The Definition of a Credit File

Credit files are important tools that represent your borrowing history. It is essential to understand what is in a credit file and how to protect your credit score. Several different types of data are kept in your credit file, including the amount of credit available to you, the amount of credit you have used and your payment history.

Types of Credit

There are two separate and distinct types of credit, or loans, that are given to consumers. Secured loans are loans that have collateral; you borrow money to buy something that the lender could take back if you do not pay. Mortgages and car loans are secured loans, and if you fail to pay your mortgage or car note the bank can foreclose on your home or repossess your car. Unsecured loans are loans where the bank lends you money to do whatever you would like. There are no assets that the bank can take back with unsecured loans. Credit cards are unsecured loans, and the interest rates are generally higher.

What is a Credit File

Every time you borrow money for anything, that borrower reports the amount you borrowed and the type of loan to one or several credit reporting agencies. There are several different credit bureaus in the United States that lenders can report to; Equifax, Transunion and Experian are the three major credit bureaus. Most lenders report to all three credit bureaus.
These credit bureaus create a on every person who applies for credit, filed under your Social Security number; this file is called a credit report. Everyone who has ever borrowed money has a credit report. Some people who have never even borrowed money have a credit report, because occasionally bank accounts report to credit bureaus as well.

Information in a Credit File

Credit files contain several important pieces of information. First, they contain a list of all of the names you have ever applied for credit under, and several of your most recent addresses. This general information appears on every credit file.
Credit files also contain a record of money that you borrowed. The file shows how much unsecured credit you have available, and how much of it you have used. For example, if you have a credit card with a $10,000 limit, your credit report will state the name of the credit card and the fact that you have $10,000 in available credit. The credit report will also show how much of this credit you actually have used. So, if you borrowed $8,000, the credit file will report that your balance is $8,000 out of the available $10,000.
For secured loans, the credit bureau will show the amount you borrowed in total. So, if you borrowed $100,000 for a mortgage, the credit bureau will state that you borrowed $100,000. If you have paid off $10,000, the credit bureau will reflect that, and show your current balance at $90,000 out of a possible $100,000.

The credit file also shows a record of payments, and highlights payments that were 30 days late, 60 days late, or more than 60 days late.

The credit file shows whether there have been any judgments against you- for example if you lost a lawsuit- and whether you have ever declared bankruptcy.

Finally, the credit file shows everyone that has pulled your credit report ("inquired") about your credit worthiness for the past 2 years.

Credit Score

Perhaps the most important component of your credit file is your credit score. A credit score is determined by a complex formula that is not disclosed to the public. It is based on several factors. A credit score takes into account length of credit history; the longer you have been using credit, the better your credit score. A credit score also evaluates your debt-to-credit ratio. It is best to use less of your available credit, because a credit score declines if you borrow up to the limits of the amount of unsecured credit available to you. A credit score also considers your payment history; late payments will result in a lower score. Bankruptcies and liens or judgments also lower a credit score. Finally, too many inquiries can lower a credit score.
Negative information, such as a bankruptcy, can stay in a credit file for seven years, and will continue to lower your score for the duration of the time it is on your credit report.

Importance

Credit scores, and credit files, determine whether you will be able to borrow money and what the terms of the loans will be. An excellent credit score will allow you to qualify for more credit or for lower interest rates. This can save you thousands of dollars over the lifetime of car loans and mortgage loans.

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How to Take a Judgment Off My Credit Score

There are three major credit bureaus that monitor your credit: Experian, Equifax and TransUnion. Each bureau maintains its own reports, which are scaled slightly differently from one another, but each bureau should have the same credit information on you. If a lender reports you as defaulting on a loan, that report goes on your credit report. To remove a negative report, you'll need to prove it's a mistake and dispute it.

Instructions

Disputing a Claim

1

Check your credit report from all three bureaus. A negative claim on one bureau's report may not be on the others, but you need to check all three of them to be sure. Get a free copy of each report once a year from the Annual Credit Report website.

2

Gather evidence that proves the credit report isn't correct. Find receipts, print off bank statements showing payments and collect any letters or emails you received from the lender. Make copies of everything; you'll need one copy for each credit bureau report the negative claim is on. Don't send original documents.

3

Write a dispute letter. Explain in detail why the negative claim should be removed from your credit report. Print the letter and sign it; you'll need one copy for each credit bureau that has the claim on its report. You can find a sample dispute letter on the Federal Trade Commission website (see "Resources").

4

Mail your letters and proof to each credit bureau. Send everything "return receipt requested" to ensure the documents are received. The credit bureaus will investigate and get back to you within 30 days. If the investigation comes back and you're told the claim will not be removed, you can still request that your dispute be kept on file so others can see you disputed the claim.

Filing a Motion to Vacate

5

Gather your evidence and prepare your explanation for wanting the judgment removed so you can file a "Motion to Vacate." A judgment is a decision that was upheld in court, and the only way to get rid of it is to go back to court. In your motion, you'll need to have the name, date and case number of the judgment.

6

File your court papers, get a court date and notify the lender you're taking them back to court. Usually, the courts will send a sheriff out to serve the plaintiff.

7

Hire a lawyer to assist you. Attorneys can be expensive, but they know the ins and the outs of the system, which is important if you're trying to overturn a judgment.

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How to Increase Your Credit Score on a Monthly Basis

Credit scores serve as a trust meter for lenders. A low credit score tells lenders that you have credit problems or had problems in the past. Low scores lead to high interest rates and can prevent you from qualifying for a loan or credit card altogether. While your score won't jump 100 points in one month, you can take a poor score to an excellent score by paying your bills, using your credit card and making sure your credit report doesn't contain errors.

Instructions

1

Use and pay off your credit card. Using a credit card is one of the most efficient ways to continuously increase your credit score. Stick to charging 30 percent of your card's credit limit or less; otherwise you may negatively impact your score. Pay off the charged amount each month. If you don't have a credit card, apply for one.

2

Make timely payments. Aside from charging and paying off a credit card each month, keeping your loan and credit accounts in good standing is the simplest way to raise your credit score. To lessen the effort on your part, you can typically link your payments to your bank account so the money automatically comes out on the payment due date.

3

Pay off past due loans. Past due loans wreak havoc on your credit score. Creditors typically report nonpayments as 30 days, 60 days and 90 days past due. The longer you go without bringing the loan to good standing, the more your credit score will drop.

4

Fix erroneous reports on your credit report. Errors occasionally appear on credit reports, which can prevent scores from increasing and cause scores to drop. Contact both the credit reporting agency and the creditor. To see your credit report, visit the Annual Credit Report website. Under federal law, you can view your credit report from TransUnion, Experian and Equifax once per year.

5

Ask lenders if they report to all three major credit reporting agencies before applying for a loan. Most lenders do report to all three agencies, but some do not. Don't waste your time with lenders that don't report, because the payments you make on your loan will have no effect on your credit score.

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Do Pre-Approvals Hurt Your Credit?

When a borrower looks to get a mortgage loan, the bank requires a pre-approval in order to process the mortgage application. During the process, the lender checks the borrower's credit score and report to determine if he can afford to take on the new debt. Each time a borrower's credit is checked, it causes a small dip in his credit score. Having multiple lenders check your credit score within a short time can cause a significant dip in it.

Compare Options Without Hurting Credit

To compare options without hurting your credit score, print off your own credit report from AnnualCreditReport.com. Provide two to three lenders with the credit report and ask them to use that in lieu of pulling your credit for quotation purposes. Ask for a Good Faith Estimate and Truth in Lending Statement from each lender. Compare the two quotes based on these documents. The lowest overall mortgage is the one with the lowest APR (annual percentage rate) listed on the Truth in Lending Statement. The APR is the numerical representation of the overall cost of the loan, including both the monthly interest rate and the closing costs.

Pre-Approval

In order to get officially pre-approved, the lender will have to pull your official credit report. However, since you used your credit report while rate shopping, when the lender pulls your credit report, the resulting effect will be minimal. Provide them with your documentation including two months of pay stubs and bank statements and two years of tax returns. Additional documentation, including retirement accounts and divorce decrees may be required.

Protect and Raise Your Credit Score

Before the lender pulls your credit report, be sure to do all you can to raise it. Keep your credit card balances to less than 30 percent of their limits to keep your credit score high, and pay off all judgments, liens, and collections. Remove all errors on your credit report prior to applying for new credit. Errors can be as simple as loan amounts that are too high or too low to closed loans that are still listed as open. Sometimes if you have a similar name as a relative, the credit bureau may accidentally list one of your relative's debts as yours. Have the lender remove these errors as soon as possible. Additionally, make sure that all loan payments are current and not late.

Getting to the Closing Table

Remember, a lender can check your credit again in the days leading up to the closing table, especially if pre-approval happened several weeks prior to closing. Do not apply for additional loans with other companies or purchase new furniture for your house. Keep spending to a minimum prior to closing to ensure the process goes to completion. Once the closing is over, you may begin making purchases for your new home.

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How to Add Fraud Alert to Equifax

If you suspect you may have been a victim of identity theft, you may want to add a fraud alert to your Equifax credit report. Equifax, one of the three major credit bureaus, allows consumers to place fraud alerts on their credit reports for free. A fraud alert will send up a "red flag" to a potential creditor or lender, and cause them to pursue additional verification (to make sure it's you--not someone else--who's requesting credit in your name). There are two types of fraud alerts; a temporary alert (90 days) and an extended alert (seven years).

Instructions

Temporary Fraud Alert

1

Determine how you want to file your fraud alert. You can add a fraud alert to your Equifax credit report online or by telephone.

2

Visit the Equifax Alerts page (https://www.alerts.equifax.com) and complete the application. Click "Submit" to file your fraud alert online.

3

Call Equifax by telephone to file your fraud alert. Equifax's automated fraud alert number is 1-800-525-6285. Follow the voice prompts to file your fraud alert.

Extended Fraud Alert

4

Make photocopies of the documents required to prove your identity and address. To prove your identity, you can use your social security card, paycheck stub with your social security number or your most recent W2.

To prove your address, choose from your driver's license, residence rental agreement (or house deed) or paycheck stub showing your address.

5

Download and print the Equifax Extended Fraud Alert form. Visit the Resource section to download the PDF file. Adobe Acrobat Reader is required to view and print the document.

6

Fill out the form completely. Mail the form, along with the required documents, to:

Equifax Information Services, LLC
PO Box 105069
Atlanta, GA 30348-5069

You can also fax the documents and form. Fax them to: (888) 826-0597

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Who Invented the FICO Score?

FICO stands for Fair Isaac Corporation, which came up with one of several formulas used to calculate a credit score. The FICO score is the most popular and well-know credit score. The term is often used to refer to credit scores in general.

History

The Fair Isaac Corporation introduced the formula for the FICO score in 1970. It took almost 12 years for the founders of the company, mathematician Earl Isaac and engineer Bill Fair, to write the formula.

Features

The actual FICO formula is a closely guarded secret. It includes the individual's borrowing history, punctuality of payment, length of credit history and types of credit used.

Significance

The FICO formula revolutionized the lending industry. The FICO score is a simple three-digit number that elegantly summarizes pages of complex credit history. The numbers tells lenders about the creditworthiness of potential borrowers.

Size

The FICO score ranges from 350 to 850. The higher the score, the more creditworthy the individual. A score of 720 or higher is considered to be good.

Fun Fact

In 2009, Fair Isaac officially changed the company name to FICO (Fair Isaac Corporation).

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How to Request a Credit Reference

Whether you are a consumer or in the business of lending money or financing items on credit, know how to request a credit reference. A credit reference provides information about your past borrowing history from other lenders and can be a deterrent to receiving a loan, especially if it indicates many nonpayment or late payment issues. Many companies use your credit scores and references as a method to determine whether you will repay a loan and how good a credit risk you will be.

Instructions

Self

1

Know your credit history. List all your credit references and their mailing address.

2

Compose a written request to each company. Include your name, account or credit card number and the mailing address to send the credit reference. Sign and date the letter. Copy and mail it.

3

Contact the company's online website. Type "credit reference procedure" into the search engine of the site. Download any required forms. Follow the procedures outlined on the screen. Copy the request and mail the form to the company.

Company

4

Contact an attorney. Request the preparation of a legal waiver document to give you permission to request the credit reference. Attach the document to all new applications.

5

Present the waiver to all new clients requesting a loan or credit. Ask them to read the waiver. Have them sign and date the waiver, after reading, to allow you access to their credit references.

6

Compose written correspondence for a credit reference. Add the waiver to the correspondence. Include a self-addressed stamped envelope.

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Fast Credit Score Help

If you need to raise your credit score in a hurry, such as when you are ready to apply for a mortgage, you can probably see a significant boost within a month when you have certain problems. However, one of the worst things you can do is go to a credit repair clinic, because it cannot do anything you couldn't for free -- meaning you waste money that could have helped you pay off debt.

Warning

Credit repair companies offer little in the way of fast help other than reciting information widely available on the Internet from reliable sources, such as the Federal Trade Commission and the credit reporting bureaus, according to the legal website Nolo.com. Over the years, credit repair companies have become notorious for suggesting illegal tactics, such as applying for a tax ID number for use as a fake Social Security number. Not only do these tactics rarely work, they can get you in serious trouble.

Open New Credit Cards

In 2010, Congress passed the Credit Card Accountability Act which, in conjunction with a credit crisis in 2008, led lenders to cut credit limits to mitigate risk to their companies. Thus it may make sense to open new credit cards to lower the percentage of your total limit you use -- called credit utilization -- if your utilization ratio is close to 100 percent. Even though opening new accounts lowers your overall account age -- 15 percent of the FICO score -- and new credit accounts have a 10 percent weight, a credit utilization limit that is close to the maximum is usually far more serious, according to Aleksandra Todorova of Smart Money.

Dispute Errors and Use Rapid Re-Score

You should constantly review your credit report for potential errors -- many reports have at least one and some of them could be major, like a collection that belongs to someone else. Once you get the creditor or credit bureau to admit to a mistake, you should use a rapid re-score company to update your report, because the company can change it in a few days, while the bureaus can take months. You can only use a rapid re-score company through a lender and for falsely reported negative items.

Advanced Tactics

Closing accounts is usually a poor tactic, because you lose the credit limit on the card and stop building history, but if you have a balance, the FICO system still reports the limit on the closed account. Thus it may pay to keep a small portion of the balance unpaid to boost credit utilization until you apply for a loan. Also, you sometimes can remove collection accounts when you agree to repay the debt in full. The debt collector or original creditor might agree to remove the account in the credit bureau's file system for a full payment, but always get any agreement in writing. Having a lawyer draft the agreement could prevent the debt collector from including provisions that might get him out of removing the item.

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What Does Debit Memo Mean on a Bank Statement?

If you want to take ownership over your financial situation, start by learning everything you can about your financial accounts. When you receive your bank statements, don't be so quick to toss them away in a file. Open them from time to time to check the various details. When looking through your statement, be sure to scan through your debit memos.

Sections of a Bank Statement

When you get your bank statement, understand the various sections. The bank often provides a summary area at the beginning that provides totals of deposits, withdrawals and payments. Another section shows the daily balance summary, which estimates the average balance you maintained in the account on any given day during the statement period. Finally, the account activity section details all memos (transactions) that occurred during the statement period. It lists dates, descriptions, debits, credits and balances.

Debit Memo

In short, a debit memo on a bank statement is any transaction that reduces the amount due. This amount is sometimes accompanied with a negative symbol to show that it lowered the balance. The opposite of a debit memo is a credit memo, which is any addition to the account balance. On the bank statement, debit memos commonly are listed first next to each transaction, then the credit memo and finally the running balance.

Types of Debit Memos

Once you start scanning your bank statement, you may notice that many different types of transactions show up as debit memos. One of the most common types of debit memos is a withdrawal, such as from an ATM machine or bank teller. Another type of debit is a charge on a debit card, which is linked to the bank account. A check written to another party also shows up as a debit memo on the statement. Automated Clearing House (ACH) transactions, which are basically electronic check withdrawals, are included as debit memos as well.

Budgeting

When you scan the debit memos on your bank statement, you may start to notice trends that could encourage you to change your behaviors during the next statement period. For instance, if you see a number of small debit card transactions that add up to a large expense, it could be more economical to make one large withdrawal instead at the beginning of the month and use your cash to make purchases. Taking out a specific amount of cash helps limit your spending whereas using a debit card gives you unlimited spending ability up to your available balance. You may also notice that some ACH transactions and ATM withdrawals are draining your account due to additional fees. Checking out your debit memos could help you make better budgeting decisions.

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Ways to Re-Establish Your Credit

If you have had credit mishaps in the past, such as debt settlements, accounts in default, foreclosure or bankruptcy, your credit score has likely seen significant damage from these mistakes. In order to get credit in the future, you will need to work on re-establishing your credit history over a period of at least a few years.

Check Credit Report

After a credit mishap, one of the major things that could be holding you back from rebuilding your credit is having accounts reported incorrectly. Get copies of your credit reports from Experian, Equifax and TransUnion and review these reports to ensure that everything is correct. If you find errors, such as an account reported as past due when it was actually included in a bankruptcy, dispute these errors with the credit bureau that provided the report. Although you cannot change accurate negative information, getting rid of the inaccurate negative information will start you off on the right track.

Get Secured Credit Card

In order to re-establish credit, you will need to use credit. The best way to start doing this again is with a secured credit card, which is easier to get approved for than a traditional unsecured credit card. You will need to put down a deposit of the credit card company's minimum amount, usually $200 or $300, to get a secured card with a credit line of that same amount.

Use Credit Lightly

Start building up evidence of responsible credit habits by using your secured credit card lightly and regularly. Use the credit card for some of your everyday needs, such as groceries or gas, rather than getting in the habit of using credit for luxury items. Try to use no more than 30 percent of your credit limit each month. When the bill comes, pay the balance in full to avoid having to pay any interest charges. This process will help the portions of your credit score that consider your payment history and the amounts you owe.

Get an Installment Loan

In order to build an excellent credit score, you will need to have a few different credit accounts, including at least one installment loan. An installment loan is an amount you borrow upfront and make equal monthly payments on for a set amount of time. Mortgages, car loans and student loans are the most common types of installment loans. If you already have an installment loan, focus on making the payment on time each month and paying extra when you can to reduce the balance. If you do not have an installment loan, one option is to get a secured personal loan at a credit union. You deposit money in an account or buy a certificate of deposit, the bank lends you an equal amount of money and you repay it with interest. The interest rate is generally quite low because the bank holds your deposit as collateral.

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How to Raise Your Credit Score When You've Had a Bankruptcy

Fixing your credit score after a bankruptcy is key to moving forward. You can expect a huge drop in your credit score after a bankruptcy. Thus, it's imperative to repair your low score. This helps you acquire lower insurance premiums and better rates on mortgages and auto loans.

Instructions

1

Get your report a few months after the discharge. Request a copy of your report from Annual Credit Report to make sure your debts (the ones you selected) were included in the bankruptcy. If not, these creditors can continue to seek payment from you.

2

Start off on the right foot. If certain debts like your mortgage, student loan and auto loan were intentionally excluded from the bankruptcy, continue or resume these payments to quickly improve your payment history and raise your credit score.

3

Apply for a credit card. Use websites such as Creditcards.com to research credit credit cards for people with bad credit or secured credit cards, which can help fix your low score. Credit cards for bad credit have high interest rates, whereas secured cards require a security deposit that serves as collateral.

4

Establish a good payment record. Manage your money properly by paying your bills and necessary expenses before buying extras. Having available cash helps you pay your bills by their due date. Use online systems to ensure timely arrival.

5

Maintain low debts. Avoid future problems and maintain a higher credit score by paying off credit card balances in full each month. Don't purchase items you can't afford to pay off within 30 days.

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Pros & Cons of Credit Cards

Credit cards come with a lot of advantages and disadvantages. If you don't have all of the facts about a credit card there is a chance that it could cost you money. Always pay down your debt whenever possible.

Promotional Rate

One advantage of having a credit card is the fact that you may be able to receive a zero-percent promotional rate for a period of six months or one year when you do a balance transfer. With a zero- percent rate you pay no finance charges for the entire promotional period.

Default Rate

If you miss a payment on your credit-card account, your interest rate could increase to the default rate of 25 percent or more. This rate can vary from card to card.

Points

Some credit cards allow you to accumulate points, from your purchases towards the purchase of airline miles.

Minimum Payment

When you only pay your minimum balance, it can take a long time to pay off your credit-card balance. The longer your balance is outstanding, the more finance charges you pay.

Credit Limit

If you make your payments on time for a year or more, most credit card companies will increase your credit limit. A higher credit limit allows you to make larger purchases.

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How Can You Increase Your Credit Score Immediately?

If you're being turned down for loans or credit cards, the problem may be that your credit score is too low to qualify. The first thing to do is request a copy of your credit report. You are allowed a free copy from each of the credit reporting agencies annually. Once you know where you stand, you can begin to make positive changes in your score, including some that can be made very quickly.

Check the Credit History Information

Make sure that your report reflects your most recent information. You might see that the credit limits showing for your credit cards don't reflect increases that your credit card companies added to your accounts. Your report also might not show balances that you have paid down recently. Either of these items will make it appear as if you are carrying a higher level of debt than you are, and you can easily correct either problem with a phone call to your credit card issuer.

Decrease Your Debt-to-Credit Ratio

Ideally, if you have a lot of credit and no debt, lenders will be more willing to lend to you because it doesn't seem likely that you will overextend yourself. The two ways to work toward this ideal are to pay off your existing debt and open additional credit lines. With the second way, although you are opening additional credit accounts, you don't need to use them. That would just add to the debt. When those cards come in, simply put them aside or even cut them up. Your goal is to decrease your debt-to-credit ratio, not increase your debt.

Use an Old Card

An account that has been open for years reflects favorably on your credit score. However, if the account is an old one that you don't use because it is paid off, the credit card issuer may decide to close it or stop updating it for your credit score. If this happens, you lose the benefit of having the old card. So consider having a regular monthly bill charged to your old account and pay it off each month. This keeps the account active so you get the benefit of an old card and the amount charged doesn't show on your history because you pay the balance off each month.

Avoid Negative Actions

There are some things you shouldn't do when trying to improve your credit score because doing so can hurt your credit score, if only temporarily. Don't consolidate your accounts or apply for new credit accounts if your debt is less than 30 percent of your total credit. Inquiries by lenders into your credit history will pull your credit score down temporarily and if your debt-to-credit ratio is already low, you really won't get any benefit from opening additional accounts.

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Does Purchasing, and Then Paying Off Debt Increase Credit Score?

A person's credit score is a measure of his creditworthiness, as determined by credit reporting agencies, which compile relevant information about a person's lending history in a credit report. This report contains information about debts that a person has incurred and then paid off. The chief means by which a person can raise his score is to take out credit and then consistently pay it back on time.

Credit Scores

A credit score is designed to give lenders and other businesses an indication of whether an individual provided a loan will pay it back on time. To determine this, credit reporting agencies look at how a person has paid back loans in the past. These agencies believe that a person's past behavior is a good indication of how he will act in the future. People who have paid back loans on time in the past are rewarded with higher scores.

Taking Out Debts

The only way that a person can raise his credit score is to take out a loan and then pay it back on time. This demonstrates to credit reporting agencies that the person, if issued a loan, is capable of repaying it according to the terms specified by the lender. So, making purchases on a credit card -- in effect, drawing money against a line of credit -- and then paying it off will increase the person's credit score.

On-Time Payments

Taking out a loan and paying it off will only raise a person's credit score if the person pays the loan back on time and in full. Anytime a person fails to pay back a loan according to the terms set by the borrower, he will see his score fall. If the debt remains delinquent for a long time and enters into collections, then the person's score will fall precipitously.

Timeline

The exact formulas by which credit reporting agencies score borrowers remains proprietary information. However, the longer a person's credit history and the more consistently he has shown that he is able to pay back his loans on time, the higher his score will be. To enter the top echelon of credit scores will take years of taking out loans and paying them off. Taking out a single large loan and paying it off quickly will only raise a person's score slightly.

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Can Pre-Screening Hurt My Credit Report or Credit Score?

The Fair Credit Reporting Act gives lenders and insurance companies the right to check your credit to see if you qualify for their credit offers. This is referred to as pre-screening, and it's important to know how it affects your credit.

Effects

When an insurance company or lender pre-screens your credit, this is called a soft inquiry, according to Bankrate. It will appear on your credit report but will not hurt your credit score since you did not apply for credit. The company simply looks at your credit to see if you pre-qualify for any of its offers.

Warning

If you receive a pre-screened offer of credit, that's simply a preliminary step. Once you accept the offer, the company will then check your credit again to see if you still meet the conditions of the offer. This is a hard inquiry since you're applying for credit. It will place an inquiry on your report, which could cause your score to drop by a small amount, according to MyFico. However, FICO only considers inquiries made within the last 12 months when calculating your credit score.

Prevention/Solution

If you'd rather not receive pre-screened offers, you can opt out. The credit bureaus have jointly established a website that allows consumers to remove their names from pre-screened offers either for five years or permanently. You can opt out at optoutprescreen.com.

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How Is a Credit Rating Determined?

Financial Memoir

A credit rating is the financial memoir that you began to pen the moment you created your first bill. Your story may have just started out, it may be mature, or it may have a sequel. But young or old, good or bad, it is uniquely yours. Just like a life story, some financial memoirs are more interesting than others. In order to determine if you have penned a financial work of art, your creditworthiness has to be assessed. A good judge and jury to do that would be to use the FICO system.

How You Rate

FICO, is the acronym for the Fair Isaac Company. Basically, it is a numbering system that can determine your creditworthiness. The FICO system was created in 1956 and it is used by the three major credit reporting agencies--Equifax, Experian, and TransUnion. The system works by assigning a point value to a series of questions that are answered from your credit rating. A FICO score can range anywhere from 350 to 850. The higher the score the better your story looks to lenders--and vice versa for a low FICO score.

Categories of Your Credit Rating

Even though your entire credit report is considered when a lender is trying to determine if credit will be extended to you, your FICO score carries the most weight. The score is divided into five major categories. Understand that 35 percent of your FICO score is represented by the way that you pay your bills, (now and in the past). 30 percent is your credit to debt ratio, meaning how much of your past credit do you still have available to you. For instance, if you have a credit card with a $1000 limit, but you still have $800 of available credit, you would have a 20 percent credit to debt ratio. (It is ideal to stay below 30 percent.) The third category accounts for 15 percent of your score and it represents how long you have had credit. The last two categories, both account for 10 percent. They are, the type of credit you use, and any new credit you may have acquired.

Improving Your Financial History

The difference between a financial memoir and a regular memoir is the that you can rewrite the financial one. If you have had some financial mishaps, and you do not like what you have penned for yourself, you can change your bad financial habits. Rewriting a bad credit rating will take some time, in the event of a bankruptcy, it can take up to seven years before lenders will take you seriously. But if you pay your bills on time and use credit responsibly, you will create a financial memoir that lenders will want to read.

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List of Credit Reporting Agencies

Your credit score is determined using information included in your credit report. Each month, your creditors update your credit history, including the amount of your current debt, late payments or defaults. Creditors report this data to the three major credit reporting agencies. These credit reporting agencies track your relationships with your creditors.

Experian

Employing over 15,000 people in 40 countries, Experian is a global information agency. Experian offers businesses a range of analytical tools to mitigate the loss of revenue. Businesses can assess the credit risk of a new customer or use information provided by the agency to find the best location for generating the most sales. The agency reports both business and personal credit scores to its clients. To help consumers understand their score, Experian uses a PLUS score system which gives details on how to improve the credit rating.

Equifax

Equifax has a history spanning 100 years of credit reporting. The company was founded under than name Retail Credit Co. and was used by insurers and lenders to obtain information on their applicants credit history. Equifax is headquarted in Atlanta and employs more than 7,000 people worldwide. The agency is a member of the stock index Standard & Poor's 500, which includes many of the largest companies on the stock market.

TransUnion

TransUnion boasts a clientele of 50,000 businesses worldwide with an estimated 500 million consumers in its database. The primary focus of TransUnion is customer credit reporting and information management. TransUnion began as a railcar leasing company and has grown to service customers across five continents. You can monitor your credit scores from all three credit bureaus using TransUnion's All-in-One credit monitoring program. For small business owners, TransUnion offers products to help mitigate risk. For example, independent landlords can check tenant credit history using their SmartMove program.

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What Variables Are Important to Credit Scoring Models?

Most U.S. residents have a credit score. This score, compiled by credit rating bureaus using a number of different sources of information, is a measurement of the relative likelihood that an individual will pay back a loan. Although each company's scoring model differs slightly, each uses a number of similar variables.

Length of Credit History

One of the main factors that companies look at is how long an individual's credit history goes back. Generally, those with longer credit histories generally received higher scores, as companies believe that people with a longer track record of paying back loans are more likely to continue to do so in the future compared with people whose credit history is short.

Outstanding Debt

The amount of outstanding debt that individuals currently have out is another variable that the reporting bureaus weight heavily. Those individuals who have more outstanding debt out are often given a lower score. This is because bureaus generally believe that the more debt a person has out, the more likely he is to default. Of course, certain types of debt are weighted differently: a $100,000 mortgage does not count against a person in the way that $100,000 worth of credit care debt would.

Payment History

According to the Fair Isaac Corporation, the inventors of the modern credit rating system, the foremost variable in credit rating models is payment history. Based on the principle that those who have paid their debts off in the past will continue to do so in the future, and those have defaulted before are more likely to do so again, credit bureaus use payment history as their primary factor in determining a rating.

Recent Credit

A less important but still significant variable in credit rating models is the person's recent credit history. The actions taken recently by the individual can affect his score in many ways. For example, if the individual has recently opened a number of new accounts, his score may drop slightly, as it appears he is getting ready to take on debt. However, if the person has recently reestablished a good credit history after problems in the past, this will boost his score.

Types of Credit

According to the Fair Isaac Corporation, the last variable used in credit rating models is the types of credit an individual has on their account. Credit can come in many different forms, including through credit cards, installment loans, mortgages and consumer finance accounts. Various reporting bureaus value these types of loans differently, with each specific formula affecting the individual's credit score in different ways.

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How Do Credit Reports Benefit Lenders?

A credit report is a collection of detailed information compiled by a credit bureau to aid in the evaluation of a lender's decisions regarding making loans to the individuals about whom the reports are compiled. The type of information contained in these reports includes personal information, credit history and records of previous credit defaults. By outsourcing the collection of this information to a credit reporting bureau, lenders receive many benefits.

Combining Many Sources of Financial Information

One benefit of a credit report to a lender is simply the ability to turn to one source for a collection of varied types of information. Rather than being forced to inquire into a potential borrower's potentially extensive credit history, a lender can outsource this task to a credit reporting bureau, thereby freeing up resources to focus on other activities.

Evaluating the Likelihood of Default

One of the principal uses of a credit report is to aid a lender in evaluating the likelihood that a potential borrower will default on his loan. A previous declaration of bankruptcy, for example, would likely be seen as evidence of the riskiness of a particular loan. Lenders benefit from this information because they will be less likely to lend money that might never be repaid.

Evaluating Payment History

While not quite as serious as a total default, the risk of late interest payments is also an important concern for lenders. Just as credit reports can help determined the likelihood of a total default on a loan, they can also help determine the likelihood that a borrower may be late making payments. Late payments are a problem for lenders even if they ultimately receive their money because it can interrupt their cash flow and often leads to additional costs of collection.

Ability to More Accurately Price Risk

By helping to evaluate the chances of default and late payments, credit reports give lenders an additional tool for pricing the risk inherent in a particular loan. This not only benefits the lender, but also other borrowers. The greater the uncertainty of loans in general, the more the cost of that uncertainty must be spread amongst many borrowers. If, however, the source of that risk can be determined, the risky borrowers can be made to pay for their share of the risk through higher interest rates.

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The Best Way to Raise Your Credit Score

There is never a better time than the present to take the necessary steps to raise your credit score. Your credit score says a lot about you and can either open or close doors for you in the world of credit.

Starting Point

In order to raise your score, you must know what it is. Start with ordering your credit reports from Experian, Equifax and TransUnion and pay the fee to receive your credit scores (see Resources). When you go to these websites, they seem to offer free reports and free scores. You get the scores if you sign up for their different credit monitoring systems, which have a temporary free trial service that lasts anywhere from seven to 30 days, but after that there is a monthly membership cost. If you are not interested in the credit monitoring system, the best way is to order your credit reports by writing a letter to each of the credit bureau agencies and paying the fee to obtain the score. This way you know what your score is before you take any steps.

Locating Inaccurate Information

Once you receive the credit reports, begin highlighting inaccurate and negative information. The purpose of locating inaccurate information is so you can dispute it and have it corrected. When disputing misinformation, it is important to provide a copy of the documentation that proves what you are saying is correct. Understand that when it comes to negative information on your credit report, there is a timeline that negative accounts can remain on your file. For example, a charge off is allowed to stay on a credit report for seven years. If the seven years have passed, then you can dispute that account. Each state has a statute of limitations pertaining to credit remaining on your file. Check your state's statute of limitations by reviewing the chart provided by BCSAlliance.com. For inaccurate information and negative accounts, send a letter to each bureau disputing the misinformation if the dispute is on all three reports. If it is only on one, then send it to that specific one. The goal is to make sure your credit report is accurate.

Settling Old Debt

Once you are in the financial position to settle an old debt, contact the creditor and enter into negotiations to settle the debt. Explain that you have had some financial difficulties, which is why the account went unpaid or entered the category of slow pay, and now that you have gotten back on your feet, you would like to negotiate a settlement to get it paid off. Then begin talking with the creditor about what you can afford to pay as a settlement and that you can settle it now for a certain amount. Upon your reaching an agreement with the creditor, ask them to make sure it is reported to the bureaus as "Settled in Full" or "Paid in Full." Those three words carry a lot of weight when creditors are reviewing your report to consider extending you credit. Make sure you have the creditor fax you a copy of the settlement agreement. Keep copies of all documentation for your files in case a collection agency purchases the old debt and attempts to collect again. You need to have proof that it was paid off.

Timely Account Payments

Paying your outstanding accounts on time until they are paid off is one way to raise your credit score. Late payments tend to lower your credit score, and the lender could raise your interest rate. If other lenders are aware of this, they could in turn raise your rates

Don't Apply for Credit Cards

Do not apply for more credit cards. One credit card in itself generates an inquiry being made. Every time you fill out an application in the mall for credit, they make an inquiry into your credit report. All those inquiries can add up and lower your score.

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How to Build Credit After a Job Loss & Bankruptcy

Keeping a high credit score can prove challenging during tough economic times. Layoffs and cutbacks force many people to default on credit cards and other loans. If unable to find a quick fix, bankruptcy can become the only alternative. The effects of a bankruptcy, like a low credit score, can linger for up to 10 years. But after re-entering the job market, there are several ways to successfully repair your credit.

Instructions

1

Check the accounts on your credit report. After a bankruptcy, debts included in the proceeding should include a notation that reads "included in bankruptcy" on your credit report. If not, these creditors may continue to harass your for the delinquent balance. Order a report from Annual Credit Report and review it to make sure it is accurate.

2

Compare secured credit card fees with multiple lending institutions. Having a secured credit card helps repair bad credit after a bankruptcy. And since these require collateral, they're easier to get with a low credit score. Because fees vary, contact two or three banks and inquire about these types of cards. Ask about deposits and setup fees.

3

Get current with student loan payments. Since bankruptcies will not forgive federal student loan debts, use this debt as an opportunity to rebuild your credit history after a job loss and bankruptcy. Pay your lender on-time each month.

4

Help your credit with an auto loan. Some debtors exclude their auto or mortgage loans from a bankruptcy. Like student loans, continue to make these payments in a timely fashion. If you need an automobile, look into bad credit loans from a dealership.

5

Agree to paperless statements. Manage your debts and monthly bills with the help of the Internet. Sign up for paperless statements and pay these bills once you receive the e-mailed statements. Lower the risk of late payments by paying online.

6

Stop relying on credit to buy items. Use cash for the majority of your expenses to avoid high credit card debt. When you need to use a credit card, pay off the entire balance by the next due date.

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How Does Chexsystems Affect Credit Ratings?

What is ChexSystems?

ChexSystems is a service used by merchants and banks to check the creditworthiness of potential customers. Using a customer's personal information--driver's license and Social Security number--ChexSystems will then advise the bank whether to open or refuse the new checking or savings account.

Information about ChexSystems is hard to come by. There is no main website, and the site of the corporate parent, Deluxe Corporation, doesn't offer specific information under that particular name. As low-profile as the company is, it still services 80 percent of the banks and credit unions in the U.S., according to Bankrate.com.

What Is the Rejection Criteria?

ChexSystems will refuse an account for several reasons. There may be outstanding funds from a past transaction that haven't cleared, or funds paid by a financial institution to cover a checking overdraft. Second, names showing a record of overdrafts will turn up a red flag. Abusive use of checking and debit cards also warrant notice, as will charges of fraud or presentation of false information.

Bad account information stays on file with ChexSystems for five full years. Even if a bounced check is paid off quickly, ChexSystems still carries that negative credit information unless the consumer goes through the procedures to remove it.

What about Credit Ratings?

ChexSystems doesn't affect your credit rating, since it doesn't actually extend credit and is not a lender.

Having a bad account on file with ChexSystems won't keep you from buying a car, house or other item. What it can do is make financing more difficult. According to Credit Info Center, banks have also performed "sweeps" of customer accounts, closing ones with negative files. It pays to get a copy of your personal ChexSystems report.

Cleaning Up Your ChexSystems File

Some websites offer methods of obtaining a ChexSystems report. Many of these sites will also help with clearing negative reports or finding banks that don't use the service. The clearance procedure is similar to that of a credit bureau, and there isn't any charge for file information.

In selected states, a program called Get Checking allows a flagged customer to open a checking account after a 6-hour, one-day course for a nominal fee. Graduates are issued a certificate that they can redeem at a bank that verifies program participation.

The resources below have more information on ChexSystems, with report and clearance information in the second link.

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How to Correct Personal Information on a Credit Report

A credit report is a financial record developed when you initially acquire debt. Credit reporting firms maintain a steady debt profile on you throughout your life. For businesses to accurately report your financial information to the credit bureaus, they must submit your identifying information along with their reports. The credit bureaus receiving the information will then match the personal information submitted to previous records and place the entry onto your credit file. Due to the vast number of reports received on a regular basis by each credit bureau, personal information is not always correctly matched. This can result in identification errors on your credit file. Identification errors should be cleared up as quickly as possible to avoid the debt profiles of others appearing in your credit history by mistake.

Instructions

1

Get your three credit reports from Experian, Equifax and TransUnion. Tri-bureau or third party credit reports may show you personal information that needs to be corrected, but will not specify which credit bureau's report actually reflects the inaccurate information.

2

Review the "Personal Information" section of each credit report. Verify that your name, Social Security Number, birth date and current address are correct on each file. Also search for multiple entries such as two different Social Security Numbers, two birth dates, etc.

3

Check for any addresses older than three years that appear on your credit report. When correcting other personal information, also petition for the removal of obsolete addresses.

4

Send a letter to the credit bureau reporting the inaccurate personal information requesting that your file be corrected. Include the copy of your credit report that reflects the error and either highlight or underline the information that needs to be fixed (see reference 1). Also in the letter request the removal of any obsolete addresses in the file.

5

Include copies of any identifying documents that back up your claim that the information is not accurate such as your birth certificate or Social Security card (see Reference 1).

6

Send your request via certified mail and request a return receipt. A certified mail delivery requires the receiver to sign for your documents, and the dated signature card will then be returned to you. This provides proof that you sent the documents and that they were received.

7

Monitor your credit reports to ensure that the appropriate changes are made. If no changes are made after 30 days, resend your request (see reference 1).

8

Contact the office of your state's Attorney General in the event that the credit bureaus do not correct the inaccurate information. You can file a formal complaint with the Attorney General which will then be followed up by his staff. Provide the Attorney General's office with copies of the documents you sent and the signature card from both deliveries to help the office clear up the matter as quickly as possible.

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How to Write a Letter to Dispute Bankruptcy to Credit Reporting Agencies

If you file for bankruptcy, it will negatively impact your credit history for the next 10 years, according to moneybluebook.com. Sometimes mistakes occur and the credit bureaus report that you filed for bankruptcy when you did not. You must correct these errors as soon as possible to ensure you receive favorable interest rates and to avoid problems getting loans at all. Always correct errors in writing so you have a record of your request.

Instructions

1

Obtain a copy of your credit report form each of the three bureaus. You can get one copy from each bureau free of charge annually via annualcreditreport.com either by mail or online. If online, print a copy.

2

Read through each report. Highlight incorrect information regarding bankruptcies and any other inaccuracies.

3

Write your letter. Include your name, address and phone number, as well as a detailed description of the error or errors. Request a correction. Write one letter to each bureau regarding mistakes in that bureau's report.

4

Attach a copy of your highlighted credit report from that bureau to the letter. Also attach any supporting documentation. For example, if a credit report states that you filed Chapter 7 in 2008 and you actually filed Chapter 13, include your Chapter 13 paperwork with that letter.

5

Send the letter and documentation to each of the three credit bureaus by certified mail, using online tracking or a return receipt to verify delivery.

6

Expect a response within 30 days. Each credit bureau that agrees your report from that bureau is incorrect must include a corrected credit report free of charge. You will get one to three reports, depending upon how many bureaus correct errors.

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How to Establish Credit in My Business Name

Running a business is expensive, and some business owners need credit and loans to stay afloat. You can always apply for a loan in your personal name and use the money for business purposes. However, most business owners want to keep their personal and business finances separate. Thus, they're interested in ways to establish credit in their business name.

Instructions

1

Get a business license. Visit your local city hall and apply for a business license. The average cost is $50 a year, and you receive your license upon paying the fee. If you like, register your business name with the city.

2

Open a business bank account. Rather than combine your personal and business funds, visit your local bank or credit union and open a business bank account.

3

Apply for a tax ID number. To establish credit in your business name, you'll need to obtain an employer tax ID number. Apply for an ID number online by visiting the official website for the Internal Revenue Service (IRS).

4

Improve your personal credit score. Initially, lenders will use your personal credit score to determine whether you're eligible for business credit. Pay your personal credit accounts on time, and maintain a low debt-to-income ratio.

5

Get a secured business credit card. Talk to your bank about a secured business credit card. You'll apply for a credit card in your business name and pay a security deposit. The deposit functions as collateral.

6

Obtain a small business loan. After you've established a business relationship with your bank or credit union, apply for a small loan in your business name. You'll likely need collateral, such as an auto title. Pay off the loan within a couple of months to increase your business credit score.

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Financial Credit Rating

Every financial move you make that involves debt is tracked and reported to the credit bureaus. That information is combined to create a number, known as your credit rating or score. Your financial credit rating is a valuable tool when you seek loans or other financial products, so you need to understand how it works and take steps to protect it throughout your life.

The Importance of Credit Scores

When you apply for any type of debt, including a mortgage, loan or credit card, your potential lender will look at your credit score. The higher it is, the better the chances will be that you will be approved, and the more favorable your rates and terms will be. Potential landlords may also look at your credit score to decide if you are an acceptable risk as a lessee. It can even affect your ability to get a job, as employers who are looking for someone responsible can check your credit rating to see how financially responsible you are.

FICO Scores

There is more than one type of credit score out there, but most lenders look at the Fair Isaac Corporation score, or the FICO rating. This is figured by three national credit reporting agencies: TransUnion, Equifax and Experian. Each figures a different FICO score for you based upon information they are given from your creditors. The scores range from 300 to 850, with the average American having a score somewhere in the 600s or 700s. In general, lenders want to see a score above 700. Scores below 600 will create problems because they will be considered too risky by many lenders.

How They Are Figured

The actual formulas that are used to figure your credit rating can be quite complex, but they include many aspects of your financial history. Your payment history for your credit accounts is the largest part of the score, making up approximately 35 percent of the score. The amount you owe compared to the amount of credit you have available comprises approximately 30 percent of your score. The length of your credit history contributes an additional 15 percent of your score, while any new credit accounts you have opened and other factors, like the mix of credit types on your history, make up 10 percent respectively.

Maintaining a Good Score

If you are curious about your credit score, you can purchase a copy from one of the three credit reporting agencies to see your current score, or you can request to see it from a lender you have applied for a loan through. If your score is good, maintain it by staying current on all of your bills. Avoid increasing your debt load to the point where the amount of debt is close to the credit limit on any account. Seek new loans with caution, as each inquiry has an impact on your score.

Fixing Credit

If your credit is low and you wish to improve it, start by paying your bills on time every month. Pay down debts that are close to their credit limit. If you have any errors on your credit history, have them removed. Sometimes your credit will be low because you have a short credit history. To fix this, get a simple credit card and use it monthly, paying off the balance on time each month. Over time you will improve your score.

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Will Your Credit File Be Updated While You Have a Security Freeze?

A security freeze --- or credit freeze --- is a voluntary option allowing consumers to restrict potential lenders from accessing a personal credit report. Prior to lending, creditors use your credit report to determine creditworthiness and financial responsibility. Generally, a security freeze request helps prevent identity theft by deterring unauthorized individuals from applying for credit in your name.

Facts

Potential creditors cannot access your credit report while a credit freeze is active. You can access your own report; current lenders, employers and others with whom you have an existing relationship can update financial information or check your credit report. A security freeze does not prevent credit bureaus from updating information. Creditor access is limited to companies you gave authorization to prior to the freeze. All three major U.S. credit reporting agencies --- Equifax, TransUnion and Experian --- allow security freezes.

Placing a Freeze

United States residents in all states, the Virgin Islands, Puerto Rice, Guam and members of the Armed Forces may apply for a free security freeze when identity theft is involved. Request a freeze by contacting the applicable credit report agency. In cases of identity theft, proof is required for a free security freeze. A voluntary security freeze without identity theft may incur a $3 to $20 charge, depending on state laws. For additional protection, some states allow free security freezes for children and adults age 65 or older without identity theft problems.

Removing a Freeze

To ensure you have authority over who pulls your credit report, the applicable credit bureau supplies you with a Personal Identification Number, or PIN, used to remove or lift the freeze. Depending on a credit bureau's policy, you may lift or remove the freeze by phone, online or by mail. A temporary lift allows all new creditors to access your credit information for a short time, or you may allow only certain lenders to access the information. The credit bureau may charge for temporary lifts, but all states allow free, permanent removal of a security freeze.

Considerations

Security freezes do not prevent "pre-screened" credit offers, as these lenders do not have access to your full report. While the freeze prevents access for nearly all agencies with whom you do not have an existing relationship, certain government entities may pull your credit report for law enforcement purposes, or when authorized through a court order.

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Credit Reports & Background Information

Landlords, prospective employers and banks sometimes run credit reports and background checks on applicants to determine the level of risk involved in doing business together. Background information can provide clues about how well you manage money, whether you're a responsible driver and whether you have a criminal record. While negative marks on your credit report can hurt your chances of landing a job or preferred apartment, applicants have options to correct inaccurate information.

Credit Reports

Credit reports provide valuable insight into your financial history. Reports contain information about what types of credit you've accessed over the years and how much you're in debt. People viewing your credit report can see whether you have installment loans (such as student loans and home mortgages) or revolving credit, such as credit cards, department store cards and gas cards. Reports also state your debt-to-income ratio and payment history, including whether you have missed payments, late payments or accounts that have been turned over to collection agencies. Lenders like to see that consumers have long histories with credit agencies, signaling positive or mostly-positive interactions. Credit reports sometimes include information about your credit score, the three-digit number calculated to reflect your overall credit risk. High credit scores indicate positive factors such as low debt volume and on-time payment history. Low credit scores reflect high debt loads, spotty payment histories, bankruptcies or defaulted loans.

Background Information

Prospective employers, bank lenders or landlords want to run background checks to verify information you've supplied on loan or housing applications. Individuals may contact your previous employers to verify work dates, talk with personal references to learn more about your character or call banks to verify account numbers. More in-depth background checks might include a drug test or health assessment (for example, a trucking company might want to verify that your night vision is acceptable for overnight assignments). Jobs involving working with children or senior citizens might also include a criminal background check to assure the safety of those in your care.

Permission

Although lenders can access sensitive personal information about you, they can't move forward without your permission. Before bankers, landlords or employers can access credit reports or other background information, they'll need written permission from you. Otherwise, their actions violate your privacy. Additionally, personal information unearthed during credit checks or background checks can't be shared with people not directly involved in your selection process.

Negative Information

Whenever a landlord or potential employer denies your application due to negative information appearing on your credit report, he or she must provide you with a copy of the report and information about how to address or change that information if it's inaccurate. In some cases (for example, identity theft) your credit report may reflect purchases, missed payments, bankruptcies or credit card accounts that were fraudulently attached to your credit history because of criminal activity. For these instances, contact the credit bureaus involved and request the incorrect information to be removed.

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Ways to Improve a FICO Score

A FICO score is a credit score produced using an algorithm developed by the Fair Isaac Corp. The score uses information from your credit report to estimate your risk as a borrower. A high score can get you more access to loans and preferential interest rates. There is no way to boost a low score overnight, but you can take practical steps to begin to raise your score.

Order a Copy of Your Report

Credit scores are based on five categories: payment history, length of credit history, amounts owed, new credit applications and the variety of credit used. Viewing your credit report will give you a better idea of which categories you need to improve.

Credit bureaus sometimes make mistakes and put false information on your credit report, which can lead to lower scores. If you find false information on your report, submit a written dispute to the credit bureau that identifies the false information and explains why you believe it to be an error, and request for it to be changed or removed. Credit bureaus are required to start an investigation of a claim within 30 days. You should have a decision accepting or denying your claim within two months.

Limit Applications for Credit

Only apply for new credit when you need it. Even though a retailer may offer 20 percent off if you open a new credit card, consider the negative impact on your credit score. New applications for credit can make you appear desperate to lenders. Each time you apply for credit an inquiry is reported on your credit report.

Not all inquiries negatively affect your credit score. First, a request to see your own credit report does not count as an inquiry. Second, you are able to shop for a car loan or home mortgage as long as you are applying within a short period because the FICO score counts all inquiries as one. However, if you spread your loan shopping over a few months, each inquiry will count separately.

Leave Unused Accounts Open

Do not close unused accounts if you are trying to raise your credit score. Even if you have no payments to make, the financial institutions holding your accounts still report that you are current with your bill for that card.

Part of your credit score is determined by how much of your available credit you use, so if you close accounts with zero balances you will increase the percentage of credit you are using. For example, if you have three credit cards and each has a credit limit of $3,000, your total credit limit is $9,000. If you use only two cards and carry a total balance of $4,500 on those cards, you are using 50 percent of your credit limit. However, if you closed the card you were not using, your total credit limit would drop to $6,000 and your credit use would jump to 75 percent.

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What if I Settled an Account but It Still Shows That I Owe on My Credit Report?

When you settle your debts, you pay a negotiated amount to your collector to close your accounts. The creditor should report this action to the credit bureaus, who should adjust your report accordingly. Check all three credit bureaus -- Experian, Equifax and TransUnion -- and make corrections if one or more of them is not showing the up-to-date information.

Gathering Data

You'll have to present some sort of proof to the credit agency that you did indeed settle your debt. Gather as many documents as you can to support this. For example, you should have a copy of the cashed check from your bank or a bank statement that shows the payment, a copy of the settlement letter and a list of any phone calls to the collection agency, preferably including who you spoke to.

Sending a Letter

Write a letter to the credit agency or agencies reporting the inaccurate information. The letter should detail your name and Social Security number, the account in question and the fact that you settled this account. Include copies of the supporting materials you gathered. Send this letter by certified mail to prove that the company received the letter. The company should respond to your request within 30 days.

Checking Your Report

After 30 days from the date that the company received your letter, you can check your credit report to confirm that the company updated your file. If the company does not respond within 30 days, the company is required to drop the information from your credit report, according to Bankrate.com.

Effects of Settlement

Though paying some of a debt is better than not paying anything at all, having a settlement on your credit report still harms your score. With positive credit behavior, such as paying bills on time, you can gradually increase your score, However, the settlement will remain on you account, affecting it negatively for seven years.

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What Is a Credit Scoring System?

Credit Scoring Systems examine your credit report in different ways to rate your creditworthiness. The system itself was developed by Fair Isaac Corporation. Your credit score, frequently referred to as a FICO score, is evaluated by lenders, credit card companies, apartments, banks and some employers. It is vital you appreciate your score and keep it above 660. Under the Federal Equal Credit Opportunity Act and the Fair Credit Reporting Act, your rights are protected.

Factors That Determine Your Credit Score

Certain factors are used to determine if you are creditworthy. Defaults from the past haunt your credit. Creditors feel that if your were delinquent on past accounts, there is a high chance of delinquency in your future. Your credit usage is evaluated in terms of maxed-out credit cards and how many are close to limit. Your credit file age according to Fair Issac's model is used to determine riskiness. Another factor is how many times you ask for credit. Too many requests for credit is frowned upon. Your mix of credit is also a factor. Having installment and revolving loans is better than owning secured credit cards.

Different Types of Credit Scores

Credit reporting agencies, lenders and independent companies cultivated their own way of scoring. Your credit-based insurance score is used by insurance companies in decisions concerning what policy to give and setting your rates. Credit reporting agencies may have different scores on you depending on what information was reported to them. An estimated score, which is different than your credit risk score, is used at times by companies. Companies use fraud scoring to measure an applicants' legitimacy. It evaluates inconsistencies within current and past applications.

How the Fair Isaac Corporation Assess Credit

Fair Isaac Corporation denotes that 35 percent of your FICO score is determined by your payment history. Having a steady payment history increases your score. Monies owed covers 30 percent of your FICO score. Your credit history length makes up 15 percent. You must have reliable history when your credit history is short. New credit encompasses 10 percent, and 10 percent of your FICO score is based on your various credit ventures.

Your Consumer Rights Concerning Credit

Credit laws are enforced by the Federal Trade Commission. It protects your credit rights. The Federal Fair Credit Reporting Act upholds your right to accuracy and privacy from credit reporting agencies. Under the FCRA, all three of the nations credit reporting companies must provide you an up-to-date copy of your credit report once every 12 months per your request. If you are denied a job for credit reasons, you have a right to know the information from the credit reporting agency that supplied your report.

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Will Asking for Credit Increase or Hurt a FICO Score?

Credit card companies often increase your limit to induce spending, especially for good customers. You can also ask request a credit limit increase without risking much damage to your FICO credit score. Actually, asking for a credit limit usually increases improves your FICO score because that amount of credit you use is a significant chunk of the FICO score calculation.

Benefits

Your credit use counts towards 30 percent of your total FICO score, according to the Fair Isaac Corporation. Asking for and receiving an increase will boost your score. Say you use $1,000 on a $5,000 limit and then receive a $5,000 limit increase. You usage goes from 20 percent to 10 percent. At the worst, a company can just deny your request for a limit increase.

Considerations

Companies often automatically offer a credit limit increase without you asking. If you request one, they may pull a hard inquiry of your credit report after requesting information about your income and former employer. Hard inquiries, however, have a minimal effect on your credit score and for only six months, according to the Consumerist. You should accept an automatic increase because this does not involve a hard inquiry. If they raise your limit without question, this too does not involve an inquiry.

Warning

Your expanded line of credit could hurt your score if you use your new expanded credit line right away. Good borrowers do not rely on credit for day-to-day expenses. Forty percent of credit card holders have $1,000 or less in credit debt and the average person has $19,000 available to them on revolving loan credit cards, according to the Fair Isaac Corporation.

Tip

Each credit card company has a period where they do not allow a credit limit increase---usually six to 12 months after receiving an account, according to Bargaineering. After this period, consider going to your credit card's website, because most allow an online request. If you need a hard inquiry to gain more credit, avoid asking for an increase when you are applying for other kinds of credit. Multiple hard inquiries for different types of credit in a short period of time looks like you are hitting a rough patch in your finances.

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How Much Can Your Credit Score Increase in Six Months to a Year?

There are many reasons for wanting to increase your credit score. A low credit score makes it difficult to get a loan, a mortgage, a car or a credit card. With many employers running credit checks on potential employees, it can even keep you from getting a job. The time it takes to raise your credit score depends on many factors, including what score you start with.

Your Credit Score

Every time you borrow money, the lender reports it to one or more credit bureau. If you default on a debt, miss a payment or are late by as little as a few days, the lender may report this, too. The credit bureaus aggregate all of this information into a credit report. The next time you apply for a mortgage, a credit card or any other type of loan, the lender will check your credit report to determine your creditworthiness. To make it easier for lenders, credit bureaus convert your credit history into a single three-digit number. This is your credit score.

Multiple Scores

There are three main credit bureaus in the United States: Equifax, Experian and TransUnion. Each one uses a slightly different formula when calculating credit scores. The formulas are kept secret, but we do know what sort of information goes into the calculation. This includes your total debt, your repayment history, the length and diversity of your credit history and the number of recent applications for credit. Depending on the credit bureau, your score may be lower or higher, as the same information may be weighed differently.

Raising Your Credit Score

The quickest way to raise your credit score is to find and correct errors on your credit report. A small typo can sometimes lower your score by as much as 50 points. You can get a copy of your credit reports directly from the bureaus or from AnnualCreditReport.com. If you find an error, file a dispute with the bureau. If the bureau finds in your favor, they will fix the mistake and raise your credit score. This can take as little as 30 days.

Another quick way to raise your score is to pay off a large amount of debt. If you're close to maxing out your credit lines, paying off that debt will have a significant affect on your score. Depending on your circumstances, you may be able to raise your score by 50-100 points in several months.

Time Frame

If you're not careful with your fiances, you can destroy your credit score in as little as a month. The length of time it takes to raise it depends on many factors. If you have a very low score (below 500) and an extensive history of missing payments, you can improve it by 50 points in a year just by making every single payment on time. However, if your score is closer to 700, making regular payments won't raise it by very much. If you have a bankruptcy on your file, no amount of diligent repayments will erase it. It will stay on your credit report for up to 10 years, significantly lowering your score.

Warning

There are many companies promising to increase your credit score within a matter of months or even weeks. Don't believe them. Unless there is a major error on your credit report that is corrected, you cannot improve your score overnight. No one can erase accurate negative information from your report. For most people, it takes several years to rebuild a damaged credit history and raise a credit score by 100 to 200 points.

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Can a Past Due Energy Bill Affect Your Credit Score?

Utility bills are one of the most dangerous recurring expenses for your credit rating, because the best-case scenario is that they have a neutral effect on your credit rating. You can probably prevent an unpaid energy bill from affecting your credit, but you must act fast, because the utility company will become less amenable to negotiations as the days pass.

Identification

A past due energy bill will most likely affect your credit score if the utility company decides it cannot collect on the account and sends it to a collection agency -- which might be a department in the company itself -- or sues you. A lawsuit becomes part of the public record, so the national credit reporting bureaus should pick it up and collection agencies usually report directly to the bureaus, according to Maxine Sweet of Experian.

Exception

Some energy companies can and do report to the national credit bureaus, but they are the exception not the rule. Most states prevent utility companies from sharing private customer data, so the bureaus cannot pick up utility data in these states even if they wanted to do so. If your utility company reports to the major credit bureaus, any past due bill affects your credit score by as much as 110 points.

Effects

All collection accounts and judgments stay on your report for seven years plus six months after the creditor writes off the debt. A single collection account or judgment can take 100 points or more off of your credit rating, according to Les Christie of CNN. This can take you from an excellent rating -- usually a 760 or above on the FICO scale -- to an average score of 660.

Considerations

Don't just ignore the bill because things can only get worse. Instead, talk to the energy company about getting an extension on your bill's due date. At the very least make a partial payment, which might be enough to prevent the company from turning off your service. If you have long-term problems affording utilities, you might receive government help, such as financial assistance from the Low Income Home Energy Assistance Program (LIHEAP).

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Help to Clean Up My Credit

Cleaning up your credit demonstrates responsibility. Credit is important, especially if you want to buy a house or finance a car someday. Lenders base approvals and interest rates on your credit score, and getting favorable rates and terms requires a good credit history. Reverse a bad credit score and qualify for the best loan terms.

Missed and Late Payments

Paying credit card bills 30 days late not only trigger late fees, but creditors report lateness to the credit bureaus, and this information hurts your personal credit score. Clean up your credit fast by improving your payment history. Ways to improve your payment history include paying bills several days before the due date or paying online to avoid slowdowns with postal mail. Because timeliness makes up 35 percent of credit scoring, it's imperative to never miss a payment or send a late payment.

Carry Minimum Debt

Paying off your credit card debt completely can boost your low credit score. It's okay to use credit cards frequently to keep the account active. But instead of carrying huge balances from month to month, use credit sparingly and then pay off balances in full each month to maintain a high score. If dealing with high balances, start increasing your payments to bring down the outstanding principal.

Clean Up Your Credit Report

Clean up your credit by cleaning up your credit report. Some people never check their personal report, and inaccuracies or outdated information go unnoticed until they apply for financing. Checking reports at least once a year brings attention to creditor mistakes, and removing errors and mistakes can increase your score. Common mistakes made by creditors include updating reports with another person's negative information, such as collection accounts or late payments. And sometimes an unfamiliar account may appear on your report. Get your report free from Annual Credit Report.

Dealing With Creditors

Once you're on the right track to clean up your credit, defaulting on a loan or missing a payment can undo the progress you've made and lower your score. Speaking with creditors and lenders if experiencing financial hardship is key to staying on track and avoiding late payments. Lenders offer help when there's communication. For example, if you don't have money to pay a bill by the due date, call your creditor and explain your situation. Creditors may offer an extension without penalty or break up your payments. And depending on the creditor or lender, they may suspend your payment for one or more months without penalty.

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