

Time Frame

Your credit score changes continually based on the information in your credit report. If you had a string of late payments several years ago, that information will continue to bring down your credit score until it drops off your credit report after seven years. However, its impact will lessen over time. If you maintain a good payment history, your credit score will rise. You will eventually be able to achieve a near perfect score as long as you don't accrue any other negative information.

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How Often Can You Get a Free Credit Report?

Experian, Equifax and TransUnion are the three major credit bureaus that provide credit reports for consumers in the United States. Your credit report determines your credit score, so it is important that the information on the report is accurate and up-to-date. You can obtain a free credit report from each bureau once per year, or more often if you meet specific qualifications.

Annually

All people in the United States are eligible to receive one free credit report per year from each of the three credit bureaus. To get these free credit reports, you must order the reports through the Annual Credit Report website. You can get them all at once or, if you would like to spread them out, get them one at a time throughout a year. For example, you could get your Experian report every January, your TransUnion report every May and your Equifax report every September. That way you get one free report every four months.

After Credit Denial

If you are denied credit, insurance or employment because of your credit, you are eligible to receive a free copy of your credit report from each credit bureau. These free reports can help you identify the reasons that your credit score was not good enough to qualify. Your denial letter will contain the credit bureau addresses and phone numbers to use to obtain your free credit reports. However, you must request the reports within 60 days of having your application denied.

In Special Circumstances

Credit bureaus provide extra free credit reports directly to individuals who fit into a few specific groups. All of these reports must be ordered through the credit bureaus, not through the Annual Credit Report service. People who qualify include those who have reason to believe their credit reports are inaccurate due to fraud or identity theft, those who are unemployed and are planning to look for work within 60 days, and those who are on welfare.

State Law Exceptions

According to the Annual Credit Report website, as of 2011, residents of Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey and Vermont are eligible to get an additional free report each year directly from each credit bureau. Therefore, if you live in one of these states, you can order a free report from a credit bureau through the Annual Credit Report website and order another free report through the bureau's website during the same year.

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Can My Spouse's Credit Affect My Score?

A credit score reflects a consumer's creditworthiness by summarizing the financial information on his credit report. Each consumer has an individual credit score which may fluctuate based on changes in credit history. Getting new credit, co-signing a loan or closing a credit card may have a positive or negative affect on a credit score.

Credit Score Calculation

Credit score reflects three key areas of a consumer's credit report: accounts (loans, mortgages and credit cards), public records (bankruptcies or tax liens) and inquiries from creditors. Personal information, such as age, race, marital status or gender, does not go into a credit score calculation. A lender may request a consumer's credit score from one of the three credit bureaus (Experian, TransUnion or Equifax). A lender also may calculate a proprietary credit score based on the financial information received from a credit reporting agency.

Credit and Marriage

Spouses retain their own credit histories and credit scores after saying the nuptials. Individual accounts of one spouse will not have any affect on the other spouse's credit score or history. If a couple decides to take a loan together, a creditor will look at each person's individual score to determine eligibility. Credit scores also will determine the amount and the interest rate of the loan. The loan account history will appear on both credit reports. If one of the spouses acts irresponsibly about repaying the loan and it becomes delinquent, this may affect the credit scores of both spouses.

Credit Scores and Mortgage

When spouses apply for a mortgage, a lender may use the lower mid-score from the three credit bureaus. If one spouse's score is significantly lower, the loan officer will base approval and the interest rate upon that score. If qualified on his own, the spouse with a better score may exclude the other spouse when applying for loans.

Community Property States

Nine community property states--Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin--recognize that debt accumulated during a marriage belongs to both spouses and will be equally divided if the marriage ends. In this case, a spouse with a better credit score may have to repay credit obligations of the other spouse, which may have a negative effect on his score.

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Information on Rebuilding Your Credit

You can rebuild your credit even after declaring bankruptcy and other extremely disastrous financial situations. Fixing your credit will require you to change bad habits and focus on improving on the factors in the credit scoring formula. As long as you commit to fiscal responsibility, lenders will see past mishaps as time passes.

How Long Will It Take?

It can take years to raise your score to the good or excellent range -- above 620 -- after catastrophic financial hardships that lead to foreclosure on a home or bankruptcy. Your situation may see varying results because credit scoring formulas are kept secret, but you can see significant improvement within months if you have no other serious black marks on your record.

Benefits

Improving your credit score increases the odds of a lender approving you for a new loan, even if you failed to pay back a loan in the past. A retooled credit score is important for other needs, such as getting a cell phone plan or utilities. Most employers run a credit check before tendering a job offer.

Tips

Paying your existing debt obligations on time boosts your score more than anything else. Try to pay more than the minimum each month, as long as the loan does not have prepayment penalties. Your credit-to-debt ratio is one of the most important variables in a credit score. Run a credit check on your own history and look for possible errors, such as accounts that do not belong to you.

Warning

Any information you need to fix your credit can be had for free, so watch out for credit repair scams. Nobody can delete serious items, such as a bankruptcy, without doing something illegal like using another person's Social Security Number. Scam artists may also suggests fighting all negative items with the credit agencies in hopes that they will not have enough time to investigate them all or not bother to review them. In all likelihood the bureaus will disregard your disputes as frivolous.

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Can You Check Your Credit Score Online?

Your credit score is derived from the information about your debts contained in your credit report. As the information on your credit report changes, so too does your credit score. Lenders use both your credit history and your credit score as risk assessment tools when evaluating your applications for loans or credit lines. Not only do consumers have access to their own credit scores, they can obtain their credit score instantly online.

FICO Credit Scores

FICO credit scores are the ones most frequently utilized by lenders. Your FICO score falls somewhere between 300 and 850. The higher your FICO credit score, the better your standing with lenders and creditors. While the credit bureaus provide FICO scores to lenders, they do not provide them to consumers. You can, however, access your FICO scores from Equifax and TransUnion directly from the Fair Isaac Corp. that calculates them by visiting myFICO.com. Experian does not permit consumers access to its FICO score.

Credit Bureau Scores

Although the credit bureaus sell credit scores, they offer a credit score known as "Vantagescore." Vantagescore ranges from 501 to 990 and, while it uses the same information to arrive at a score, it calculates consumer credit ratings differently than the FICO scoring method. Unfortunately, Vantagescore's higher scoring range can lead to confusion. Consumers who purchase a Vantagescore believing that they are actually purchasing a FICO score often meet with disappointment upon discovering that the credit score their lender pulls is different than the one they purchased.

Credit Score Misconceptions

The Fair Credit Reporting Act gives all individuals the right to one free credit report each year from each of the three credit bureaus. Free annual credit reports, however, only contain a consumer's credit history -- not his credit score. There are no federal provisions in place that give individuals access to free credit scores.

Access to credit scores is available as part of the credit monitoring packages offered by the Fair Isaac Corp. and the credit bureaus. Credit monitoring services charge a monthly fee and, in return, you have access to your credit information -- and your score -- 24 hours a day.

Credit Score Estimates

You will need a credit card or debit card to purchase your credit score online. Some websites offer credit score estimators that will provide you with an estimate of your FICO score. The more you know about the information contained within your credit history, the more accurately a credit score estimator can determine your credit rating. Credit score estimators are free and are not intended to replace your actual credit score.

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How to Change an Address on Credit Reports

Credit reports are not always accurate. Under the federal Fair Credit Reporting Act you have the right to dispute any incorrect information that appears on your credit report. The process for changing an address on your credit report involves contacting the three major credit reporting agencies. They are Equifax, Experian and TransUnion. Consumer advocates and financial advisers recommend that you review your credit report periodically to insure that it contains correct information.

Instructions

1

Write a dispute letter. Provide your complete name and address in the letter. Explain that you are disputing the address listed on your current credit report. Request that the address be removed and/or corrected. Review the sample dispute letter that is available on the Federal Trade Commission (FTC) website.

2

Include relevant documentation. Attach a copy of your current credit report. Circle the old or incorrect address. Include proof of the correct address. For example, include a copy of a current utility bill or a copy of your driver's license.

3

Make a copy of the dispute letter. Keep a copy of the dispute letter for your own records. Make sure you also keep a copy of any documents you included with your dispute letter.

4

Send the dispute letter to Equifax, Experian and TransUnion by certified mail with "return receipt requested." This will provide documentation that you mailed the letter and that the credit bureaus received it.

5

Remain patient. Equifax, Experian and TransUnion investigate all disputes. Investigations take approximately 30 days. Expect to receive a written letter stating the result of the investigation along with a copy your credit report showing the address change.

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What Does an Experian Credit Score Mean?

Credit reporting agencies such as Experian gather data from creditors and from public records and use that information to create individual credit reports and calculate a credit score that attempts to paint a picture of an individual consumer's credit worthiness.

Company Information

Including the U.S., Experian compiles consumer reports on people in 15 nations and as of 2011, the firm has files on more than 400 million people. In the U.S., two other firms: Equifax and TransUnion also compile consumer credit reports.

Credit Reports

Your Experian credit report includes information pertaining to all of your currently active credit accounts. The report lists your current loan balances as well as the total amount of credit available to you on your revolving lines of credit. The report lists the number of times you have missed a loan payment by 30, 60, 90 and 120 days. Creditors can also report delinquent accounts, and details of these accounts and events such as car repossessions and foreclosures can stay on your report for up to seven years. A bankruptcy can stay on your report for 10 years. Lenders can deny a loan application on the basis of a low credit score.

Two Scores

Experian rates your credit history by giving you a credit score of between 300 and 850, with high scores being assigned to people with a positive credit history and low scores given to those with bad credit. Experian also compiles Vantage scores, which range from 501 to 990 and are based on a scoring model used by all three credit reporting agencies, while Experian scores are calculated using a scoring model unique to Experian.

Considerations

In order to submit information to Experian, your creditors have to pay to establish Experian accounts. Consequently, some lenders choose not to report your credit information. While most lenders choose to submit consumer reports to all three agencies, some firms make reports to just one, and this in part explains why your Experian score may deviate from your other credit scores. When you apply for a mortgage, your lender checks all three of your credit scores and uses the middle of the three scores to underwrite your loan. Credit card issuers and other lenders usually check just one credit score.

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How to Obtain a FICO Score for Free

Credit scores are reports that list a person's loan accounts, payments and credit history. The FICO score was created by the Fair Isaac Corporation, the same people who run myFico.com, which allows you to sign up for a free 30-day trial where you can check your credit score from the leading credit reporting agencies such as Experian. In addition to checking your credit score, the free 30-day trial includes tips and guidelines on improving or maintaining your credit score.

Instructions

1

Navigate to the MyFico webpage (see resources below)

2

Click "Start Free Trial" on the home page. Click "Create Account."

3

Type in your name, address, email, Social Security number, and create a password to log into your account. Click "Continue."

4

Select "Free 30-day Trial." Read and accept the user agreements and submit your credit card information. The credit card will not be charged if you cancel the service after the free 30-day trial.

5

Log into your account after you have finished creating the account. Scroll down the account to "Report/Score." and click "View." Visit Credit Education (see resources below) if you want to understand more about credit scores.

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How to Fix My Credit and Make My Credit Better

The consequences of a bad credit history include higher interest rates on credit cards and loan denials. Some employers will not hire you with a low credit score. You can reverse or fix your low credit score. This requires patience and you have to learn how to manage debt better. Once you outline a plan to improve your low credit score and stick with this plan, your credit score will improve and and you will be on your way towards better credit.

Instructions

1

Repair your credit history or increase your score with on-time payments to your creditors. Mail payments or submit payments online days prior to the due date.

2

Create a plan to become debt-free. Limit credit card use and think of a way to reduce or eliminate your balances. Getting rid of credit card debt and other loans is a quick way to boost a low FICO score. Pay more than your minimum payments on credit cards and devote extra money every pay period to debt repayment. You may need to find a second job to increase your present income.

3

Analyze your personal credit report at lease once a year from the three credit bureaus (Experian, TransUnion and Equifax). Challenge errors or mistakes in your reports.

4

Get rid of collection accounts. Stop ignoring collection and delinquent accounts and work with creditors to repay these past due balances. Set up a payment plan. Ask creditors to remove collection remarks from your credit report once you have paid the balance.

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How to Increase FICO Score After Bankruptcy

A bankruptcy discharge provides a fresh start from oppressive debts. But it comes at a cost. FICO scores for people with bankruptcies plummet, and banks, mortgage companies, car finance companies and employers who look at FICO scores can charge people with bankruptcies more interest or decide not to hire them for jobs. There are steps you can follow to get your financial life back on the right track. One of the first things you should do is clean up all three of your credit reports.

Instructions

1

Get copies of your credit reports from all three credit reporting agenciesEquifax, Experian and TransUnion. You can get one free copy of each report per year (in some states, you are entitled to two copies per year). If you filed Chapter 7 bankruptcy, wait at least 60 days after your bankruptcy discharge date to request your credit reports because it can take the bureaus that long to post changes. If you filed Chapter 13 bankruptcy, wait until you have made your third payment (typically 60 to 90 days) to request your credit reports.

2

Once your credit reports arrive, sit down with your bankruptcy paperworkespecially Schedules D, E and F (which list the secured and unsecured creditors included in your bankruptcy discharge) and make sure they are all listed properly in your credit reports. Also check to make sure your name (or names), addresses and places of employment are listed correctly on the credit reports.

3

File disputes with the credit reporting agencies. Send letters to all three agencies and attach copies of your bankruptcy schedules to dispute incorrect creditor listings. You should also dispute erroneous addresses, names or other information.

4

Review credit reports againgenerally about 60 days after filing a dispute. If changes werent made, go through the dispute process again.

5

Once your credit reports are in good shape, check them once a year.

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Empirica Credit Score Meaning

The credit rating agency TransUnion uses a credit score called an Empirica score to rate people's credit. This score is not given to consumers but is used only for lenders. Credit scores have many uses, and they affect a person's ability to obtain a loan.

Effects

Credit scores of consumers can affect many things. The most important is the interest rate consumers pay for mortgage and car loans. The higher a person's credit score, the lower their interest rate.

FICO Score

Many credit rating agencies calculate scores using a model called FICO. FICO breaks down a person's credit by using five categories. The categories are calculated using percentages, and the person's credit score is then computed. The five categories are payment history, debt owed, length of credit, pursuit of new credit, and types of credit history. Credit scores vary depending on what is listed on the report that day.

Empirica Range

An Empirica credit score ranges from 150 to 934. A score of 150 represents the worst credit possible, whereas a credit score of 934 represents the best credit possible. To qualify for a good interest rate, lenders typically require a score of 680 or higher. A credit score of less than 500 is considered extremely poor and that person most likely would not qualify for a loan.

Purpose

Any credit score is a snapshot of a person's credit risk. Scores are used by lenders in determining loan approvals and credit lines.

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Does Losing a Credit Card Affect Your Credit Score?

If you lose a credit card or realize that it has been stolen, let your credit card company know immediately. The effect of reporting a lost credit card depends on whether and how you choose to replace the credit card. If you take the right steps, you can avoid doing any damage to your credit score.

Reporting Lost Card

The act of reporting a lost or stolen credit card to your credit card issuer does not affect your credit score at all. Report the loss right away so the issuer can deactivate the credit card and prevent anybody from using it fraudulently. Even if a thief does use your card after you lose it, you will be able to remove these charges from your account with no effect to your credit score.

Replacement Credit Card

Having a replacement credit card issued to you should not affect your credit score at all, even if the card has a new account number. This is because the company that issues the replacement card typically sets up the account with the same start date, credit limit and account history as that of your original account. Nothing will be effectively different on your credit report, so your credit score will not change.

Upgrading Card Account

If, instead of replacing your credit card with the same type of card, you choose to apply for an upgrade to a platinum account or a card with a rewards program, this might hurt your score. Before approving the application, the credit card company will have to make a credit inquiry, which hurts your score by a few points. In addition, the new upgraded credit card account might be set up as an entirely different account with the current month as the opening date. Having new credit on your report can temporarily hurt your credit score.

Closing Card Account

If you choose to entirely close the credit card account instead of having a new card issued to you, your credit score might go down. This is because closing the account reduces your amount of total available credit and therefore might increase the percentage of available credit you are using. For example, if the lost card had a $5,000 credit line and no balance and you have another card with a $5,000 credit line and $3,000 balance, you were using 30 percent of your available credit. If you close the account for the lost card, your credit utilization will suddenly jump to 60 percent of your available credit, which is likely to lower your credit score.

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Why Is It That Different Credit Websites Give Me Different Credit Scores?

You might have a great credit score from one website, but an awful one from another. Don't worry, because most people get a different score from each website of a credit scoring agency. What matters most is the information in your credit profile and that you have a healthy overall financial outlook.

Identification

While the national credit bureaus try their best to have the most accurate information possible, they still miss some things that their competitors pick up. Also, some lenders only report to certain credit bureaus. Most people have a 50-point variation between their scores at the three major bureaus, according to Bargaineering. When a credit bureau has a significant omission, such as a collection account or mortgage account, this difference could grow far larger.

Considerations

Although most lenders only accept FICO scores or a score based on the FICO model, several other scoring algorithms exist, such as the VantageScore. Scores other than a true FICO calculation are sometimes called a "FAKO" score, because they are mostly meant to educate consumers about credit and not to prepare for a loan application. Also, even among the major bureaus are slightly different reporting standards. Experian, for instance, reports unpaid tax liens for 15 years, while Equifax and TransUnion report them indefinitely.

Does This Matter?

Having several different credit scores may not mean a whole lot for your chances on a credit application. Some lenders do not use the scores provided by the major credit reporting agencies, instead opting for a proprietary formula. Other lenders may use your score from all three major bureaus and take the average or the highest one.

Tip

Lenders probably won't rely only on your FICO score to determine whether you are a good credit risk. Thus, you should work to improve your credit history rather than focus on any particular score a website provides. If you have a high level of debt relative to your income, work on paying down some of that balance or get a promotion. Pull your report from all three major bureaus and compare them for possible errors. A mistake on an account balance, for example, could cost dozens of points.

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Myths About Inquiries on Credit Reports

Most people don't know how credit inquiries can affect their credit report. There are a lot of rumors and myths floating around about the impact of inquiries. Sometimes an inquiry can have an affect and other times there is no affect or its very minimal or limited. Whenever someone takes a look at your credit report an inquiry appears. You can identify which creditors looked at your report if you can decipher their inquiries.

Ordering Your Report

There is a myth going around that says looking at your own credit report counts as an inquiry and will lower your credit score. This is a false assumption. If you order your credit report from one of the three credit reporting agencies, you will receive an inquiry on your report but it has no impact whatsoever. Now, on the other hand, if you worked in a credit office and you pulled your own credit report the same way you would any other consumer, for credit processing, it would show up as a regular inquiry and there could be an effect on your credit score.

Number of Inquiries

Many consumers believe that if you receive a lot of inquiries, it can damage your credit score. This can be true in some cases, but if you receive a number of inquiries from a mortgage company within 30 days of the computation of your credit score, they will not count against you. If you receive your loan within the 30 days of the inquiries, they will have no affect. All inquiries made after 30 days but within a 45 day window--or the shopping period--will only count as one inquiry under the new credit scoring model. This feature helps when you are looking at a number of mortgage companies prior to receiving a loan. If you are shopping for a car loan, this concept also applies.

Hard and Soft Inquiries

It is a common mistake to believe that prescreened credit card offers will lower your credit score. These are considered soft inquiries since you are not making a request for credit. In fact, you did not initiate the offer at all. These will not affect your credit file. This holds true for all soft inquiries. The credit reporting agencies sell your data to financial institutions, which in turn send out these preapproved offers. Hard inquiries are when you apply for credit and creditors look at your credit file.

Time Frame

A lot of people think inquiries will have a long-term effect on their credit score. Actually credit inquiries stay on your credit report for a period of two years. As time passes, even though the inquiry is still on your credit file, they begin to have less and less of an impact on your credit score. Other strong categories on your credit file, such as paying on time and reducing your credit card balance, will help to offset the effect of inquiries.

Impact

Most people think inquiries have a major impact on their credit score. Actually one inquiry reduces the credit score, for the average consumer, by five points. Credit scores range from 300 to 850; therefore, if you have a score of 770, five points will not be significant.

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How to Raise My Credit Score by Paying My Bills?

Lenders use credit scores to access your level of risk. Always try to get the highest score you can. A credit score can range from 300 to 850. A high credit score increases the likelihood that you will receive favorable terms on credit cards, auto and mortgage loans. You can raise your credit score by paying your bills. Your credit score is affected by several categories, and how you pay your bills is one of them. When you are 30 days late on a bill, your credit score can drop significantly.

Instructions

1

Make all of your payments on time. A credit score of 680 can be lowered anywhere from 60 to 80 points when a payment is 30 days late, according to Creditcards.com. Your credit score is comprised of five categories: 35 percent for pay history, 30 percent for the amount you owe, 15 percent for the length of your credit history, 10 percent for new credit, and 10 percent for the type of credit used. Note how your pay history accounts for 35 percent of your credit score. This is why it is important to pay your bills on time consistently.

2

Pay down the amount you owe. When you are able to eliminate or pay down debt, you increase your credit score. This category represents 30 percent of your credit score. The amount of credit you use can affect your credit score. When your credit usage, based on all of your creditors, gets to 30 percent, your credit score will start to decrease. If you have a credit card with a limit of $5,500 and the balance is zero, your credit usage is zero. Assume you make purchases in the amount of $1,950. Your credit score will decrease because you are using 35 percent of your available credit ($1,950/$5,500).

3

Make a large payment. In the example above, if you pay $1,000 of your debt, you will reduce your balance to $950 and your credit usage decreases to 17.2 percent ($950/$5,500), which increases your score. This example assumes you only have one credit card. This formula is applied to all of your accounts.

4

Avoid severe derogatory credit. When you miss a number of consecutive payments it could lead to collection accounts, judgments, bankruptcy, bad debts and repossessions. All of these items can lower your credit score. Once your balances are paid off, do not close the account. When accounts are closed, it increases your credit utilization rate and lowers your credit score.

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How Long Does Chapter 7 Bankruptcy Stay on a Credit Report?

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is a very specific part of the United States Bankruptcy Code and has a very specific definition. Once a person, referred to in this case as a "debtor," files for Chapter 7 bankruptcy they are allowed to relieve themselves of certain debts they may have accrued. They are also granted protection from any debt collectors by the United States legal system. The downside is that in exchange for relieving themselves of their debts, they have to turn over any qualifying property to the court system.

Getting Credit After Bankruptcy

Obtaining new credit can be difficult after filing for Chapter 7 bankruptcy. Every financial institution, be it a credit card company or a regular bank, ultimately will make its own decision whether to grant you credit. Some institutions may wait awhile to see a history of on-time bill payments. Other institutions, knowing that you cannot legally declare bankruptcy again for another eight years, may be willing to grant credit right away.

Credit Rating

As expected, a Chapter 7 bankruptcy filing will have a negative impact on your overall credit rating. In general, a Chapter 7 bankruptcy declaration remains on your credit rating for 10 years from the date of filing. It is important to understand that the consequences of filing for Chapter 7 bankruptcy are long term and unavoidable.

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How to Write a Consumer Statement

Section 611(b) of the Fair Credit Reporting Act allows consumers to add a 100 word statement to their credit report. Credit bureaus must then make this statement available to any company that obtains a copy of an affected individual's credit file. A consumer statement is an opportunity for you to dispute an entry on your credit file. While a consumer statement won't affect your credit score, it does provide an opportunity to explain any disputed information on your report. However, whether a potential creditor reads your statement is another matter altogether.

Instructions

1

Contact the three major credit reference bureaus to request a copy of your credit file.

2

Check through your file to look for any mistakes.

3

Establish the facts about any entry you wish to dispute. Simply stating that you don't owe a creditor money is unlikely to have much of an impact. You should keep detailed notes on any contact you have with a creditor or credit bureau with whom you are having a dispute.

4

Draft a statement of 100 words or fewer that succinctly expresses the nature of your dispute. If you've already paid a debt to a third-party debt collection agency that hasn't been removed from your file, state the debt you're referring to and information on when and how you settled your account.

5

Submit your dispute in writing to the credit bureaus that have included the rogue entry on your credit report. Request that an updated copy of your file is sent to you once your statement has been added to your report.

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How to Get Wrong Info Off Your Credit Report

The Fair Credit Reporting Act--a federal law--requires credit bureaus to remove any inaccurate information at your request. By law, the bureaus have about 30 days to investigate your claim and remove the inaccurate information. The process for challenging inaccurate information on credit reports is simple, and the Federal Trade Commission strongly encourages you to do it yourself and stay away from so-called credit repair agencies. The agencies are unable to perform any services regarding your credit reports that you cannot do yourself.

Instructions

1

Get a copy of your credit report from Annual Credit Report (see Resources), the only website authorized by the Federal Trade Commission to provide you with free credit reports as required by federal law. You are entitled to three reports every 12 months, including one each from the nationwide credit bureaus--TransUnion, Equifax and Experian. By ordering one report every four months you can monitor your reports year-round for free.

2

Find the incorrect information on your credit report. The account may not belong to you or it may be reporting as past due although you have always paid on time.

3

Write a letter to the credit bureau stating that the information is wrong, and list the reasons why. Include your name, address and telephone number. Mail the letter to the address on the credit report. The credit bureau will respond by mail within about 30 days. Or go on to the next step for another option.

4

Challenge the inaccurate information online by visiting the website for the credit bureau (see Resources). To enter your dispute online you will need a report number or reference number from the credit report you obtained from Annual Credit Report. A response will be emailed to you within about 30 days.

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Is There Any Way of Getting a Truly Free FICO Score?

The Fair Credit Reporting Act demands that credit rating agencies give you one free credit report each year, but this does not entitle you to see the FICO score that lenders use when making credit decisions. You can get a free FICO score, but you likely have to risk giving up your credit card information.

Trial Offers

The major credit bureaus offer a credit report that includes your FICO when you sign up for a credit report monitoring trial service. To make sure this is free, you must cancel the service before the trial period ends. Otherwise, you will incur the subscription charge, which can cost more than paying for your FICO score directly.

Tip

Some banks allow their account holders to see their FICO score for free, according to Fox Business. These banks, however, choose to remain anonymous except for a few, such as Pennsylvania State Employees Credit Union and Digital Federal Credit Union. Lenders, such as those that deal in auto loans and mortgages, may let you see your credit score during the application process.

Warning

If you get an offer for a free credit score, make sure it is a FICO score. The national credit bureaus have proprietary scores, such as the VantageScore, but these are rarely used by lenders. It gets even more confusing. Only Equifax sells the FICO score developed by the Fair Isaac Corporation. Experian and Equifax sell credit scores based on the FICO model, according to The Motley Fool.

Alternative to Trial Offers

Lenders care less about your credit score than the information in your credit report. You can use a free FICO score estimator to get an idea of how risky you are to lenders. In 2011, federal law may allow consumers to see their credit score for free if they receive a less-than-prime rate.

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How to Find Out If Someone Has Stolen Your Identity

Criminals use people's names, Social Security numbers or credit card numbers to rack up debt and commit fraud. According to the Federal Trade Commission (FTC), as of 2005, 8.3 million Americans were the victim of identity theft. Most people don't find out until they start noticing subtle red flags, such as strange credit card statements or mail that isn't coming to their home any longer.

Instructions

1

Order a credit report. According to the FTC, one of the top signs of identity theft is unexplained accounts. Consumers are entitled to a free credit report every 12 months from all three credit bureaus (TransUnion, Experian and Equifax). Order credit reports online (see Resource list) and highlight accounts that you don't recognize.

2

Review personal information on credit reports. After reviewing all accounts on your credit reports, look for other signs of identity theft. According to the FTC, inaccurate personal information, such as addresses and employers, could be a red flag.

3

Pay attention to missing mail. If you stop receiving credit card statements, it might not be a glitch. Follow up with creditors right away. Discuss recent activity on your account. Oftentimes, identity thieves will change mailing addresses to cover their tracks. Also, watch out for credit cards that you didn't request.

4

Call collectors back. If debt collectors start calling your house, don't assume it's a misunderstanding. According to the FTC, identity thieves will open accounts, charge them to the maximum and leave you in debt.

5

Ask questions if you're denied credit. Many people suspect identity theft when applying for new credit. For example, a consumer may believe he has stellar credit. However, the lender may offer him an unfavorable interest rate. In these cases, it's important to investigate the possibility of identity theft.

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How to Dispute Items on Your Credit Report Online

As a consumer, you have a right to dispute items that are on your credit report. You can dispute the reported items for a variety of reasons, such as outdated information, wrong debt amount listed, or if you are the victim of identity theft. To dispute items, first obtain a copy of your credit report from all three of major credit reporting bureaus, Equifax, TransUnion, and Experian. You are allowed one free copy of your report from each bureau per year. Once you have a copy of your report you are armed with the information you need in order to file a detailed dispute.

Instructions

Equifax

1

Order a copy of your credit report from Equifax. You can order the report online via the Equifax website (link in Resources) or by calling 877-322--8228.

2

Visit the homepage of the Equifax website. Locate the "Other Credit Services" section and its three categories: "Credit Reports," "Correct Errors" and "Fraud Alerts & Freeze."

3

Click on the "Start a New Dispute" link under the "Correct Errors" category.

4

Complete and submit the online dispute form by providing information such as your name, social security number, the name of the credit item that is being disputed, the account number, and the reason for the dispute. You will be provided with a confirmation number once you submit your online dispute.

5

Wait 30 days to give Equifax enough time to complete an investigation of your dispute.

6

Visit the Equifax website again. Scroll down to the "Other Credit Services" section that is near the bottom left hand side of the page. Click on the "View Results of An Online Dispute" link under the "Correct Errors" category.

7

Complete the form by entering the confirmation number provided in Step 4. You must also enter your name, social security number, and contact information. Click "Submit" to view the updates regarding your dispute.

TransUnion

8

Order a copy of your credit report from TransUnion. You can order the report online via the TransUnion website (link in Resources) or by calling 800-888-4213.

9

Visit the homepage of the TransUnion website. Click the "Dispute an Item" link that is located in the "Consumer Assistance" section. Click the link labeled "Submit a Dispute." Select the "Online" option. Click the button labeled "First Time? Click Here."

10

Complete and submit the online dispute form by entering your name, social security number, contact information, the name of the credit item that is being disputed, the account number, and the reason for the dispute. You will also be able to create a username and password for your online account.

11

Wait 30 days. Visit the TransUnion website again. Click the "Dispute an Item" link, located in the "Consumer Assistance" section.

12

Click the "Submit a Dispute" link. Select the "Online" option. Click the button labeled "Returning? Click Here." Enter your username and password to access the results of your online dispute.

Experian

13

Order a copy of your credit report from Experian. You can order the report online via the Experian website (link in Resources) or by calling 888-397-3742.

14

Visit the homepage of the Experian website. Click on the "Additional Services & Products" tab. You will see three categories underneath this tab, "Products," "Credit Report Assistance," and "Notices."

15

Click on the "Disputes" link that is in the "Credit Report Assistance" category. Click the button labeled, "Yes, I Have A Credit Report Number."

16

Enter your credit report number and social security number and click "Submit." Complete and submit the online dispute form by providing information the name of the credit item that is being disputed, the account number, and the reason for the dispute.

17

Wait 30 days. Visit the Experian website again. Click on the "Disputes" link that is in the "Credit Report Assistance" category near the bottom of the page. Click the link labeled, "View Credit Report Dispute Results." You can then enter your credit report number and social security number to view your dispute results.

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Does Cancelling My Credit Cards Increase My Credit Score?

There were 173 million credit-card holders in America in 2006, according to the U.S. Census Bureau, projected to grow to 181 million Americans by the end of 2010.

It Negatively Affects Your Credit Score

Never close a credit card for the sole purpose of raising a credit score, advises myFICO. The Fair Isaac Corporation calculates FICO scores by examining individuals' total used credit in relation to their total available credit. Closing a credit card account decreases your available credit, which can negatively affect your score.

It Can Be a Good Thing

From a credit management perspective, closing old or unused credit card accounts can prevent using them and falling further into debt. Closing one or two of several accounts doesn't hurt. Creditors may decide consumers with more than the national average of 3.5 credit cards are overextended, according to CreditCards.com.

Bottom Line

It's always a good idea to keep as many accounts with low balances open as possible, which gives your credit score a nudge upward. However, if you have many credit cards listed on your credit report, closing a few accounts probably won't hurt your score.

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Will it Affect My Credit Score If I Cancel My Credit Card With a Balance?

According to Fair Isaac, most American consumers have 13 credit accounts reported to credit bureaus. These include both credit cards and installment loans. For those consumers who are trying to curb spending by using credit cards less, canceling a credit card might not be the wisest choice. You should first consider how canceling a credit card could damage your credit score.

Increased Interest Rate

If you are thinking about canceling a credit card, keep the account open until you pay off the balance in full. Letting a card issuer know that you intend to cancel the account is the wrong thing to do. Card issuers often raise the interest rate to the maximum amount allowable when you cancel a card that still has a balance. You don't want a higher interest rate lowering your credit score, thereby increasing the interest rates you pay on your other credit accounts.

Decreased Line of Credit

Canceling a credit card decreases the amount of your available credit. Having a lower line of credit could negatively impact your credit score. When you close a credit card account, the outstanding balances on your other cards loom larger because you've reduced the total amount of credit accessible to you. Closing an account usually is not a sensible move, especially if the card still has a large amount of unused credit. On the other hand, paying down credit card balances improves your credit score. Reducing the amount of debt you owe appears much more favorably on your credit report than decreasing your line of available credit.

Length of Credit History

A long credit history increases your credit score, especially when you have a positive payment history. Bankrate.com recommends keeping your oldest credit card account open. Canceling an old card shortens your credit history, which can lower your credit score. Even though creditors normally do not remove a cancelled account from your credit report immediately, in time the account will no longer show on your report. If you want to reduce the number of credit cards you carry, cancel an unused credit account that has a zero balance. This won't hurt your credit score.

Applying For a Loan

If you are thinking about applying for an auto or mortgage loan in the near future, this might not be the time to close any credit card account. Consumers with healthy credit don't have to worry as much. But if your credit is marginal, a drop in your credit score of just a few points could disqualify you for a loan. Even if you are approved for a loan, a lower credit score will cost you more money because you will be paying a higher interest rate.

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How Long Does an Unpaid Bill Stay on a Credit Report?

The Credit Score

Your credit report is a document containing information about all of your debt- related activities. Items such as savings accounts, loans, credit cards and outstanding debts are all found on your credit report. The good information is weighed against the bad information to determine your credit score. If you have a high credit score (above 660), you are likely to get approved for more lines of credit. If you have a low credit score (below 620), getting approved for credit is unlikely.

Unpaid Bill

Paying bills on time is integral to maintaining a high credit score. If you miss a payment or make a late payment within 30 days of the original payment due date, that goes on your credit report and stays there for seven years. Once you become 90 days late on paying a bill, your account is closed and sent to a debt collector, which also stays on your credit report for seven years. While making a late payment is bad, simply ignoring an account and letting it go unpaid for extended periods of time is much worse.

Charge Off

After a collection agency is in possession of your account for an extended period of time (usually well over a year), the agency might contact you and offer you what is referred to as a "charge off." This allows you to pay less than the amount of money you owe to completely settle the debt. It sounds great, but it comes at a price. A "charge off" severely affects your credit score and is a red flag for future potential lenders. It lets them know that not only did you let a bill go unpaid for a long period, you didn't pay the entire amount of the bill.

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