Are Free Credit Reports Safe?

Any credit bureau or financial company can advertise free credit reports, but the Federal Trade Commission (FTC) warns that such offers usually have strings attached. The Fair Credit Reporting Act (FCRA) provides an official, safe way to get no-cost credit reports, but it involves using a specific website. Otherwise consumers should be cautious about purchase requirements attached to free offers.

Definition

Credit reports are files containing financial information about consumers, the Federal Reserve Bank of San Francisco explains. The main compilers are three national credit bureaus called TransUnion, Equifax and Experian. The reports are sold to entities such as financial institutions, insurers and employers to help them evaluate applications. They show demographics, employment date, current and past credit accounts and certain public records such as court judgments on financial matters.

Purpose

Credit report entries often have mistakes. Dayana Yochim of the Motley Fool financial advice site warns that errors are found in more than 80 percent of credit files. The FCRA requires all three credit bureaus to give free report copies yearly upon consumer request. This allows people to check their files and complain to TransUnion, Experian and Equifax about inaccurate information. The data is corrected or removed if the dispute is correct.

Considerations

The FTC explains that the credit bureaus work through a special website, annualcreditreport.com, to provide the free FCRA-mandated credit reports. The website is safe, and it offers phone and mail order alternatives for people who prefer not to place online orders. Some credit bureaus and other commercial vendors advertise free reports, too, but the FTC warns that they usually require some type of purchase or sign-up for paid services like credit monitoring or identity theft protection. Such businesses are supposed to prominently disclose those terms on their websites.

Time Frame

Free credit reports are only available once each year from annualcreditreport.com, according to the FTC. Consumers can purchase additional reports from commercial sites as often as they wish. A "Wall Street Journal" article recommends spreading out no-cost reports to maximize the free entitlement. Order a report from one bureau at four month intervals, which covers the whole year. Repeat the same process every year.

Alternative

Fraud victims have an alternate way to get free credit reports, even if they ordered copies from annualcreditreport.com in the past 12 months. The FTC explains that they are entitled to review their files when they request fraud alerts from the credit bureaus. This lets them identify any unauthorized accounts or activity. Fraud alerts are free and last for 90 days, alerting lenders to take extra precautions before granting new credit.

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Do You Have to Have Excellent Credit to Refinance?

Paying off a loan with another loan, called refinancing, can save you money on finance charges and lower your monthly bills. Although excellent credit maximizes the benefits of refinancing, refinancing can benefit you even if you have less than stellar credit. However, you always benefit from improving your credit before refinancing.

Identification

You do not have to have excellent credit to refinance. A lender allows you to apply with any credit score and then makes a decision based on your application as a whole. Because a refinancing loan requires the same standards as any other loan, an excellent credit rating gives you a better chance at receiving approval than a good or worse credit score.

Disadvantages of Poor Credit

A less-than-excellent credit score -- anything above 760 is excellent -- may mean refinancing won't make your loan cheaper. A good credit rating may help if you had a poor or average credit rating when you originally applied for a loan. You might also want to refinance if interest rates for the market in general have dropped significantly since your first loan application.

Other Considerations

A credit rating is just one factor a lender considers when you ask for a refinance loan, especially for a mortgage or auto loan. For instance, if you own 70 percent of your property, the lender might consider you a lower risk than someone who only owns 10 percent equity in his home with a better credit history. You also can receive a lower interest rate if you have a high monthly debt-to-income ratio.

Tip

Calculate how much you can save by refinancing. Several websites, such as Bankrate.com, have tools that tell you how much you will save by refinancing. It can take years to break even on a refinance loan after origination fees. If you want to refinance because you cannot afford payments, talk to your lender first -- because it may help you make your monthly payments more affordable than refinancing, which usually requires a credit check that lowers your credit score a few points. Also, improve your credit months before applying for a refinance loan, such as by eliminating credit-card debt and paying every bill on time.

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How Much Can a Credit Score Rise if I Pay an Old Debt?

Strangely, sometimes the best decision for your credit score is to not to pay off an old debt, even if morally right. You may not even have a legal obligation to pay it once it reaches a certain age. Any potential points you can get from paying an old debt is probably less important than the fact that you reaffirmed your responsibility to pay it.

Considerations

It takes years of good payment history and keeping debt low to build a good score, but a single missed payment or collection account can damage your score for years. If you are late by more than three months, paying probably won't raise your score by more than a few points. If it goes to a collection agency, paying it off will have no effect on your score.

Potential for Harm

When debts are years old, paying them off causes damage to a credit score, because credit reporting companies can only list them for seven years. Reaffirming an old debt brings the payment status to current and renews the clock. Paying a collection account of any age used to hurt a credit score, but modification of the FICO formula in 2008 changed this. Also, states put statutes of limitations on most debts, usually from three to seven years, so you may not even have liability on an old debt.

Paying Old Debts Has Some Benefits

Some lenders, usually mortgage providers, refuse to approve a loan application until the potential borrower pays off any outstanding debts. Even if a lender does not require an applicant to pay off collection accounts, doing so could be a good way to show high moral character and willingness to pay any debt. You can ask your loan officer what course of action the bank would like to see on a collection account.

Tip

You can negotiate with a lender to get a collection account taken off your record by paying back the old debt, but this tactic is much harder than in years past, because credit reporting agencies are aware of this tactic. Some collection agencies cannot report to the major rating companies due to abuse of account deletions. However, it cannot hurt to at least try to negotiate to remove the account.

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Does Checking Your Credit Hurt It?

Checking your credit generates a record that appears on your credit report. The record appears at the bottom of the credit report and is visible to anyone who pulls the report. Checking your own credit score is referred to as a soft inquiry. Pre-approval marketing campaigns also make soft inquires to your record to determine eligibility. Despite generating a credit report inquiry, it is important for consumers to check their credit reports for accuracy.

Effect on Credit Score

The credit score remains unchanged during a soft inquiry. Consumers wishing to check their score multiple times a year can do so without affecting the score. Hard inquiries on the other hand affect the score slightly. A hard inquiry is triggered by a consumer when applying for a loan, credit card or life insurance. Hard inquiries account for less than 10 percent of the overall score. Multiple hard inquiries such as the ones by home lenders or car dealers which occur in a 14-day period are listed as just one inquiry on the report.

Recording Inquiries

Reviewing the number of times a consumer has applied for new credit gives lenders a sense of a consumer's financial health. Multiple inquires can indicate that a consumer is looking for a way out of an overwhelming debt situation. Applying for multiple cards or moving balances around can preclude a financial meltdown. Hard inquires not generated by the consumer could indicate identity theft and should be investigated. Unauthorized credit inquiries can be removed from the credit report at the consumer's request.

Who Performs Credit Checks

Credit card companies and other lenders perform soft inquires for pre-approved credit offers. Those with a specific business purpose such as home loan lenders, car dealers and landlords may perform hard inquiries with the consumer's permission. Inquiries appear only on the report being checked. I.e. a credit check on a TransUnion credit report will not show on a consumer's Experian credit report. Contacting the credit agencies to have your name removed from marketing distributions can reduce the number of soft inquiries on your credit report.

How Long Inquiry Remains

Soft inquires remain on the credit report for a year. Hard inquires will show up for two years. Credit reporting guidelines require all inquires to remain on the report for at least a year. Although hard inquiries stay on the report longer, most creditors tend to ignore any that are older than six months. After two years the record of inquiry will be removed from the report. It is important to note that few people are ever rejected for credit based on too many inquiries on their credit report.

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How to Remove Old Credit From Credit Report

Information stays on your credit reports from 7 to 10 years, according to the Federal Reserve Bank of San Francisco. The period is the same whether the information is good or bad. It should drop off automatically after that, but sometimes it remains. You will want to remove it if it is negative because it will bring down your credit score as long as it stays on the reports.

Instructions

1

Request copies of your credit reports from all three credit bureaus. Experian, Transunion and Equifax are independent bureaus, so each may contain different information. The Federal Trade Commission says they must all give you a free copy every 12 months under the law. Request it by calling (877) 322-8228 or going to the annualcreditreport.com website. Both of these sources are run by the government and provide reports without any purchase obligation.

2

Read through the three credit reports and make a list of any items that at least seven years old. The Federal Reserve Bank of San Francisco says most accounts and other items must be removed at the end of seven years, but certain bankruptcies can stay on for 10 years, depending on the terms of the settlement.

3

Dispute any old items with the credit bureaus on the grounds that the reporting time frame has passed. Credit bureaus are required to remove erroneous items once you report them. They will conduct an investigation and notify you of the results.

4

Re-check your credit reports once the credit bureaus finish their investigations and say they have removed the old items. Normally they will do so, but it's always best to double-check.

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The Most Important Credit Rating Factors

Whenever you apply for a loan or credit card, the lender checks your credit score to determine whether to approve your application and what interest rate to charge. Your credit rating considers many different components of your credit history, but they are broken down into a few major categories. Focus on the most important factors when you are trying to boost your credit score.

Payment History

Keeping all of your accounts in a positive status of "paid as agreed" is the single most important thing you can do to keep your credit score high. 35 percent of your credit score is based on your payment history. Make at least your minimum payment on time each month by setting up automatic payments or payment reminders. Budget your money carefully so you always have enough to pay each bill. Your payment history also considers negative public records, such as bankruptcy, foreclosure and court judgments. You can avoid these by following through on all of your financial obligations.

Amount of Debt

Your credit rating considers how much you owe on each of your accounts to make up another 30 percent of your score. Borrow only what you need to keep these numbers low and increase your credit score. Your credit score also considers the ratio of the amount you owe on each account to the amount you initially borrowed or the credit limit on the account. Make extra payments to decrease this ratio. According to MSN Money, you could hurt your credit score if any credit card balance is over 30 percent of the card's limit. Keeping the balance to 10 percent or less of the limit is best.

Longevity of Credit

The longer you have had credit, the better. When you first start building a credit file, your score will be low and each negative item on it will have a fairly large effect. Your credit score will improve as you manage credit responsibly over many years. 15 percent of your score is based on your credit length and another 10 percent considers the variety of types of credit you have. On the other hand, 10 percent of your credit score penalizes you for applying for and opening new accounts. Therefore, whenever possible, keep your oldest credit cards open and do not apply for new credit cards unless you need them.

Credit Report Accuracy

Your credit score is based on the information on your credit report, so even if you have excelled in the most important areas of your credit history, your score will only reflect this if your credit report is accurate. Check your credit reports for free through the Annual Credit Report website (see Resources) and look for inaccurate information. Dispute incorrect information that could be dragging your credit score down.

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How to Check Your Credit in Canada

Knowing your credit rating is essential to your financial well-being, for applying for loans, for mortgages and more. A credit rating is an indicator of how well you pay off existing bills and loans, according to CIBC.com. Canadians have the right to access their credit reports for free by mail or in person, or for a fee over the phone or Internet from Canada's two main credit bureaus, TransUnion and Equifax.

Instructions

1

Visit the home page of either of Canada's main credit bureaus, Equifax.com or TransUnion.ca. Both websites have a link to a printable document you will need to request your free credit report. At Equifax.com, the free credit report is titled "free credit file"; at TransUnion.ca it is called a "consumer disclosure." Follow either of these links and print the corresponding document.

2

Gather your two pieces of identification and photocopy both sides of each. TransUnion requires one piece of government-issued identification such as a drivers license, Canadian passport or birth certificate, and one additional piece of identification such as a signed credit card or social insurance card. Make sure that together the two pieces show your name, current address, date of birth and signature. Equifax requires copies of two pieces of government-issued identification and an additional document that shows your current address if neither piece of ID does.

3

Mail your request for a free credit report, along with the necessary photocopied identification to the corresponding credit bureau, whose addresses are provided on their websites. According to Equifax.ca, you should receive your report within five to 10 days.

4

Visit a TransUnion credit bureau in person to obtain a free copy of your credit report instantly. Bring the same pieces of identification you would use to request your report by mail, or photocopies. TransUnion credit bureaus are located in Newfoundland, Nova Scotia, Ontario, Prince Edward Island and Quebec.

5

Visit the home page of either Equifax.ca or TransUnion.ca to download your credit report and score instantly. As of May 2010, the cost of downloading your credit report with TransUnion is $14.95 plus an additional $7.95 if you wish to view your FICO score. The cost of viewing your credit report with Equifax is $15.50 or you can pay $23.95 to view your credit report and FICO score together.

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Does the Credit Score Affect Rate?

When you're considering taking out a loan or applying for a new credit card, keep in mind that whatever you purchase will cost you the amount of the item plus the interest rate on anything you don't immediately pay off. Depending on what you buy, the difference may be thousands of dollars. To get the lowest interest rates, you must get your credit score into tip-top shape.

Credit Score

Think of your credit score as a snapshot of your financial history. According to Edmunds, your payment history makes up 35 percent of your credit score, while your debt utilization ratio (also known as amount owed) makes up 30 percent. Another 15 percent goes to the length of your credit history, with 10 percent going to each your credit history and types of credit. Because your credit report reflects how responsible you've been with your finances, lenders use it to gauge how risky it will be to lend you money.

Interest Rates

The more of a risk you may be to a lender, the higher your interest rate will be. Therefore, it's vital to get your credit score into the best shape possible before applying for a loan or credit. According to Kiplinger writer Kimberly Lankford, a person with a credit score of 760 or higher may qualify for a 30-year fixed rate mortgage at 5.98 percent interest, while someone with a score between 620 and 639 will get stuck with a 7.47 percent interest rate on the same loan. While that's less than 2 percent, the difference on a $216,000 mortgage is $2,724 per year.

Credit Report

To find out where you stand financially, you may get a free copy of your credit report from each of the three major credit bureaus at the Annual Credit Report website. Once you have accessed your credit reports, you will have the option to purchase your credit score. If your score isn't within the high ranges, where you may get the best interest rates, it may make sense to wait on applying for a loan. Remember, each hard inquiry into your credit report creates a small negative effect on your score.

Considerations

To improve your credit score and obtain stellar interest rates, it's important to pay all your bills on time and to get your balances down. Your debt utilization ratio is the relationship between the amount of debt you have and your credit limits. The Better Business Bureau recommends keeping balances below 25 percent of your credit limit to keep your credit score healthy.

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Increase FICO With Tradelines

According to the MyFico website, your FICO credit score is a three-digit number that ranges from 300 to 850 and is based on the information contained in your credit report. A tradeline is any credit account that appears on your credit report, and to have a good credit score, you must have positive tradelines. It's important to understand how to add tradelines to your credit report to increase your FICO score.

Identification

Your FICO score has five components, according to MyFico: 35 percent is based on your payment history (whether you pay bills on time), 30 percent measures how much debt you have, 15 percent is based on the length of your credit history, 10 percent reflects the types of credit that you have and 10 percent considers how much new credit you have. FICO calculates all five to arrive at one individual score for you.

Significance

Your FICO score isn't a stagnant number. It fluctuates as data within your credit report changes. To improve your score, FICO suggests making payments on time on all your accounts. According to Bankrate, adding new and positive accounts can help improve your score, especially if you have negative accounts on your report. FICO places more emphasis on newer accounts than on old ones. As the negative accounts age, the newer positive accounts will have more significance in your score calculations, and that helps increase your score over time.

Considerations

You can add tradelines to your account by applying for a new credit card that reports to all three credit bureaus. If you have poor credit, it may be difficult to obtain a traditional card. Instead, you may consider a secured credit card. A secured credit card requires a deposit equal to your credit limit. This deposit is held by the issuing bank in a savings account or certificate of deposit. The issuer reports the card to the bureaus, and on-time payments on the card improve your score. You should only apply for secured credit cards from established banks to avoid any potential scams.

Warning

If you have a spouse or relative with good credit, you can ask that person to add you as an authorized user to his account. Once your name is added, the positive account history from that account will appear on your credit report and help increase your FICO score. However, any subsequent negative activity on that account, such as late payments, also appears on your credit report and causes your score to drop.

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Credit Tier Rating Explained

There are six main tiers in your FICO credit score. The Fair Isaac Corporation is the major producer of credit scores, according to Bankrate.com, and a person's FICO score is what most lenders use when making the final decision on a loan. A credit score tier is a credit score range. Different tiers affect the probability of getting a loan or credit card and the interest rate that comes with the loan or credit card.

Tier One

Tier one credit scores are generally regarded as scores that range from 760 to 850. Since credit scores deal with ranges and not specific scores, a FICO score of 760 is essentially the same as 850 and will get you the same rates as a score of 850, according to Bankrate.com. A score of 850 is more of a status symbol than anything else. Tier one credit scores qualify for the best interest rates possible, and are typically the only tier that qualifies for the "Special" interest rates of 0.0 percent for auto loans.

Tier Two

Tier Two credit scores range from 700 to 759. Any FICO score falling within the tier two range is still regarded as very good credit. Consumers with tier two credit scores will normally receive an interest rate that's a step down from the top interest rate. Anyone with a tier two credit score should have no problem qualifying for loans or credit cards.

Tier Three

Tier three credit scores range from 660 to 699. Having a credit score fall in the range of 660 to 699 means is indicative of good credit. Tier three FICO scores will generally have no problem qualifying for loans or credit cards, although they will not receive the best interest rate. For example, according to Bankrate.com, the average 30-year fixed mortgage interest rate on January 26, 2011 was 4.97 percent. Tier three credit scores would probably qualify for an average interest rate.

Tier Four

Scores that range from 620 to 659 qualify as tier four credit scores, also known as "Average" credit. Like the above tiers, tier four credit scores will usually qualify someone for loans and credit cards, but financial institutions take a much longer and in-depth look at the person's financial history.

Tier Five

A credit score that falls between 580 and 619 will place a person in the tier five credit score. People that have a credit score between 580 and 619 are considered "subprime" by lenders. Qualifying for a loan becomes difficult in the tier five range, and many lenders require either a co-signer or collateral before approving a loan for someone that has a tier five credit score. Interest rates will also jump up dramatically for anyone considered subprime. A person with a tier five credit score can expect to pay two or more percentage points higher than the average rate. Using Bankrate.com's January 26, 2011 national average 30-year fixed mortgage interest rate of 4.97 percent, a person with a tier five credit score will typically pay at least 6.97 percent or more.

Tier Six

According to Bankrate.com, tier six is the lowest tier that will qualify anyone for a mortgage rate. Tier six credit scores range from 500 to 579. People with a tier six credit score will qualify for the rock-bottom interest rate, if they qualify at all. Most banks will require collateral or a co-signer before approving any loans.

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Credit Bureau Reporting Guidelines

The Fair Credit Reporting Act (FCRA), which was amended on July 21, 2010, set forth a standard that credit bureaus and banks had to use when reporting credit issues. Under the new guidelines, consumers had more protection and greater access to their credit history as well as recourse for any areas that were incorrectly reported. The FCRA set forth guidelines that all three major credit bureaus must follow.

Purpose

The purpose of having guidelines for credit bureaus is to ensure that there is both fairness and accuracy in the credit reporting process for an individual. Since many financial institutions rely upon credit reports in order to make various decisions, it's important to make sure that the credit bureaus are doing their jobs correctly.

Benefits

The benefits of the guidelines are found in such areas as forbidding credit bureaus from reporting information that is derogatory but is out of date. Prior to the FCRA, old bankruptcies and old credit card debts could remain on a credit report until the bureau elected to remove them. Under the new law, all outdated information has to be removed. Another benefit of the Fair Credit Reporting Act set of guidelines is that credit bureaus are now able to be sued in the event they are violating the guidelines that have been set forth.

Protection

In order to guarantee the safety of the consumer's credit, the new guidelines prohibit credit reporting agencies from divulging any credit information without the consumer's permission. Before the guidelines were put in place, a business could pay a fee and get access to credit files. These businesses would then seek out those individuals who were having problems with their credit and then offer them special programs that would enable them to borrow money at high interest rates. If a company is found in violation of the new guidelines, they can be fined by the Federal Trade Commission.

Access

Under the new guidelines, an individual is entitled once a year, at no charge, to receive a copy of their credit report from any or all three major credit bureaus. The individual can request it either via telephone, online or through the postal system. However, although the credit report provided once a year is free, if an individual wants to know their credit score, there is an extra charge for that.

Repair

If an error is found on a credit report, under the new credit bureau reporting guidelines, that error has to be corrected once it has been verified as being outdated or incorrect. In addition, a copy of the amended credit report must be provided to the individual and copies must also be provided to any agencies that have requested that individual's credit report within the past 2 years.

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Repossession and Credit Rating

When a person who has borrowed money to pay for a purchase falls significantly behind on their payments, the lender will often attempt to repossess the purchase as a means of paying off the debt. Repossession, which is tantamount to a borrower defaulting on a loan, has an extremely damaging effect on a person's credit rating.

Features

Lenders will generally attempt to repossess objects for which a loan has been specifically issued, such as a car, a boat or a home. According to the financial reference website Paying Paul, depending on state laws, lenders can sometimes even repossess a piece of property when the owner has not missed a payment if their financial situation has badly deteriorated or the property has lost significant value.

Effects

The precise damage that a repossession does to an individual's credit score varies depending on a number of factors, including their previous credit history. Thirty-five percent of a person's credit score is compiled based on the timeliness of their payments. If the repossession was preceded by a series of missed payments, the person's score will be damaged even more than it would by a simple repossession. This will make it far more difficult for the person to receive reasonable interest rates on future loans. The individual may also be required to put down higher deposits for rental apartments.

Types

Repossessions can either be classified as voluntary or involuntary. Under a voluntary repossession, the owner of the property agrees to give it up as a means of helping pay off the debt owed to the lender. Under an involuntary repossession, the lender must forcefully seize the property. A credit bureau rating your score will notate whether the repossession was voluntary or involuntary. While some lenders may look at the voluntary repossession as a sign that the borrower was willing to help erase the debt and thus view the borrower more positively, others will see no distinction between the two.

Time Frame

A repossession, once reported to credit bureaus, will stay on a person's credit report for seven years. Until the repossession is removed from a person's record, it will likely continue to drag down their score.

Solution

There are two main solutions to the damage a repossession does to a credit score. According to Lexington Law Firm, if the repossession was made in error, it can be legally disputed and possibly removed from a person's record. If the repossession was legitimate, however, a person's only solution is to attempt to build a better credit rating by taking out more loans and making timely payments.

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Credit Score to Be a Co-Signer

Your credit score is an important number that affects your ability to get loans and other types of credit. If you have a family member or friend with a bad credit score, you might be asked to be a co-signer. You'll need to have a good score yourself in order to be able to do this. In addition to knowing the credit score range that it takes to be a co-signer, you should also consider how doing this can affect your score.

Definition

A co-signer is a person who agrees to guarantee another person's loan using her own good credit score to get the loan approved. Often, bad credit or a short credit history will prevent someone from being approved for a car loan or other account on his own. However, the lender may agree to give the loan if a co-signer with a good credit score agrees to take on liability. If the original person defaults, the co-signer can be held responsible for repayment.

Required Credit Score

According to the Bad Credit Repair resource site, a co-signer needs to have a good credit score because the lender will want to ensure that he can repay the loan in case of a default. People with FICO credit scores of 700 or more should have no problem qualifying to co-sign a loan. A score between 699 and 680 may be good enough for co-signing. If the score is between 679 and 620, it is questionable, and anything below 620 will most likely not be good enough.

Benefits

If a co-signer has a high credit score, the terms of the loan may be much more favorable. A person with poor credit often has to pay an extremely high interest rate if she qualifies for credit on her own. If she can find a co-signer with an excellent credit history, the lender will take that into account and offer more competitive terms.

Effects

Many co-signers do not realize that co-signing a loan for someone else affects their own credit scores. Part of your FICO score is based on how much you owe and the number of new accounts you have opened. Because you are fully liable for a co-signed account in case of a default, it figures into your credit score and can bring it down.

Warning

The Federal Trade Commission warns that when the original borrower defaults on a co-signed loan, up to 75 percent of co-signers end up having to pay it off. Mary Rowland of MSN Money says the creditor can choose to come after you first, without trying to collect from the original party. Besides being liable for the full loan amount, you could also get hit with late charges and court and attorney fees. You could also have your wages garnished or your property could be attached. This will hurt your credit score significantly.

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Does a Credit Check by an Employer Affect the FICO?

An interview is just one step in getting the job. Many employers ask for permission to do a credit check before they hire you. Jobs in finance or that deal directly with money are more likely to require credit checks before you are hired. Some companies may also run a criminal background check before making the decision. You must give permission for these checks to happen, but if you refuse, your employer can choose not to hire you.

Employer Credit Check

An employer will pull your credit to ensure you are not a risk or liability to the company. The employer may be looking to see if you are current on your payments, and that you demonstrate wise financial decisions both currently and in the past. An employer must have your permission to run a credit check on you. Some companies, typically financial services, will perform review employee credit on a regular basis.

Does an Employer Check My FICO Score?

Usually an employer will look at just your credit history and not access your credit score. The employer is looking for an indication that you may be a risk to the company. If you are severely behind on payments, have any recent foreclosed properties or judgments placed on you, you may not qualify for the job offer. The companies tend to look at a longer period of history than a lender would.

Does an Employer Credit Check Hurt My FICO Score?

It will show on your credit report that your company pulled your report under the inquiries section of the report. However, there are often a number of inquiries made on your credit report by different companies who then send you credit card offers. The only way that an inquiry will affect your score is if you apply for a loan or credit card. If you apply for several of these at the same time, you may lower your credit score. Since your employer is just looking at your credit history, it will not affect your credit score or your FICO in any way.

Improving Your Credit Report to Qualify for Employment

If you did not receive a job due to a poor credit history, you can work to improve your credit score. However, it may take time to do this since companies look at long-term decisions and situations. Begin by catching up on your payments and work towards paying off any judgments you have on your account. If you know that your credit report is poor, you can explain what happened, which may affect the employer's decision. For example, if you defaulted on a loan due to losing your job and you have a good credit history before then, the employer may overlook it.

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Identity Theft Credit Bureau Information

If your identity has been stolen or if you want to find out if someone has been illegally using your name and private information, credit bureaus have made it simple to get a report.

Suspicion of Identity Theft

When one thinks that their identity has been stolen, all they have to do is call one of the three credit bureaus, Experien, Equifax, or TransUnion. This will alert them that suspicious activity may be taking place under their name.

Calling Credit Bureaus

When one calls the credit bureau of their choice, they will immediately contact the other two credit bureaus. The request for a free credit report will be processed within three days and fraud alert will be placed with the reporting companies within 24 hours.

Further Actions

Even though the credit bureaus will work with the victim to remove all fraudulent charges and/or account openings, the process will be expedited if the affected party files a police report. They will remove all fraudulent activity with a valid police report.

Credit Freeze

Consumers are also allowed to freeze any requests for credit while they are examining their reports to see if any fraudulent accounts have been opened.

Aftermath

After a suspicious activity has been reported to a credit bureau, the victim will no longer receive any notifications of pre-approved credit and insurance offers for two years. There is also the option to extend the credit alert for up to seven years.

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How to Boost Your Credit Score With a Secured Credit Card

Secured credit cards are one of the ways to increase your credit score. You use your own money to generate a credit line with the bank. The bank then issues you a Visa or Mastercard that you can use to make purchases. The regular, on-time payments you make when the monthly statements arrive build a history of responsible payment that increases your credit score.

Instructions

1

Deposit money into the account that will serve as collateral for your card. You need from $50 to $500 cash to deposit into a secured credit card account.

2

Get your credit report and find out your current credit score to give you a starting point to build up your score. Get your credit report for free every 12 months by applying through AnnualCreditReport.com. Once you get your report(s), purchase your score for a fee from any third party credit score service or directly from any of the three credit reporting agencies: Equifax, Transunion or Experian.

3

Apply for a secured credit card. Search online for secured credit cards or apply at a local bank. Start by applying at a bank where you have a checking or savings account.

4

Start making credit purchases with your new card. It's a good idea to make small purchases including groceries and gasoline first, before making larger purchases that may be more difficult to pay on time.

5

Make payments on time every month. Also, making payments above the minimum payment will accelerate the improvement of your credit score.

6

Request credit line increases after 90 days of paying on time.

7

Open additional secured credit accounts at different banks. This will increase the number of accounts that are reported to the credit bureaus. The more current accounts you have open, the better your credit score will be.

8

Check your credit score again after 90 days. If you made payments above the minimum by the due date, then you should start noticing improvements in your score.

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How to Raise Your FICO

Even if you're a responsible person, a loss of employment or other money problems can make paying your credit cards and other bills challenging. Unfortunately, late or missed payments can wreck havoc on your personal credit score, and these habits can make it nearly impossible to obtain future financing. But regardless of whether your score is currently in the 600s or 500s, there are practical ways to raise your FICO score and become creditworthy.

Instructions

1

Improve your payment history. Make your monthly payments on time to increase a low FICO score. Keep your score high by sending payments several days before the due date or enrolling in automated payments.

2

Control your debt. High credit card balances or a high debt load also plays a role in a low or negative FICO score. Tackle debt by establishing a household budget, eliminating unnecessary expenditures and then using your extra funds to get rid of high balances.

3

Think twice before opening a new account. Applying for new credit creates an inquiry on your credit file, and each inquiry lowers your FICO score. Decline applications for in-store credit and pre-approved credit card offers.

4

Keep tabs on your credit history. Get a copy of your credit report yearly to check for accuracy. Send a letter to the credit bureaus to dispute any misinformation, such as wrong account information or unfamiliar files.

5

Work on repairing your credit after bankruptcy. Quickly raise your FICO score after a discharge by applying for a secured credit card with your bank or another financial institution. Make timely payments with your new account each month to rebuild your credit history. Talk with a bank representative first. Secured credit cards require a deposit and set-up fee.

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How Quickly Does a Credit Score Get Updated?

After paying off an account or making a payment, you may hope that your credit score has improved slightly. While your credit score is dynamic and always changing, it does not necessarily change right away. Understanding how the credit scoring process works can help you have realistic expectations in this process.

Credit Score Changes

Your credit score is changing all the time based on the information in your credit report. Your score can change every single day and even multiple times in one day, depending on what is going on in your financial life. As soon as information is added to your credit report, your score is automatically recalculated based on a formula that was created by the Fair Isaac Corporation. This FICO score accounts for several factors such as the amount of debt you have and your payment history.

Credit Report Updates

The information in your credit report is updated randomly with a joint effort between your creditors and the credit bureaus. When you do something that affects one of your accounts with your creditors, the creditor will eventually provide that information to the credit bureaus. Some creditors report this information once a month. Others only do it once every few months or once a quarter. It can also be reported at any point throughout the month because of the different billing cycles and due dates.

Quick Update

Although it could take a month or more to update your credit score, you can update it quicker if you are shopping for a loan of some kind. A service known as rapid rescoring helps you update your credit score in as little as 72 hours. When you work with a mortgage lender or an auto lender, you could pay an extra fee to initiate a rapid rescoring. At this point, the rescoring company looks at your credit report to see if there are any items that can be fixed to raise your score.

Planning in Advance

If you know that you will need to access your credit history to obtain a loan or for some other reason, it is usually in your best interest to plan ahead. This means that if you want to pay off an account or do something else that will affect your score, you should do it three or four months before you need to access your credit. This way, the creditor will have plenty of time to update your report and change your score.

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Consumer Credit Report Vs. Lender Credit Report

When you apply for credit or a loan, your lender will conduct a credit check to ensure that you qualify. The credit scores your lender pulls, however, may differ substantially from the credit scores you can pull on yourself.

Facts

A consumer credit report is scored by the credit bureaus whereas the credit reports that lenders pull are scored using the FICO model. This results in identical credit reports reflecting different scores.

Significance

The information contained in your credit history is just as important to lenders as your credit score. Your credit history is the same, no matter which type of credit score a lender pulls.

Considerations

Your mortgage lender is likely to pull a credit report scored by FICO. Car dealerships, however, may pull an Auto Industry Option score while credit card companies are likely to pull a bankruptcy risk score.

Types

When you pull a consumer credit report, a soft pull is recorded within your credit history. This cannot be viewed by others and does not affect your score. Lenders, however, perform hard pulls on your credit report that can damage your credit score slightly.

Options

You can pull your own FICO scores for Equifax and TransUnion through myFICO.com. Unfortunately, you do not have access to your FICO score from Experian, your Auto Industry Option score or your bankruptcy risk score.

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What Bills Affect My Credit Score?

A good credit score can get you a great interest rate on a mortgage or other loan. A poor credit score could leave you unable to find any lender who will trust you. Not paying your bills on time can leave a huge stain on your credit score, but if you know the bills to avoid paying late, you could make lenders love you.

Medical Bills

Sometimes people aquire huge medical bills when a sudden illness or accident occurs. If this happens, it's a good idea to pay them off as soon as you can because an overdue hospital balance that is sent to collections can have a detrimental affect on your credit score. According to Privacy Matters, even smaller medical bills that go unpaid for a long time could be reported to the major credit bureaus.

Utility Bills

Generally, if you are late on a utility bill, it's not going to get reported to a credit bureau. Only a few states report missed untility payments, according to Experian. However, if your utility becomes so late that it gets sent to a collections agency, the agency would almost immediately report the unpaid bill to the national credit agencies.

Credit Card Bills

If you miss a payment on your credit card, you risk getting reported. While most credit companies typically wait until you are 30 days late to report you, some can report even earlier than that. It's best to pay credit card bills on time to avoid hurting your credit score.

Car Note

Usually a car note is a large debt for most people. For instance, while some people may take out a credit card with a $500 limit, a typical car loan could be $10,000. It would be in your best interest to show the banks you can make payments on such a large loan responsibly. While some lenders will wait 60 days to report you, many will contact the credit bureaus if just one payment is 30 days late.

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Does Your Credit Take a Hit if You Close an Account?

When you don't know the way that credit rating bureaus track your spending and credit history, you can't make a sensible decision when it comes to closing a credit card. For example, although it may make logistical sense for you to consolidate your debts onto a single credit card and close out the others so that you have fewer bills to keep track of, this looks bad on your credit report. Your credit takes a hit when you close an account --- even if your credit score goes back up, the repercussions of closing an account can last a lifetime.

Maintaining Depth

You want to have as long a credit history as you can --- this is called depth. Potential lenders look for depth in your credit history because it shows that you've responsibly managed debt for a considerable period of time. Closing out credit cards, especially ones that have been open for a long time, eliminates this depth. Closed accounts with missed payments stay on your credit report for seven years, and other closed accounts stay on for 10 years. After that time, they disappear forever, as if you never had the card --- or the credit --- in the first place

When to Close

As a general rule, you shouldn't close a major credit card, but you may decide that managing other cards --- such as store-specific cards --- is more trouble than it's worth. In that case, close out those cards but only if you haven't had them as long as your major credit cards. Store cards are considered lower-quality credit, so closing them isn't necessarily unwise, but you shouldn't close out more than one per month. Never close a card right before applying for credit or a loan. When you close a card, your credit takes a temporary dip. As for major credit cards, if you find yourself unable to make payments, speaking to your credit card company may help --- for example, you may be able to establish a payment plan for which closing out your account is a condition.

Managing Debts

Moving debt around doesn't improve your credit score --- in fact, it may lower it. For example, say you have five credit cards with low amounts owed on each. If you use one of the cards to pay off the other four, then close the other four, your credit takes a hit. It does so not only because you closed the cards, which exhibits unstable behavior, but because you owe the same amount of money but to only one account --- a predicament that lowers, not improves, your score.

Maintaining Good Credit

If you have a number of credit cards with no money owed on them, that may eventually hurt your credit score. Not using your credit card typically leads your credit card company to eventually close your account, which looks bad on your report. Prevent this from happening by using your card strategically. Once every five or six months, use your credit card for a single purchase. Pay off the balance in full --- this helps your report by keeping the card open, building depth and demonstrating that you pay your bills on time.

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How to Clean Up Your Credit Report Before You Start a Business

Starting a business may require taking out a business loan or applying for a business credit card. Approval for either option requires a good credit history, and improving your personal credit reports help ensure that you're able to acquire financing needed to start your business. Before meeting with banks, take steps to clean up your credit report.

Instructions

1

Ask creditors to remove late payments. Making a payment 30 days late may prompt your creditors or lenders to report the lateness to the bureaus. Contact your creditors to explain the reason for getting behind. They may excuse a one-time lateness and remove the negative item from your report.

2

Pay down account balances. Credit card companies frequently update credit reports with your present account balance. Pay off debts or pay down accounts so that your credit report will reveal few debts. Banks consider how much you already owe before approving you for financing.

3

Pay old debts and ask creditors to update your report. Get in contact with old creditors who have written or charged-off debts and contact collection agencies who bought your old debts. Establish a plan to satisfy these balances, and then request removal of the charge-off or collection account to help clean up your report.

4

Dispute wrong information on your credit report. Visit Annual Credit Report at least once a year and immediately dispute inaccuracies on your credit report. Disputing a claim requires an investigation by the bureaus or your creditors, and the removal of reporting errors.

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How Can I Collect a Debt From Someone?

One of the most difficult situations to manage is when someone owes you a personal debt and you need to collect. It is particularly challenging when the borrower is someone near and dear to you. However, when it's time to collect you must learn how to do so in an efficient and professional manner. If you are unsuccessful in your attempts, you can get help from the courts.

First Contact

Just as a business lender attempts to make contact with the borrower who owes a debt before taking additional steps, it is important to first try to communicate with the person who owes you money. That may include placing a call, making a visit, writing a letter or even sending an email. An email or letter is advised because it provides a paper trail to prove you attempted to collect the debt on your own before taking the matter to court.

Small Claims Court

The next step in collecting a debt from someone is to file a case in small claims court. In most cases, you must open a case in the county where the borrower resides. You must provide a statement of the situation regarding the loan and include any preliminary proof of the case, such as a promissory note. The court schedules a hearing date to determine a judgment. State maximum claim recovery amounts for small claims cases vary up to $15,000.

Preparing a Case

Leading up to the small claims hearing, you must prepare your case. That includes documenting what has occurred since you lent the money, putting the signed promissory note among your evidence and gathering proof of communications you've had with the borrower. You must bring this information and prepare a verbal statement to make at court in relation to the case to win a judgment. In some cases, the borrower will attempt to settle the debt before going to the hearing.

Collecting

If you win, the court judgment gives you the legal right to collect funds from the borrower. The court usually allows the other party to appeal within about 30 days; you must wait before starting collection procedures. In some cases the borrower will send a check to cover the judgment, but if you do not receive the money you must contact the courts to proceed with collections activities against the individual. That includes submitting information about the debt to the borrower's credit report, placing a lien on the borrower's property and in some cases garnishing his wages or bank accounts until the debt is repaid.

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How to Get Seasoned Tradelines Added to Your Credit Profile

To qualify for credit, it's not enough to pay your bills on time. You have to have a track record of paying recurring bills--usually 24 months. A recurring bill is called a tradeline. The length of time you have regularly paid a tradeline is called "seasoning" or "credit depth." Not everyone you do repeat business with reports your payment history to credit reporting bureaus. You can request that the tradelines that don't show up be listed on your credit profile.

Instructions

1

Obtain a copy of your credit report. Get a "tri-merge" report that shows credit information from each of the three main credit reporting bureaus: Equifax, Experian and TransUnion. You are entitled to one free credit report each year. You can obtain your free report online from the website Annual Credit Report (see Resources).

2

Make a list of every "tradeline" you have. A tradeline is any business relationship you have in which you make regular payments. They are not limited to revolving and installment credit. Tradelines include utilities, cellular phone bills, private loans, rent and even regular savings deposits.

3

Review your credit report. Compare the tradelines listed on your credit report to your list of personal tradelines.

4

Note each tradeline that is not listed on your credit report.

5

Write a letter to each tradeline you have paid on time and that does not show up on your credit report. Ask the vendor to report your payment history to the three major credit reporting bureaus. Include your personal information, your account number with the vendor (if you have one) and the address of each of the bureaus. Not all vendors will agree to your request. But most of us have one or more nonreporting vendors that will agree to add our positive payment history to our credit profile.

6

Pull your credit again in 4 to 6 weeks. See which tradelines have shown up. Follow up with the vendors who agreed to add your information, but did not appear to have done so.

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How Do Credit Cards Affect Your Credit Rating?

How well you manage credit card debt can impact your credit report. Some actions will lower your credit score, while other strategies can give your score a boost. Credit cards can be a valuable financial tool as long as you have the discipline to keep your spending under control. Whether or not having a credit card in your pocket is a good thing is entirely up to you.

Credit Utilization Ratio

Your credit utilization ratio -- or how much money you owe -- accounts for 30 percent of your Fair Isaac Co., or FICO, score. Consequently, how much credit you use can significantly impact your credit score. If you want to keep your credit score up, you need to keep your credit card balances as low as possible. Credit score models look at the amount of credit you have available on each card. A credit utilization ratio compares the amount of credit you have available to how much of that credit you use. You can actually lose points off your credit score by carrying a high credit card balance, since scoring models look at how much you charge versus your available credit.

Length of Credit History

Another key factor that scoring models consider is for how long you have used credit. Keeping long-standing accounts open establishes your credit history even if you don't use them often. Once you pay off an account and don't use it again, it probably won't appear on your credit report after 10 years. Some credit card issuers remove inactive accounts sooner so you lose the credit history once the account is removed from your credit report. Unless you keep other credit card accounts that you've had for a long time, removing an established account could have an effect on your credit score. Closing an aged account won't erase a bad credit history, but the move could lower your credit score, especially if you close an account with a good credit history. If you want to close an account, start by closing a newer account.

Credit Card Usage

Improve your credit score by using your credit cards. Charge to an account at least once every six months to keep a card active. Closing a credit card account won't help your score, but keeping it open might, as creditors look at length of credit history. Pay your credit card bills on time and keep balances low. Late payments and high balances hurt your credit score. Avoid opening new credit accounts you don't need, as lenders may consider you a higher risk if you have too many lines of credit available.

Credit Counseling

Credit counseling to get your credit card debt under control may hurt your credit score. Although the FICO scoring formula no longer puts weight on any reference to credit counseling that appears in your credit file, your credit score can still take a hit. If a credit counseling agency succeeds at negotiating a lower payoff settlement with a credit card issuer, that creditor may report you to the credit bureaus as paying late nonetheless. You are paying the debt, but not the amount you originally owed the credit card company.

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Maximum Credit Requests Without Damaging Credit Score

Credit requests are a fact of life, whether you are seeking a new credit card, a home mortgage, or a loan for a major purchase like a new or used car. These inquiries are part of the financial data that make up your Equifax, Experian and TransUnion credit reports. Like most of the other data in your credit bureau files, they affect your credit score.

Definition

Credit requests that result from a credit application are known as "hard inquiries," according to the MyFICO credit-scoring website. Such inquiries become part of the applicant's credit record, and remain visible to other lenders for up to two years from the application date.

Effects

A single credit request lowers your overall credit score by up to five points. You will lose more points if you have very few accounts, or do not have a very long credit history. The damage is minimal if your score is high, but a five-point loss can do serious damage if your score is already on the borderline between average and low. MyFICO warns that six or more requests look very bad, because credit applicants with at least six hard inquiries are eight times more likely to file bankruptcy than their counterparts with no inquiries. Creditors may shy away from approving these applicants because of the elevated risk.

Rate Shopping

Not all hard inquiries have the same effect on your credit score. Credit-scoring formulas recognize certain clusters of activity as "rate shopping" for big loans like mortgages or cars. Thus, they lump together all inquiries for a certain type of loan within a specific period, and score them as a single application. The time is either 14 or 45 days, depending on the applicable scoring formula.

Soft Inquiries

"Soft inquiries" also appear on your credit reports. These are usually promotional inquiries. For instance, credit card companies and insurers purchase data from the credit bureaus, and send you preapproved offers if you meet certain financial criteria. You also make a soft inquiry if you order copies of your own credit reports for personal review. Soft inquiries have no effect on your credit score.

Monitoring

You can monitor hard and soft inquiries by reviewing the free annual credit reports to which federal law entitles you. The Federal Trade Commission explains that you must order the free reports through AnnualCreditReport.com (see Resources). You can request one report per year from each credit bureau. Each report will list your hard and soft inquiries for the previous one to two years.

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Does a Credit Score Affect Insurance Rates?

When you are shopping around for insurance of any kind, a number of factors can have an effect on what you are quoted for premiums. Your driving record, your age and the value of the property that you want to insure can all have an impact. One area that many people do not know can impact your insurance premiums is your credit score.

Credit Score Impact on Premiums

When insurance companies calculate your insurance premiums, they use many variables. Your credit score has a direct impact on what the insurance company quotes you for your rates. If you have a low credit score, you will have to pay higher insurance premiums. If you have a high credit score, your insurance premiums will be lower and more affordable. Insurance companies believe there is a direct correlation between how many claims are filed and your credit score.

Credit scores and Claims

According to Bankrate, those with lower credit scores file 40 percent more claims than those who have higher scores. Since they file more claims, insurance companies charge more money for premiums to make up for this cost increase.

Credit Insurance Score

Although your credit history does play a role in your insurance premiums, insurance companies do not necessarily use the same credit score that you see when you get your credit report. The credit score that insurance companies use is referred to as your insurance credit score, and the insurance companies calculate it on their own with their own formula.

How Insurance Score is Calculated

Your insurance credit score takes several factors into consideration. The biggest factor in your insurance score is your payment history, which makes up 40 percent of the total score. The second-biggest portion of your insurance score is the amount of debt that you currently have, which makes up 30 percent. The length of your credit history is also taken into consideration, making up 15 percent of your score. The insurance companies also look at the pursuit of new credit and the types of credit that you have.

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Vantage Score Vs. FICO

The credit scoring companies FICO and VantageScore are used by lenders to determine if a borrower is creditworthy. Each company utilizes their own formulas for determining a consumers credit score.

HIstory

Fair Isaac Corporation (FICO) was established in 1989 with Equifax to create a scoring system to determine a borrowers likelihood of repaying debts. VantageScore is newer to the market and was introduced in 2006 to compete with FICO.

Purpose

Each company analyzes a borrowers credit history, amount of credit, type of credit and payment history to determine a score.

Score

FICO scores range from 300 to 850 points, while a VantageScore has a range of 501 to 990. Borrowers will want to achieve the highest possible number to receive the lowest interest rate.

VantageScore Calculations

Payment history is 32% of a VantageScore. The debt to credit ratio is 23% of the score, while 15% is the amount of credit being used and delinquent accounts. Thirteen percent of a score is an individuals length of credit history. Recently opened lines of credit make up 10% and lastly the amount of credit an individual can access is 7% of the score.

FICO Calculations

A borrowers payment history makes up 35% of the FICO score. Thirty percent is the amount owed while 15% is the length of credit history. New Credit and types of credit each make up 10% of the score.

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How to Fix Credit After Rental Foreclosure

Repairing credit after losing your rental property to foreclosure can be a daunting process, but it's both feasible and legal if you're willing to spend some additional money or wait for seven years for the foreclosure to drop off your credit report. Lenders are obligated to report accurate information to the credit bureaus under the Fair Credit Reporting Act (FCRA), but they aren't required to actually report any accounts. This means that any entries on your credit report, such as foreclosure, are open to negotiation.

Instructions

The Waiting Game

1

Consider waiting seven years for the foreclosure to drop off your credit report. This is the least directly expensive method of repairing your credit after you experience a rental foreclosure, but it will affect your ability to secure employment or borrow money during that time. If you wait, most other negative entries from your credit report, such as liabilities to tenants due to the disruption caused by the foreclosure of your property, will also be removed from your credit report.

2

Review your credit report after the account has been inactive for approximately seven years. Order copies of your credit report from all three major credit bureaus (Transunion, Equifax and Experian). The entry on your report should be automatically deleted by these credit agencies.

3

Dispute the foreclosure entry on your credit report if the bureaus have not deleted it after seven years. If you ordered your credit report online, you can send your initial dispute using the web form included directly on the credit report. Inform the bureau that the debt has expired and that the FCRA requires them to delete the entry. The bureaus are obligated to respond to your dispute within 30 days.

Rapid Credit Repair After Rental Foreclosure

4

Educate yourself about the financial position of your lender regarding your foreclosure to strengthen your negotiating position. Review the facts of the situation: once your home has already entered foreclosure, the lender will have written off the loss and likely sold the property. The lender has little direct vested interest in maintaining a negative entry on your credit report. This makes it in their interest to delete the entry on your report in return for a payment.

5

Send a letter to the original lien holder requesting a "pay for delete" of the foreclosure entry in return for a lump sum payment. Depending on the size of the original mortgage, you may be able to secure an agreement to delete the entry for a payment of anywhere between $500 to $10,000 or more. It may seem like a large payment, but if you're attempting to get another mortgage, you may be able to save that amount of money by deleting the foreclosure in a matter of months.

6

Alter your payment offer to delete the foreclosure if the original lienholder isn't interested. As far as the lender is concerned, you're offering them a payment in return for an official alteration of your negative entries on your credit reports. The lender doesn't gain anything directly by maintaining that entry, but they will make some money if they accept your settlement. Don't send payment until you receive an agreement to delete the entry in writing.

7

Send payment to the original lien holder once you receive a written agreement in the mail to delete the foreclosure entry. Ensure that the agreement states that the deletion will occur between 10 and 30 days after receipt of payment. Check your credit report about 30 days after the deletion deadline to ensure that the lender held up their end of the bargain.

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How to Clear Old Adverse Credit Information Of More Than 7 Years

The information contained within your credit report is critical to your financial integrity. If you've had delinquencies in the past, you can look forward to the day when they will be removed from your credit history, leaving you with a clean report showing only accounts in good standing. After seven years, negative credit items (aside from bankruptcy or defaulted student loans) should disappear. If they still show up on your report, you can take a few steps to have them removed.

Instructions

1

Retrieve your credit report from all three credit bureaus (Equifax, Experian and TransUnion). Obtaining all three is critical, as they may not all contain the same information.

2

File a dispute online. Visit the credit bureau's website and fill out the online dispute application, providing information about yourself and the errors on your report. Include items like the creditor's name, your account number and the balance displayed on your report. For each disputed item, explain that it is more than seven years old and request that it be permanently removed from your report. You must file separate dispute reports with each credit bureau.

3

Send a letter of dispute to each of the credit bureaus. Include your full name, address, contact phone numbers and email address. For each of the disputed items, include the creditor's name, reported balance and account number, and note that the items are more than seven years old and you want them removed from your credit report. If you have any supporting documentation such as old credit card statements, letters from collection agencies or creditors, or a dated bank statement, send copies so that the investigator who receives your request can complete the dispute process more efficiently.

4

Wait 30 to 45 days for your dispute to be completed. Upon completion and approval, the credit reporting agency will send you an updated credit report in the mail. This updated version will reflect the changes that were made to your report. Typically, mailed-in dispute letters will be processed and completed within 30 days of their receipt, while disputes filed on the Internet can take up to 45 days to be processed and completed.

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Solutions for College Students With Credit Card Debt

College students tend to work part time and have little extra cash. As a result, some students use credit cards for purchases such as food, gas, shopping and dining out. Credit cards are okay if used responsibly. Regrettably, a number of college students use credit cards excessively and acquire huge balances. Paying off cards and managing debt helps improve credit scores, which opens the door to future financing opportunities.

Check Around for Better Rates

Creditors often charge students higher interest rates because of their short credit history. But after years of paying on an account and making timely payments, students can negotiate a better interest rate or transfer their existing balance to a credit card with a cheaper rate. The lower the interest on a credit card, the easier it is to pay off the balance because creditors will apply the majority of a payment toward the principal owed.

Increase Work Hours

Part time is working less than 40 hours a week. Because college students take classes and need time to study, some may choose to only work 10 or 15 hours of week. But if dealing with huge credit card debt, working these few number may not reduce the balance quickly. Increasing the number of hours worked, and using the additional income to make higher monthly payments, helps pay down debt faster.

Shop Less

Buying unnecessary and expensive clothes can keep college students deep in debt. Learning how to live on a budget and using cash as a primary payment method helps keep credit card debt to a minimum. Responsible habits are key to managing credit and debt, which includes only buying affordable items. Paying off credit card balances each month alleviates the headache and burden of dealing with high balances.

Shred Credit Cards

Credit card accounts help build a good credit history, but if unable to control spending, shredding the credit card or cutting up the credit card helps reign in use. It's counterproductive to make higher payments each month to pay down balances, and then pull out the credit card to charge additional purchases.

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FAQ on Credit Agencies

A few companies control almost all of the consumer credit rating industry, which covers about 75 percent of all Americans. The credit rating agencies cannot approve anyone for credit and the agencies themselves are dependent on lenders for data about consumers. They also often have wrong data on their reports.

Who are the "Big Three"

Experian, Equifax and TransUnion are the major players in the credit rating industry as of 2011. The three bureaus collect data on consumers and produce credit reports. These reports are the basis for a credit score, which helps lenders to determine the risk of lending to a particular borrower. The traditional credit score is based on a model developed by the Fair Isaac Corporation in the 1970s and 1980s called the FICO formula. The Fair Isaac Corporation licenses its formula to the agencies but does not rate consumers itself. While the three credit agencies continue to use this score, they have also developed their own scoring system, called the VantageScore. VantageScore and FICO use similar information but produce a different range of scores. Some alternatives to the "Big Three" exist, using self-reported data and data not used by the major bureaus, such as utilities and banking history. Alternative scores, however, are not as widely used as the FICO.

What do the Agencies Do?

The credit agencies are essentially a central database of financial data for anyone with a credit history. When a lender reviews an application for credit, it can query all three agencies or just one or two for information on a customer. Lenders make all credit decisions and their standards can vary widely, so it may pay to shop around.

Where Do Agencies Get Their Information?

Most of the information stored in credit agency databases comes from lenders, such as the size of a loan and payment history. Some information, such as demographic information like job and address, comes from what the applicant puts on a loan application. The agencies also scour public databases for public judgments such as tax liens, bankruptcy and foreclosure. The FICO model assigns a weight to each item based on factors like how long a person has had credit and any negative items on the report.

What if an Agency has False Information?

Eighty percent of consumer credit reports have at least one error, according to Bank Rate. If you find something wrong with your report, the credit agency that receives your complaint must investigate the claim within 30 days. All three agencies have online dispute resolution forms.

Do The Agencies Have to Let Me See My Score?

The credit rating agencies have to provide one free credit report each year to every consumer, but this does not include the FICO score. Also, the only way to get a free report is going through the AnnualCreditReport.com website. Other websites are either bogus or try to charge an extra fee.

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What Is the Most Accurate Credit Scoring Tool?

If you want to know your credit score, you may be surprised to learn that different companies will provide you with different scores, depending on the credit scoring tool used to calculate the score. All credit bureau-related scoring tools, however, are accurate for their intended purpose.

Types

The two main types of credit scoring tools are the formula the credit bureaus use to calculate FICO scores and the one they use to calculate consumer credit scores. Specialty credit scoring tools also exist, such as the tool credit bureaus use to provide Auto Industry Option scores or to calculate a bankruptcy risk score.

Facts

The accuracy of a credit scoring tool depends on the purpose for which the credit score is used. An Auto Industry Option score works well for a car dealer who plans to finance a vehicle purchase, but is all but useless to a mortgage lender.

Function

Consumer credit scores are provided to individuals to help them understand their creditworthiness. FICO scores and bankruptcy risk scores are used by mortgage lenders and credit card companies to see how likely a consumer is to make regular payments or file for bankruptcy. The Auto Industry Option scoring tool provides a credit score to car dealers based on a consumer's history with vehicle loans.

Considerations

FICO scores and consumer credit scores may differ depending on the bureau reporting the score, but this has no bearing on the accuracy of the scoring tool. Discrepancies in credit scores are the result of information contained within each bureau's credit records.

Warning

Third-party credit reports purchased from any company other than the credit bureaus or myFico.com contain estimated and often inaccurate credit scores because the scoring formula used by the credit bureaus is kept secret.

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How Does Closing a Credit Card Account Affect Credit History?

Overview

Credit Card Types

Closing a credit card account does have an effect on your credit history, but this depends in large part on the type of credit card account. Sometimes closing the account can have a negative effect, sometimes a positive one--many different factors are at play.

First, major credit cards are better for your credit score than smaller, department store credit cards. Having a major credit card for some length of time with a fairly high credit limit is usually seen as a positive sign. The trouble comes when you decide to close that account. A general rule of thumb is that if it is your oldest credit card account, you should keep it. Closing out your oldest account makes your credit history look more dubious on paper. A shorter credit history is more risky than a longer one (in many cases), and lenders will frown at a shorter history.

It should be noted that closing the account does not remove its appearance on your credit report--the history will remain, though it will only last for a few years after that account has been fully paid off.

Closing Paid and Unpaid Accounts

Of course, closing an account without fully paying it off is even worse. Then you have money still owed on the card without a card--which looks like bad debt, and will negatively affect both your history and your score. You should always make sure that the account is fully paid off before you close it.

Many people wonder if closing a credit card account will help their credit history or make it look better. Usually, the answer is no. If you have many different credit accounts, a lender may feel uneasy about loaning you money, and in that case closing a few can positively affect your credit. But most people do not struggle with too many open accounts, and in this case closing an account does not have a positive effect on credit reports.

It also does not affect your credit score to have the account closed by the lender. Whether you or the lender close the account, the score effect is the same. The credit report, however, will note which party closed it, and some lenders do pick up on that with closer examination.

Utilization

Another reason lenders give for keeping credit card accounts open is the figure known as your utilization percentage. This is a ratio of how much "credit" you are using in relation to how much you have--it compares the balances and limits you have on your cards in total. This becomes a problem if you owe money on one or more credit cards and are closing out an account that is fully paid off. In effect, this drops your overall credit limit and raises your utilization figure, making it look like you are using a much greater percentage of your possible debt--another sign that raises red flags for some lenders.

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Key Credit Score Information

Most lenders use the Fair Isaac and Company or FICO score to determine your overall creditworthiness. Your score is expressed numerically from 300 to 850--with 850 being the best--and takes several factors into consideration. Generally speaking, the higher your score, the less likely it is--from a statistical perspective--you will default on your loans. If you are concerned with building up your credit score to have the best possible chance of obtaining favorable financing, consider the five critical factors FICO uses to calculate your score.

Payment History--35 Percent

When it comes to your creditworthiness, lenders are most concerned with your ability to service your outstanding balances in a timely and effective fashion. Late payments and other delinquencies carry significant weight when calculating your credit score. If you want to improve your credit score, make your payments on time and avoid falling behind, repossessions or writing off balances--these are major red flags to creditors and have significant downside effects on your credit score. If you have a history of late payments, making an immediate change in your behavior will help tremendously. FICO gives more weight to your payment history over the past 12 months than it does from times prior to that.

Debt Utilization--30 Percent

Creditors get nervous when you have fully tapped out your borrowing capacity and available credit lines. This means you have borrowed to the maximum allowed and statistically, your chances of default are higher if you encounter a drastic change in your income. It is important to use your available credit to establish a credit history, but if you are maxing out your lines, it will reflect poorly on your credit score. Paying down balances and accepting higher credit limits when awarded will help improve this component of your credit score.

Credit History Length--15 Percent

The longer you have had credit, the better it reflects on your credit report and score. If you rarely or never use the first credit card you received several years ago, consider making a small purchase on the card just to keep the account active. If your oldest credit account is closed, your credit history length will be reduced to reflect your second oldest, active account. Lenders like borrowers with longer credit history as it provides greater insight into the consumer's behavior versus someone that just opened 10 new accounts in the past week.

New Credit Inquiries--10 Percent

Each time you apply for new credit or request a credit line increase, an inquiry is made to your credit account. Similar inquiries may also be made when renting an apartment, applying for a job or opening a new bank account. If you like to apply for each credit card you receive an application for, you may rack up an unnecessary amount of inquiries that can have a slight drag on your credit score.

Other Items--10 Percent

Creditors like to see a broad mix of credit accounts, including credit cards, mortgages and other installment loans such as automobile loans. If you only have a home mortgage, applying and getting approved for an unsecured credit card can ultimately improve your score. However, applying for different types of credit just to maximize this component of your score is not advised.

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Should I Pay Collection Accounts to Improve My Credit Rating?

Yes, It Improves Your Credit Score

Paying off accounts that have gone into collection does improve your credit score as of 2008, according to Bills.com. Previously, paying off collections hurt your scores because a payment would make the debt look like it recently become delinquent.

It Could Hurt Your Score

According to Liz Weston of MSN Money Central, some unscrupulous collection agencies can hurt your credit score by making charged-off debt look newer than it really is, even though changes to the FICO score formula mostly curtailed this phenomenon. Negotiating debt for less than the original amount owed can also cause a recent negative entry that lowers your score.

Bottom Line

Paying your past due debts usually benefits your score, except in certain situations and the manner in which the lender handles reporting to the credit reporting agencies, according to Bills.com. Regardless of your score, paying off past-due accounts looks good in the eyes of lenders because it shows a commitment to paying off debt.

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Do Federal Tax Liens Affect Credit Scores?

A federal tax lien may not be the most damaging item you can have on a credit report, but it can last far longer than any other item in a credit history. Unlike most other items on a credit report, you can remove a tax lien just by paying it. You can even remove the tax lien before paying the entire bill.

Identification

A federal tax lien is one of the deadliest items that can appear on your credit report. While the impact of a tax lien depends on the other factors in your credit report, such as the presence of negative accounts and debt loan, a lien usually takes off over 100 points on a credit score. For consumers with a score of 780 or above, the lien can damage their rating by 150 points or more, according to Jeanine Skowronski of Mainstreet.

Time Frame

A paid tax lien stays on a credit report for seven years, but the Fair Credit Reporting Act allows the national credit bureaus to report an unpaid tax lien indefinitely. As of 2011, TransUnion and Equifax report unpaid tax liens indefinitely, but Experian only lists them for 15 years. Some states place tougher restrictions on the reporting of tax liens. For example, California limits the federal credit reporting time period to 10 years for unpaid liens.

With Tax Lien

As of February 2011, the Internal Revenue Service (IRS) withdraws tax liens when the taxpayer pays a lien in full. However, the IRS does not automatically withdraw a paid tax lien. You must file Form 12277 Application for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien. You must attach a copy of your federal tax lien and documentation that proves you paid your lien, such as a receipt from the IRS.

Tip

You can request the IRS withdraw the tax lien as soon as you make an installment agreement with the IRS in lieu of paying the bill in full. However, the installment agreement must eventually repay the debt in full. Also, the IRS only agrees to an installment plan if you only owe tax for one year. You may not receive an installment plan if you owe more than $25,000 in taxes. For tax debt less than $25,000, you can request an installment plan at the IRS website.

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The Anatomy of a Credit Score

Whenever you try to borrow money or open a credit account, your lender uses a number called a credit score to help determine how risky you are as a borrower. If you have a low credit score, the lender may refuse your loan request or charge you a higher interest rate than if you had a better credit score. Credit scores are calculated based on credit information that falls into several categories.

Payment History

Your track record of making payments on your debts is the most important factor in determining your credit score. According to the Fair Isaac Corporation (FICO), your payment history makes up about 35 percent of your credit score. If you miss debt payments or have late payments on your credit history, your credit score will tend to be lower than if you never miss a payment.

Debt Level

The amount of debt you carry is the second most important component of a credit score. Quicken Loans says your total debt makes up about 30 percent of your credit score. When you carry high levels of debt, you are more likely to miss payments. High balances on credit cards may be especially detrimental to credit scores, because credit utilization -- the amount of debt you carry relative to your credit limit -- plays a role in determining a credit score. Using a low percentage of your available credit to produce a low credit utilization ratio helps boost your credit score.

Length of Credit History

The length of your credit history is another factor that influences credit scores. Younger borrowers who do not have a proven track record of handling debts are considered riskier than older borrowers with many years of credit history. FICO states that the length of your credit history is responsible for about 15 percent of your credit score.

Access to New Credit

Gaining access to or requesting new credit can impact your credit score. When you get new credit, lenders cannot be sure that you will use it responsibly, so opening new credit accounts tends to lower your credit score. If you use accounts responsibly by keeping low balances and making payments on time, the negative effect of new credit tends to diminish over time. New credit makes up about 10 percent of your credit score.

Credit Mix

The types of credit accounts and debts you have make up the final 10 percent of your credit score. According to the Consumer Federation of America and FICO, carrying a diverse mix of credit and debt, such as credit cards, a mortgage, retail accounts and installment loans, may improve our credit score.

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