What Factors Make Up a Good Credit Score?

Your credit score is an important aspect of your financial profile. Lenders use it to determine how much they will charge you for borrowing money. With a good credit score, you will save by paying a lower interest rate if you take out any consumer loan, including a mortgage loan or a car loan. Even in everyday matters such as renting an apartment, landlords look into your credit score. The FICO score developed by the Fair Issac Corp. is a commonly used credit score in the U.S. You can develop a good credit score by paying attention to some factors.

Prompt Payment

Paying your bills on time is the most important contributor to maintaining a good credit score. This accounts for 35% of your FICO score. Paying your bills late, declaring bankruptcy and other factors that make you miss your bill payments take a toll on your credit score. On the other hand, paying your bills on time adds up to a good credit score.

Extent of Use

How much of your available credit do you use? The more of your available credit you use, the closer you will be to maxing out your credit limits. This will tend to lower your credit score. Other factors that determine the extent to which you use the credit available to you is how much you owe on your credit cards and how many of them you have balances on. This factor makes up about 30% of your FICO score.

Old and New Credit

The further back your credit history goes, the better it is for your credit score. That does not mean that you can't get a good credit score with a brief credit history. If you have managed your credit well during the brief period you have had access to it, that will positively contribute to your credit score. The length of your credit history accounts for 15% of your FICO score. If you are looking to open a new credit line, that's another factor that impacts your credit score. It is better to shop for a new credit card within a brief span of time, such as 30 days, rather than spreading it out over a longer time. Credit scoring systems tend to discriminate against multiple inquiries and will lower your score further. New credit accounts for 10% of your FICO score.

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What Can I Do to Build My Credit?

Your credit score is based on the report of your account history that the credit bureaus have on file. Building a good credit history not only increases your credit score, but also increases your chance of approval for loans and credit cards and helps you secure lower interest rates. Having good credit can also help you get a job, rent a house and pay less on car insurance.

Pay on Time

Over one-third of your credit score is based on your payment history on all of your credit accounts. Build your credit by paying all of your bills by their due dates. If you have trouble remembering to pay bills, set up automatic payments or payment reminders on your accounts. If you are late on payments because you cannot afford them, stop borrowing, get another part-time job if you can and contact your creditors to explain the situation and ask for lower payments or an extension on the due date.

Use Multiple Credit Types

Somebody with a good payment history on multiple accounts will generally have a better credit score than somebody who only has one account on his credit report. To build your credit, you should have at least one major credit card and at least one installment loan. Installment loans have equal monthly payments for a set amount of time, and auto loans, mortgages and student loans all fall into this category. Although opening a new account will hurt your score in the short term, paying back your debt consistently helps build your credit. In addition, having accounts for a longer time also builds credit.

Pay Down Balances

Nearly one-third of your credit score is based on the amounts you owe on your accounts. This includes not only the dollar amount, but also the ratio of the amount currently owed to the amount you originally borrowed or the amount you are authorized to borrow on your credit line. To boost your credit score, make consistent progress paying down your balances on installment loans. In addition, keep each credit card balance each month under 30 percent of the card's limit. Ideally, MSN Money recommends keeping the balance under 10 percent of the limit.

Maintain Accurate Reports

Even if you have been managing credit perfectly, if your credit report contains a significant error, you could end up with a poor credit score. For this reason, check your credit reports about once per year and ensure they accurately reflect the truth about your credit history. If you find any errors on your credit reports, write a dispute letter to the credit bureau to identify the error and ask that it be corrected.

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Does Rent to Own Effect Your Credit?

Rent-to-own refers to items paid for in installments with an option to either purchase the item outright, or return it to the store at the end of the rental contract. This normally includes products such as appliances, electronics and computers. Advertisements in rent-to-own stores often proclaim a "no credit check" policy for customers. If considering a rent-to-own purchase, it's important to understand how such a purchase may affect your credit.

FICO Credit Scores

A FICO credit score measures how well you handle your credit obligations. Note that 30 percent of the score reflects the level of debt that you have, 35 percent reflects your payment history and 10 percent is the mix of credit types on your report. The length of your credit history is 15 percent and the number of new credit inquiries on your report represents the remaining 10 percent. FICO scores have a credit range of 300 to 850 and the higher the score, the better your credit.

Significance

According to Experian, credit bureaus do not consider rent-to-own purchases as traditional credit and therefore, such payments do not affect your credit score. Traditional credit refers to credit items such as credit cards and auto loans. A rent-to-own credit obligation is alternative credit and does not report to the credit bureau at the time of publication. Other types of alternative credit include utility payments, such as water, gas and electric, medical payment arrangements with doctors and payments to certain cell phone providers.

Considerations

Rent-to-own may not harm your credit, but it can harm your wallet. Companies that lease rent-to-own products often charge a higher price that's three to four times more expensive than a traditional store, according to Lawyers.com. These companies implement higher prices because of the high-risk nature of the transactions, including the risk that renters of the property will make late payments on the rented property or not make the payments at all, which can lead to additional costs for collection.

Warning

Rent-to-own can be a convenient option for consumers, but it does require the renter to maintain his end of the contract, which means paying for the merchandise or returning it. If you sign a rent-to-own agreement and take possession of the property, but fail to make the agreed upon payments, the rent-to-own company has the right to seek repossession of that item. The company may also decide to pursue criminal charges against you for theft of property.

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FICO Score FAQ

FICO (Fair Isaac Corporation) scores are the most commonly used type of credit score. Creditors use FICO scores to predict the likelihood that you will repay a loan in a timely manner. Having a good score will assure that you get the best possible interest rates and credit terms.

What Is a FICO Score?

A FICO score is a number between 300 and 850 that reflects your credit history. The score is calculated by weighing different factors of your credit using a computer program produced by the Fair Isaac Corporation.

How Is a FICO Score Calculated?

Each category of your credit history is assigned a weight that is figured into your score. These include payment history, amount of money owed (debt to income ratio), length of credit history, types of credit and new credit.

What Is a 'Good' FICO Score?

To get the best credit terms, a score of above 700 is optimum; however, any score above 600 is considered acceptable.

What Is a 'Bad' FICO Score?

A score of 500 or below is considered unacceptable, and individuals with scores in this range may be unable to get credit or can expect to pay exorbitant interest rates.

How Can I Improve My FICO Score?

Making loan or bill payments on time consistently is the fastest way to improve your FICO score.

How Long Does Information Remain on My Credit Report?

Information regarding negative payment history will remain on your credit report (and affect your FICO score) for seven years, with the exception of bankruptcy, which stays in place for 10 years.

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Does Canceling a Credit Card That Is Always Paid in Full Affect the Credit Score?

Your credit score ranges from 300 to 850, according to Fair Isaac Corporation, or FICO, a credit score company. The score is based on the data contained within your credit report. The higher the score, the better your credit. Consumers with higher credit scores often receive lower interest rates and easier loan approvals than consumers with lower credit scores. The score is not a stagnate number but changes as the data in your report changes, so it's wise to understand how canceling a credit card that you always pay in full will impact your credit score.

Scores

According to FICO, a credit score has five main components. The bulk of the score, 35 percent, measures how well you pay your bills. The next largest factor is how much debt you have, which is 30 percent. Fifteen percent of the score reflects the length of your credit history, 10 percent is the amount of credit you've applied for recently and the remaining 10 percent is the mix of credit types present on your report.

Significance

FICO measures your credit utilization as part of your score. This is the amount of available credit you have versus the amount of credit that you've used. The more available credit you have, the lower this ratio is and the higher your score. The more debt you have, the higher this number is and the lower your score. The crucial factor here is not whether the card is paid in full each month but whether the card has an outstanding balance at the time that you cancel it.

Impact

If you cancel the card and reduce your available credit, but leave a balance due on the card and make payments until the card is paid off, this increases your credit utilization ratio and lowers your score. If the card has a zero balance at the time it's canceled, the cancellation of this card does not affect your credit utilization ratio negatively. Keep in mind however, that the reduction in your available credit may negatively impact your utilization in another way. FICO measures all of your available credit versus all of your revolving debt. If you have unpaid debt on other credit cards, but you've decreased the overall available credit that you have by canceling one of your cards, your credit score may drop if this imbalance causes your credit utilization ratio to go higher.

Considerations

Canceling a credit card can drop your score in other ways, as well. FICO takes all of your credit accounts and averages them together. Generally, the longer your credit history, the higher your score. If you cancel the credit card, this reduces the average length of your credit history. Depending on how old the card is, this shortened credit history can cause your score to drop, especially if the card is one of the oldest on your credit report.

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How to Fix Your Credit in 6 Months

Your credit record is important. It's checked by lenders every time you apply for credit. A poor credit record results in credit applications being declined: The more you apply and get declined, the worse your credit record is. Before applying for credit, check your credit records.

There are three credit reporting bureaus: Equifax, Experian and TransUnion. Together they sponsor AnnualCreditReport.com, the only official website where you can get all three credit reports for free once a year. Getting your credit record is the best way to start fixing your credit in six months.

Instructions

1

Apply online to AnnualCreditReport.com (see the Resources section). It's fast, simple and free. Credit records can be viewed instantly. It's the quickest way to start to fix your credit in six months. Select your state. Click "Request Report." Provide your details in the online application form: A previous address is required if you have lived in your current home for less than two years. Follow the online instructions. Wait for your identity to be verified. Follow the link to set a password. Click "Submit." You can view your records instantly.

2

Check your reports. Make sure they are accurate. Errors should be reported immediately to the lender and to the credit reporting bureau. Errors negatively affect your credit. They can be rectified in two weeks, helping to fix your credit in under six months.

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Check your credit record payment history on each line of credit. If it shows missed or late payments, your credit is affected. Get your payment history up to date: Pay missed or late payments as soon as possible. Your credit record will be updated once the arrears are cleared. Ensure you pay future amounts on time. Keeping up regular timely payments will help to fix your credit.

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Check which credit cards are near or over their limits. Lenders can become cautious at this point; it indicates financial difficulty. Your credit rating is affected. Immediately pay off any amounts that exceed your agreed limit.

Reduce outstanding credit to 50 percent or less as soon as possible. Keeping outstanding debt on a credit card to 50 percent or less shows lenders that you are responsible in your borrowing. You get rewarded by your credit record improving.

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What Does a No Hit Credit Score Mean?

A no-hit credit score means that there is not enough information on the credit report to calculate a credit score. This usually is because the person has not built up a credit history.

Number of Accounts

In order to calculate a credit score, there must be at least one credit or loan account on record with the credit bureau.

Length of Credit History

Once a loan or credit account has been opened, it takes six months of payment history to calculate a credit score.

Closed Accounts

Accounts that have not been updated in the past six months will not receive a credit score. Accounts that have been paid off or closed are no longer reported.

Deceased Customer

If a creditor receives information that the customer has died, this information is reported to the credit bureau. The credit score no longer will be calculated.

Credit Bureaus

There are three credit bureaus that calculate credit scores: TransUnion, Equifax and Experian. If one of these has a no-hit score, another might have been able to calculate a score. To get a free copy of your credit reports, go to www.annualcreditreport.com.

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FICO Score Criteria

FICO stands for Fair Isaac Corporation. The Fair Isaac Corporation is the company that developed the credit scoring formula most widely used by lenders, called the FICO score. The FICO score looks at your past credit history to produce a score between 300 and 850, with higher scores meaning that you are less likely to default on loans in the future.

Factors

The FICO scoring model breaks your financial history into five, unequally weighted categories. The first 35 percent of your score depends on how you have paid your bills in the past. The next 30 percent depends on how much you owe and how much of your available credit that you are using. Another 15 percent of your credit score is based on how long you have has credit. The last 20 percent is split equally between how many different types of credit you have used and how much credit you have recently applied for.

Types

Your credit score looks at several types of information about your credit history. Accounts that are included are trade lines, credit inquiries and public records. Trade lines include credit cards, mortgages and other loans that you may have taken out. Credit inquiries are created whenever your credit score is pulled by a lender who is considering offering you credit. Public records include bankruptcies, foreclosures, suits, wage attachments, liens and judgments.

Data Collection

Financial institutions report data about your financial past to credit bureaus who then use the information to establish a credit file and calculate your FICO score. The three major credit bureaus in the United States are TransUnion, Equifax and Experian. These credit bureaus then sell the credit scores to lenders who are considering offering you credit.

Time Frame

In general, all items on your credit report affect your credit score for seven years. However, there are several exceptions. Credit inquiries only remain on your credit report for two years. Chapter 7 bankruptcies remain on your report for 10 years. Tax liens, if left unpaid, can remain indefinitely. The older a record is on your report, the less influence it has on your score.

Significance

Your credit score is a major part of a bank's decision to offer you credit. If your credit score is lower than 620, according to Bankrate, you will have to pay a much higher interest rate on your loan. However, if you are in the top tier of borrowers, usually having a score of 760 or higher, you will usually qualify for the best interest rates, which can save you money on loans.

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Will Opening a Credit Card Improve My Credit Score?

Credit is one of the most important aspects of a person's financial life. With credit being so important, it is necessary to maintain a high credit score. Borrowing money in the form of credit with the promise to repay allows consumers to gradually build their credit score. A credit card is one of the easiest forms of credit to obtain. Lenders are often willing to extend credit to borrowers with less than perfect credit. Depending on how the credit card is managed, it can have either a postive or negative effect on a credit score.

Payments

Creditors report payment information to the credit bureaus. If payments are consistently made on time, the card will help increase the overall credit score. When payments are late or not made at all, the creditor will report the delinquency to the bureaus. Negative reports have an immediate effect on a credit score. Payment history accounts for 35 percent of a credit score.

Credit Utilization

To properly manage credit cards, consumers should avoid keeping a high balance on the card. Some experts recommend keeping the balance below 30 percent of the available credit limit. If a person maintains a high balance on his credit card, it can potentially lower his score. Credit utilization is the amount of available credit compared to the total total credit limit. Consumers who want to avoid high interest rates can opt to pay their balance in full each month.

New Credit

The length of time a credit card has been established also factors into a credit score. A new credit card will not be scored as high as an older account. It may take some time to build the account history, but within months the credit card will begin to appear as an established credit account.

Credit Inquiries

Each application for new credit counts as an inquiry on a credit report. Too many inquiries can lower a credit score. If a person is applying for multiple credit cards, the score may drop in the process. When a credit card application is denied, consumers should avoid applying for more cards right away. Credit inquiries count for 10 percent of a credit score.

Multiple Credit Cards

Having too many credit cards can be seen by creditors as a drawback. Creditors do not want to offer credit to consumers who already have a large amount of credit. Even if the credit is not utilized, it may easily be accessed at any time. For example, a person who has thousands of dollars in available credit typically has enough credit. If borrowers are trying to gain more credit, lenders may become suspicious of their need for more credit. Credit should be a mixture of various types of credit, such as credit cards and installment loans.

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Why Does Your Credit Score Lower When You Get a Credit Card?

Credit scores are based on a number of different factors and simply obtaining a new credit card can cause your score to dip. The fact that the credit issuer checked your credit score can have a slight negative impact. Rolling a balance over from an existing card or cards can also hurt your score.

Credit Inquiries

Equifax use the FICO scoring system that gets its name from the scoring system's creator, Fair Isaac Corporation. Experian and TransUnion, the other U.S. based credit bureaus, also use a similar scoring system. Credit scores at all three bureaus take "new credit" into account when determining scores. This category accounts for 10 percent of a person's credit score and it includes the number of credit inquiries someone had. When you apply for credit, your score slightly decreases whereas if you apply for credit frequently, it can cause your score to drop dramatically because it appears you may be desperate for money.

Length Of History

Your average length of credit history accounts for 15 percent of your overall credit score. Bureaus simply look at when you opened a credit card, took out a car loan or mortgage and how long, in months, you have been paying on the debt. The longer the average account history, the better your score. When you open a new credit card account, it immediately reduces the average length of your account history and that impacts your score.

Consolidating Balances

Your account balance as a percentage of your overall credit limits accounts for 30 percent of your credit score. This score reflects your total credit usage as well as the usage of each particular credit card or loan. Taking out a new card initially reduces your overall credit utilization because the new card has no balance. However, if you transfer existing balances onto the new credit card and end up with a high balance on that card, it hurts your score because that card has a high utilization rate.

Considerations

Occasional credit inquiries only have a short-term impact on credit scores whereas late payments and charge-offs have a lasting impact. The three major credit bureaus separately gather information from your creditors and the three bureaus' reports are not necessarily always the same. You are entitled to an annual free credit report from each bureau and if you find any errors you can contact the bureau directly to request a correction.

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How Does Transferring a Credit Card Balance Affect a Credit Rating?

Everything Is Dependent

Transferring a balance to a lower interest credit card can certainly help you save money, assuming the fees put on a transfer don't outweigh the interest savings, but the effect on your credit score is not as easy to figure out.
While many people promote transferring balances as an easy way to increase your credit score, it isn't always a good idea. Everything depends on your balances and limits.

It May Decrease

The actual affect on your score will depend on your total debt percentage. Essentially, if you transfer debt from a card with a high limit to a card with a low limit, you may harm your score.
For example, if you have one card with a $1,000 balance and a $5,000 limit and you choose to transfer $500 to a card with a $500 limit, you'll be harming your score. In this case, you would be taking one card from a 20 percent debt percentage to a 10 percent debt percentage.
That's good for the first card, but you'll be taking the second card to a 100 percent debt percentage. The average debt percentage for the two cards then becomes 55 percent. That means you went from a 20 percent total debt percentage to 55 percent. You'd be hurting yourself as far as your credit rating goes. Of course, if this will save you money, it may still be worth it. Additionally, saving money might help you pay off a larger percentage of the debt, which will help your score in the long run.

It May Increase

On the other hand, if you are transferring from a card with a low limit to one with a high limit, you might increase your credit rating at the same time you will save yourself money.
As the example in the last case, you could take $500 off of a card with a limit of $500 and apply it to a card with a $500 balance and a $5,000 limit. In this case, you would be taking your debt percentage from 55 percent to 20 percent.
Obviously this is the ideal way to perform a balance transfer, but it's not always possible. Always consider your goals and options before you transfer a card balance.

Things to Avoid

A few things will always hurt your credit when it comes to balance transfers. Never close a credit card account that has a long standing history. Even if you transfer all of the balance off of the card and never use it, your history with the card is helping to raise your credit score.
Additionally, don't sign up for credit cards just for the sake of creating a lower debt percentage. Opening new cards will hurt your credit score, especially when you make a habit of opening too many. Lenders generally look at this as a sign that you intend to begin racking up a lot of debt--not a good thing in their eyes.

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How to Evaluate Your Credit Online

Monitoring your credit on-line is both free and easy. Let us explore where you can view your credit reports online, whether credit monitoring services are right for you, how to repair your credit and whom to call for help if you should need assistance.

Instructions

1




Obtain your credit report from the Annual Credit Report website (see Resources section). This is the website established by the three leading credit bureaus, Exquifax, Experian and TransUnion, in 2004.

Select your state from the drop-down menu and click "Request Report."
Fill in all required information and click "Continue."

Select which of the three primary credit report(s) you wish to receive. Your options are Experian, Equifax and TransUnion.

Click "Continue," and you are well on your way to viewing and printing your credit report(s).

2




Weigh your options. You are entitled to receive one free credit report from each of the three primary credit bureaus each year. You may choose to receive all three reports at the same time through the Annual Credit Report website, or you may also choose to spread out your three reports over the course of a year. If you receive them all at once, you have the benefit of being able to compare them. If you spread them out, you have the benefit of reviewing your file more often.

3




Understand the difference between your credit report and credit score. Your credit report is a straightforward record of all your accounts, charges and payments. Your credit score is a number, derived from a mathematical algorithm, designed to determine how credit-worthy you are overall. Your credit score is calculated through a separate company, Fair Isaac, and is typically not available with your credit report. You can, however, purchase your credit score for a nominal fee.

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Work with credit bureaus to remove any inaccurate, negative information from your report. Another way to improve your credit rating is to establish and maintain good credit habits. Establish one or more credit accounts and make your payments in a timely manner. Over time, the positive credit history will outweigh the negative.

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Tips for Making Your Credit Score Higher

A high credit score (700 or higher) qualifies you for the lowest interest rate on mortgages, credit cards and other types of loans. Unfortunately, acquiring a good rating takes times and you'll need to consistently manage your debts wisely. Even if you have a moderate or average score, there are tips to help you raise your score and achieve the best credit rating possible.

Clear Up Credit Report Errors

Never assume that the information listed on your credit report is accurate. Granted, the majority of entries will correctly reflect your credit history. However, mistakes can occur and wrong information such as unknown accounts or higher account balances can lower your credit rating and make it difficult for you to get financing.

Ordering credit reports takes less than five minutes, and with free resources such as AnnualCreditReport.com, you're entitled to one free report a year. Credit reports are viewable online, and they include directions on how to dispute errors.

Get a Handle on Your Balances

Some consumers only pull out the plastic for emergencies, whereas others use their credit cards for monthly expenses and then pay off the balance at the end of the month. Both methods are key to avoiding huge credit card balances. The problem lies when you use credit cards regularly and fail to pay down the charges. This results in carrying a balance, and you can expect a drop in your credit score if your balance exceeds 30 percent of your credit limit.

Always Pay on Time

Managing your debts wisely involves sending your payments on or before the due date. Creditors do not tolerate late payments. Regardless of whether you have a history of paying on time, one late payment can result in late charges, and depending on your credit card company, an increase in your interest rate. Bring up your low credit score by paying all your bills on time each month. Pay early to avoid an accidental late payment.

Stop Applying for New Credit

Unknowingly to some consumers, applying for a new credit card or loan takes points off your credit rating, and too many inquiries can result in a bad credit rating. This is vital information because department and retails stores constantly invite patrons to apply for in-store credit in order to save on their purchase. What's more, credit card companies regularly tempt consumers with pre-approved offers. Reject these invitations and only apply for credit when necessary to help improve your credit score.

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How to Find Your Credit Score

Your credit score determines whether you qualify for credit and how much you'll pay for it. By law, you get a free copy of your credit report every year but you do not have the same legal rights to a free credit score. To top off the confusion, you have more than one credit score. Your FICO scores are used by most creditors when you apply for a loan or mortgage. They may also use credit bureau-specific credit scores from TransUnion, Experian or Equifax.

Buy Your Credit Score

Your credit scores are provided by each of the three credit reporting agencies: TransUnion, Experian and Equifax. The MyFICO website also provides two FICO credit scores based on your Equifax or TransUnion report. The FICO scores are often used by mortgage lenders and other lenders. TransUnion and Experian provide their own scores--often termed FAKO--using their own proprietary formulas. If you visit any of these websites, you'll be given the opportunity to buy your score.

Credit Denial Letter

If you are wanting to know your credit score because you were denied credit, it possible that simply waiting for the rejection letter will pay off. Sometimes a rejection letter reveals your score. In fact, changes in the credit laws now mandate that creditors provide the credit score they used to deny you credit if they used a credit score as a reason to reject your application.

Free Credit Monitoring Services

If you sign up for a free credit monitoring service such as Credit Karma or Credit Sesame, these websites provide a FAKO credit score based on the information in your credit report. They do not provide your entire credit report but you can sign up for email alerts if something changes in your report, such as new inquiries or accounts.

Paid Credit Monitoring Services

If you sign up for a paid credit monitoring service from a credit reporting agency, you may have access to your credit score depending on the package you purchase. Some plans let you pull your credit score an unlimited amount of times; others let you pull it on a monthly basis. They also alert you to changes in your score and possible identity theft.

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How to Check Your Credit Card History

The three little numbers that make up your credit score probably have more influence on your life than any other number (except possibly your SAT score). Your credit score determines not only whether you will qualify for a mortgage or car financing, but also what interest rates you will pay. Despite the importance of the credit score, a 2006 Capital One survey found that 27 percent of adults have never checked theirs -- even though 79 percent of credit reports have at least one error.

Instructions

1

Protect your safety and identity by checking your credit history online using a wired connection. You can request credit reports by mail. However, this gives identity thieves a huge chance to get all the information they need to ruin you financially. Do not let them steal your mail and your identity.

2

Go to AnnualCreditReport.com to get your score. This website is the only place online that the Federal Trade Commission (the U.S. government agency charged with consumer protection) has authorized to give you a free credit report online. Other sites may advertise that they offer free reports, but these credit histories may come free only if you buy something else.

3

Enter your state on the AnnualCreditReport.com home page and then click "Request Report."

4

Fill out the form information that the next page requests, which includes your full name, date of birth, Social Security number and any addresses for the past two years. Make sure that you do not use a wireless connection to fill out personal information.

5

Choose the credit-reporting agency that you would like to provide your report: Equifax, Experian or TransUnion. You have the right to receive one free credit report from each of these bureaus each year, so you can check your score every four months for free. All of these credit bureaus are reputable institutions, so there is no advantage in choosing one over the other; just pick the credit bureau that you have not already checked in the past 12 months.

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Click "Next" to transfer to the secure website of the credit bureau that you selected; you can use this site to view and print your credit history. Although you are entitled to a free credit-history report, you will have to pay to see your credit score. If you are just checking your report for errors, you do not need your score; however, if you are applying for a mortgage or home loan, pay to see your score so that you know what interest rates you can negotiate.

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Safe Ways to Check a Credit Score

Your credit score has become an increasingly important piece of information, not only for use in establishing and obtaining credit, but also for favorable rates on insurance and the ability to lease a rental property. Your credit information is something you should protect and monitor for correctness. There are three major providers of your credit score; each one uses its own proprietary formula for the resulting score. And, there are many safe and convenient ways to check your scores.

Online

In 2003, the federal government enacted the Fair and Accurate Credit Transactions Act (FACT Act), which resulted in credit bureaus setting up the AnnualCreditReport Web site. This site allows consumers to access and review for accuracy a free copy of their credit report each year. This Web site also allows access to each of the three credit bureaus--Experian, Equifax and TransUnion--who offer reduced prices to obtain your credit score. The centralized jumping point takes you to secure Web sites (indicated by the addresses beginning with https://) for each provider, which ensures the safe delivery of your information.

Loan or Mortgage Officers

Most loan officers or mortgage brokers can access your credit scores for you. Whether you are interested in applying for a loan or planning ahead for the future, these contacts are valuable to start the process. In each case, these officers can only access your credit score if you authorize them to. A visit with them and a signature on an authorization form is usually all that is required. A small fee of usually less than $25 may be required to get a copy of the report and scores. Before he pulls your credit report, ask the officer or broker whether you can have a copy, because for some that may be against company policy.

Credit Counselors

Another safe resource for getting your scores is a certified credit counselor. The counselors you are looking for usually work for a nonprofit or government entity (city or county) and are free or inexpensive to utilize. They not only will get you a copy of your credit report, including scores, but they will also help you decipher the reports and advise you on how to make any repairs that may be needed. These organizations should be certified by a recognized entity, such as the Department of Housing and Urban Development (HUD) or NeighborWorks America. Beware of so-called "credit repair" or "credit counseling" companies that want large upfront fees to show you your scores and help you with quick-fix credit repair.

Caution

Allowing your credit to be obtained, or "pulled," by a loan officer or counselor may have a negative impact on your score. If you personally pull the credit from the AnnualCreditReport Web site or another secure online source, there is no impact, positive or negative, on your scores. If you allow other people to pull your report, this can affect your score, so limit those types of inquiries to one or two per year.

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How to Explain Gambling Winnings on a Mortgage Application

Especially after the housing crash in the mid-2000s, mortgage lenders are careful when confirming whether potential customers are able to make their house payments. This means that, as a mortgage applicant, you are responsible for proving all income or assets that will be relevant to the process. This is easy in cases such as salary or investment income, but more difficult in cases such as gambling winnings.

Instructions

1

Obtain and keep the proper paperwork whenever you cash out your winnings. This will help you prove the income, and it is required under tax law for large windfalls.

2

Include your gambling winnings whenever your file your tax returns. Once it's on a tax return, your mortgage lender cares less about the source of your income, and more about the amount of your income each year.

3

Report your gambling winnings on your mortgage application form in the section titled "other income" or "assets." The winnings are more appropriate for "other income" if they come in regular payments over time. A single windfall should be listed under "assets."

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Tips for Cleaning Up Credit for Free

When you buy something on credit, the business that extends you credit reports the transaction and all subsequent transactions related to the purchase to national credit reporting agencies. This applies to all forms of financed purchases, including home mortgages, auto loans, credit, charge and department store card purchases, and even purchases made under contract that are not financed, such as cell phone service. The set of information about your purchases and repayment patterns is your credit report. Federal laws that regulate credit-reporting agencies allow you to clean up your credit for free.

Scores

Reporting agencies assign a value to your creditworthiness, referred to as a credit score, based on the information in your credit report. The better your credit score, the more favorably potential lenders look at your requests for credit. Because the information in your credit report and the resulting credit score can affect lenders' decisions about whether to extend you credit (and affect the terms of credit), the information in your credit report must be accurate. Have any inaccurate information removed from your report.

Free Report

Under federal law, consumers have the right to annually review all the information in their credit reports at no cost. The Federal Trade Commission (FTC) reports that the official resource for obtaining the information in your credit report is the AnnualCreditReport.com website. While there are numerous websites that may offer to provide credit report information, the AnnualCreditReport.com website is the only officially designated website. You can visit the website, call the toll-free number, 1-877-322-8228, or fill out the Annual Credit Report Request form available for download from the AnnualCreditReport.com site and mail it to the Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Regardless of which method you choose to request the information, you are entitled to receive your complete credit report, at no cost, from Experian, Equifax and TransUnion. You can choose to have the information provided to you online, by fax, or by mail.

Disputes

When you receive your credit reports, examine the information in each report to ensure that it is accurate. Credit reports may contain misinformation. For example, a business that extended credit to you may have inaccurately reported that you made late payments. You may find that there is information in the report that is not related to you at all, but is instead information about someone with a similar name. Whatever the source of the inaccurate information, you are entitled by federal law to dispute the information in your report at no cost to you. You may choose to dispute the information online or by mail; each reporting agency provides information on how to dispute an entry in your credit report.

When you file a dispute, the reporting agency is obligated to contact the business that gave them the information to confirm that the information is accurate. If the business reports that the information is not accurate, or if the business does not respond to the query, the reporting agency must remove the misinformation from your credit report.

Monitoring

Information that is found to be erroneous and that is removed from your credit report generally will not reappear in your report. However, it is useful to monitor your credit report consistently. You can request a free copy of your credit report annually, and dispute the information in the report at no cost. By monitoring the information in your credit report, you can ensure that it remains accurate.

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How to Improve My Credit in the USA

Improving your credit is good for advancing your financial goals. A good credit score provides many benefits, such as lower interest rates on loans, credit cards and mortgages, better chances for employment and more ease obtaining credit to open a business. A bad credit score has many consequences, such as higher interest rates and insurance premiums. Financial struggles, impulsiveness, lack of financial knowledge and identity theft are a some causes of poor credit. However, with time, you can improve your credit score and takes control of your financial identity.

Instructions

1




In financial situations, knowledge is power.

Request a credit report to make financial plan. Sometimes people sinking financially will allow themselves to remain ignorant about their debt. By overcoming your fears, you will be more motivated and have a clearer mission. You can get a free credit report at AnnualCreditReport.com. Check at least two credit reports initially. Dispute any unreasonable or false claims. Print out your report and circle issues that need to be resolved.

2




Mint.com is an useful budgeting site to assist you in reaching your financial goals.

Learn money-management skills. Find out about ways to save money and to achieve financial health. Check out from the library self-help financial literature and media. Reduce impulse buying by avoiding stores when you are bored or sad. Budget wisely and in advance to prevent excessive spending. If you have a frugal acquaintance, enlist his help. Accountability can help you stick to your goals. Use money-management tools, such as calendars, to remind you of billing dates.

3

Don't apply for too many credit cards. Learn to survive without them by minimizing credit card usage. Applying for a string of credit cards will lower confidence in your financial stability. Businesses can sense financial desperation. Also avoid getting too many credit cards. If possible, get an additional job for extra income.

4

Begin paying bills on time. If you have too many bills to juggle, consider cutting the services that you no longer need, such as cable, Netflix or magazine subscriptions. Late payments are a major hit your credit score. If you can not pay a bill in full or you have to pay a bill late, contact the service provider beforehand and attempt to reach a payment agreement.

5




Too many credit cards can be a trap for those struggling financially.

Pay down balances on credit cards and loans. Holding high balances on your credit cards makes you appear risky for future lenders. Stop or limit credit card usage. Begin paying more than the minimum balance. Make small monetary sacrifices such as cutting back on eating out to have more money to pay off credit cards. The overall goal is to improve your debt-to-available-credit ratio. Prevent yourself from going over the credit limit, even if it means cutting up your credit cards to avoid impulse spending. Start eliminating debt that has the highest interest rate, most fees and highest balances. Rotate until you are debt free.

6




With time, persistence and enough calls the debt will eventually go back to the original lender.

Pay off items in collections or charge-offs. Inquire about returning the debt to the original lender if your debt is in collection. Aggressively pay of any charge-offs or collections. Attempt to make an agreement for deletion for pay. Depending on the lender, you might be able to remove the item from your credit report.

7

Resolve any government financial issues. Public library fines, income tax liens and property tax liens have a significant impact on your credit score. If you haven't filed taxes or paid owed taxes, contact the Internal Revenue Service before it contacts you. The IRS is willing to agree on a reasonable payment plan.

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Differences Between Vantage Score & FICO Score

In 2006, the three major U.S. credit bureaus, Equifax, TransUnion and Experian, created the VantageScore in order to eventually replace the Fair Isaac Corporation, or FICO, score with more modern algorithms. Both scores use different calculations in order to determine the creditworthiness of a consumer and both have different ranges of scoring. As of March 2011, borrowers can purchase both FICO and Vantage scores by visiting the website of one of the three major credit bureaus.

Calculation

The three major credit bureaus calculate a consumer's FICO score based on payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit lines (10 percent) and types of credit lines used (10 percent), according to myFICO. The credit bureaus base the VantageScore on payment history (32 percent), credit utilization (23 percent), balances (15 percent), depth of credit history (13 percent), recent credit (10 percent) and available credit (7 percent).

Scoring

According to Debt to Income, FICO scores range from a low of 300 to a high of 850. Vantage credit score ratings run from a low of 501 to a maximum of 990. In addition, VantageScore assigns a letter grade to borrowers that ranges from F (terrible) to A (best). For example, a B Vantage Score runs from 801 to 900, while an F score ranges from 501 to 600. Lenders consider persons with a FICO score above 750 and a Vantage Score above 900 as the best type of borrower according to Debt to Income.

Cost

As of March 2011, consumers will have to pay $15.95 to obtain a single FICO score from Equifax and TransUnion. Experian no longer offers FICO scores to the public. Consumers can obtain a VantageScore at the lower price of $7.95 per credit bureau. Individuals can obtain their credit score by applying online or by telephone,in which case they will receive their score in the mail. Consumers may want to receive their scores from all three credit bureaus as scores can vary slightly depending upon the bureau.

Considerations

FICO scores offer lenders a better track record of a consumer's credit history because these scores rely upon more established credit information. However, the downside, according to VantageScore, is that between 34 and 50 million adults in the United States have little or no credit history, resulting in these individuals having either no FICO score (unscorable) or an inaccurate FICO score.

A VantageScore allows lenders to profile consumers with a thin credit history, such as immigrants, young adults starting their careers and people who rarely use banks and lines of credit. However, having been created in March 2006, the algorithms for the Vantage score are based on consumer data from 2003 to 2005 and, consequently, they currently only reflect more recent borrowing behavior.

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How Long Do Bad Credit Records That Are Past the Statute of Limitations Stay on a Credit Report?

When you have bad credit it can remain on your credit report for a certain period of time even though the statue of limitations is passed. The amount of time will depend on the type of bad credit.

Significance

Most bad credit will remain on your credit file for seven years. The statue of limitations has nothing to do with how long information remains on your credit file. When the statue of limitations has run out it means a creditor cannot win a judgment against you in court.

Considerations

The statue of limitations can vary from state to state. Typically the time frame is any where from three years to 15 years. The majority of the states fall in the area of five to six years.

Warning

Some creditors will try to bring legal action against you even though the statue of limitations has passed. If you show up for court, and provide proof that the statue has passed, the creditor will not win the case.

Time Frame

Collection accounts will remain on your credit file for seven years. When this time has passed they will drop from your credit report automatically.

Dispute

If any information remains on your file after seven years you can contact the credit reporting agency that reported the information and dispute it.

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Can I Add Rental History to My Credit Report?

In years past, lenders and credit agencies would never see a rent history, but this changed for some people in 2011 when Experian completely merged with RentBureau. Adding a rental history to your credit report has always been possible, but not to the credit agencies used by most lenders. Even if you have a history with consumer reporting firm like RentBureau, you cannot force the national agencies to report it.

Identification

You can add rental history to an alternative credit report, but you must pay a monthly fee to the alternative agency to verify your history. Alternative reports have another downside: lenders are far less likely to accept this as opposed to a report from one of the major credit bureaus.

Experian and RentBureau

As of 2011, only Experian includes rental histories for some borrowers from one of the largest consumer reporting agencies, RentBureau. Experian reported on-time payments in 2011 and plans to add missed rent payments and other negative items from rental histories in 2012, according to Lynnette Khalfani-Cox of Wallet Pop. The major credit bureaus will likely add more rental histories after 2011, because paying rent has a strong correlation to a person's willingness to repay a debt.

Benefits

People without a credit history or a limited amount of data on their profile benefit the most from adding rental history to their report. Thus, you should ask the credit bureaus to add rent payments to your file. However, they are unlikely to do so because the national bureaus probably won't spend the time and resources to verify the data on any account unless they already have the rental history in their database.

Tip

You may not need to add rent history to your report. At least 20 percent of lenders do not use the FICO scoring system and opt for informal underwriting instead, according to financial expert Dave Ramsey. Thus, you could bring in evidence to a lender that shows you are a good renter, such as canceled checks or a history from the landlord.

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The Advantages of a Good Credit Score

According to the Home Buying Institute, millions of Americans have a low or bad credit score. A low credit score can cause many problems for the average consumer, as it can make seemingly simple tasks like borrowing money from a lender or applying for a credit card nearly impossible. Having a good credit score offers many advantages to consumers, and can open up many financial doors and opportunities for those who have it.

Lower Interest Rates

Consumers with high credit scores are generally offered lower annual interest rates on their existing credit cards. This is an extreme advantage for people who use their credit cards on a regular basis for bills or other regular purchases such as gasoline or groceries. A lower interest rate basically translates to more money for less, as you will not be charged nearly as many interest fees as you would with a high interest rate.

Higher Credit Limit

Like lower interest rates, higher credit limits are generally granted to consumers with good credit. This means you will have a higher available balance on your existing credit cards, allowing you to charge more to the card. A higher credit limit can be useful in the event of an emergency or if there is a large purchase that you cannot pay in full at the time.

Easy Access to Loans

Having a good credit score will make applying for an auto, home or personal loan a much easier experience, as lenders are more inclined to loan to you if your credit reflects an excellent payment history. Not only does good credit make it easier to get a loan, it also will lower the interest rates on your loans and increase the money available to you from lenders.

Lower Insurance Rates

Insurance companies take your credit score into consideration when setting your rates, so a good credit score will lower the cost of your auto or home insurance. A lower insurance rate will save you money, giving you the most coverage for the least cost.

Employment

While not all employers will check an applicant's credit history, some may as part of their screening process when deciding who to hire. An applicant with poor credit may not look as responsible to a potential employer as an applicant with good credit. A good credit score will ensure you are not turned down for job opportunities as a result of your credit history.

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Credit Fraud Prevention

Credit fraud is rampant, with the Javelin Strategy & Research company's "Identity Fraud Survey Report" finding that there were 11.1 million victims in the United States during 2009. Victims have ways to control and repair the damage caused by identity thieves and other criminals, but prevention is the most efficient strategy.

Definition

Credit fraud involves financial damage from unauthorized use of a person's existing credit cards or a thief who opens and uses new accounts under another person's identity, the Federal Trade Commission (FTC) warns. The key to fraud is credit use without knowledge or permission.

Methods

Criminals get enough information to do credit fraud in various ways. Some observe credit card use directly or with hidden cameras to get the credit card number, which is used for online purchases. Some use skimmers, which are devices that steal information from the magnetic strips on card backs. They can be hand held and used by clerks or mounted on automatic teller machines, gas station pumps and other point-of-sale purchase locations, "Consumer Reports" warns. Phishers use emails and phone calls to impersonate banks or legitimate businesses and trick people into giving personal information. Email attachments and malicious websites download software that steals credit card numbers and other information and transmits it to identity thieves.

Solution

Credit fraud effects are often long-lasting because a criminal may keep trying to open new accounts in a victim's name. The FTC recommends adding a fraud alert to Equifax, Experian and TransUnion credit reports and filing a police report. The credit bureaus will extend the alert to seven years if given a report copy. The FTC also advises requesting free credit reports yearly from annualcreditreport.com and examining them for fraud tip-offs like unknown addresses and accounts.

Prevention

Credit fraud is preventable by closely guarding credit card numbers and personal information and using reliable anti-virus and anti-malware software. Smart consumers ignore telephone and email requests for information and avoid doing business with any websites other than those run by well-known retailers. Consumer advocate Clark Howard recommends credit freezes, which totally prevent credit report access and new account openings without a password or pin number. Freezes must be done individually with each credit bureau, and there is a charge of about $10 in most states.

Warning

Some criminals use the fear of fraud to trick people into giving up their credit card numbers. They call or send emails claiming that a person's account is frozen because of suspicious transactions and ask for the number, security code and expiration date to confirm and reactivate the account, Midland Credit Union warns. Never give personal or financial information to a caller, even if a bank name shows up on the caller ID, because it can be spoofed. Emails use logos and real links to appear legitimate, but do not answer them or click anything because there will be a malicious link or attachment. Get the bank telephone number from the credit card back or a statement and ask if there is a problem.

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What Is Your Starting Credit Score?

Credit scoring does not work like a video game; the credit bureaus won't start you off with any points. While not having a credit score detracts from your financial profile, it also puts you in a good position to build a clean and positive credit history. In some cases, a limited credit history gives the impression to lenders that you are more creditworthy.

Identification

When the credit bureaus contain no information on your financial history, you will not have a credit score. Instead, lenders that try to calculate your credit score receive a result of "insufficient credit history." You might have a nil credit score with some credit history on your profile. It typically takes at least six months of payment history for the credit bureaus to calculate a score, according to Mortgage News Daily.

Benefits

The credit reporting bureaus do not rate new borrowers along with borrowers who have long credit histories. Thus, once you build enough history to receive a credit rating, you might have a much higher score than if the bureaus compared you to an experienced borrower. However, when your "scorecard" changes from new borrower to experienced borrower, your credit score could drop if your credit history looks poor compared to other borrowers with experienced scorecards.

Starting Your Credit History

You must use a creditable account or take out a loan from a lender that reports activity to at least one of the major credit bureaus. Unless you know someone who agrees to add you as a co-signer to an account, you will likely need to apply for a credit card that has low requirements. Store credit cards and secured credit accounts typically have weak standards. In the case of a secured card, you usually only need to put a security deposit against the line of credit to qualify.

Tip

Until you manage credit for a decade or more, a short credit history negatively affects your credit score, because credit history length counts for 15 percent of the FICO score. You can probably offset most or all of the damage from a short credit history by keeping credit card balances low and never missing payments.

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Do Mortgage Modifications Reflect on Your Credit?

How mortgage modification affects your credit depends on your personal situation. Mortgage modification may kill two birds with one stone, saving your credit rating and your home. Alternatively, mortgage modification can require you to ruin your credit rating and may not not save your home from foreclosure.

Identification

Nothing negatively affects your credit rating unless a lender reports it to the credit reporting bureaus. However, mortgage modification often results in a negative notation on your credit history, because you do not pay in accordance with the original mortgage agreement. Also, some lenders only modify a loan after you have missed at least one payment. One missed payment can take over 110 points off your FICO credit rating, and a 90-day late payment could mean a loss of 135 points, according to Les Christie of CNN.

Making Home Affordable

You do not have to purposely miss payments to obtain a mortgage modification. The federal government has the Making Home Affordable program until at least 2013 for homeowners who cannot afford their home. While lenders report a Making Home Affordable mortgage modification as under a federal government loan program, participation in MHA does not damage your credit score as long as you enter the program current on payments and make on-time payments while in the program.

Benefits

Taking part in any mortgage modification may be the best thing for your credit rating in the long run. Defaulting on payments can make you too risky to lenders, and a record of non-payment stays on your credit report for seven years. Mortgage modification may also help you avoid foreclosure, which you may value more than your credit score. A lower monthly payment or interest rate, common concessions by a lender under mortgage modification, may free up income to help you make on-time payments on other accounts.

Tip

Ask the lender how it will report a mortgage modification and negotiate for the bank to report the account as "pays as agreed." Whatever the lender acquiesces to, get it in writing, because oral agreements are much more difficult to enforce. Watch out for fraudulent credit repair companies that claim they can save your credit score and your home. Some try to take your money and run, or get you to sign over the deed to your home, according to the Federal Deposit Insurance Co.

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Does Fast Cash Hurt Your Credit Score?

Fast cash loans -- commonly called payday loans -- allow borrowers to obtain funds quickly and usually without a credit check, so you only need a job to get a fast loan. This probably will not affect your credit score so long as you follow the rules set forth by the creditor. A payday loan more likely affects your finances, which may impact your ability to repay debts to other creditors that report to the credit bureaus.

Identification

Most administrators of payday loans do not perform credit checks or report to the major credit bureaus, because their customers tend to have bad credit and do not qualify for a loan from a major bank. Thus, the credit bureaus are unlikely to find out about a payday loan when you repay the lender according to the loan agreement.

Delinquency

Not repaying the fast cash loan or falling behind on the payment plan can cause the loan to get onto your credit report, because the payday loan company might sell the account to a debt collector. Debt collectors usually report delinquent accounts to the credit bureaus, and collection accounts are very damaging items to have on any report regardless of the size of the fast cash loan. Only when the payday loan has an original balance of less than $100 does the FICO credit scoring model ignore it.

Considerations

Payday loan companies usually charge extremely high interest rates, because they are meant for short-term loan emergencies to be repaid the next time you receive a paycheck. A single loan of $100, for instance, would cost $60 if it is rolled over to the next paycheck three times and a $15 origination fee is charged each time, according to the Federal Trade Commission. If you keep rolling over a large fast cash loan, it could trap you into a cycle in which you have only enough money each month to pay the interest. This could make paying other debts difficult and could cause defaults, which lower your credit score.

Tip

Explore all options before applying for a fast cash loan, suggests the Federal Trade Commission. Local banks and small loan companies usually offer much more favorable rates than payday loan centers. If you need a payday loan to pay off other creditors, ask about hardship policies the lender offers, such as deferred payments. Nonprofit credit counselors can work with creditors to reduce your monthly payment or provide advice on how to trim monthly expenses from your budget.

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Does a Bounced Check Affect Credit?

A bounced check is a check that your bank returns to the recipient when your account does not have enough funds to cover the amount for which it is written. Virtually all banks charge fees for bounced checks, and you may also face late fees and returned-check charges if you wrote the check to pay a bill. Bounced checks also can affect your credit rating and make it difficult to obtain loans and new bank accounts.

Credit Reports

Your credit reports from the Experian, Equifax and TransUnion reporting agencies contain information about credit-related accounts such as loans, general credit cards and retailer-specific accounts. The agencies do not report checking account activity, but they do put collection agency activity in your files. Some retailers and other companies hire debt collectors if you do not reimburse them for bounced checks. Collection agency entries are visible on your credit reports for seven years, and lenders may look unfavorably on such entries when evaluating your credit applications. Bankrate columnist Steve Bucci warns that court judgments are also added to your reports when collection agencies successfully sue you.

Traditional Credit Score

Your three-digit credit score is calculated based on information in your credit reports, so collection activity related to bounced checks reduces your credit score. The MyFICO scoring information website explains that 35 percent of the score is based on payment information, including collection agency accounts, so returned checks being pursued by debt collectors can hurt your score significantly.

Alternative Credit Score

Bounced checks directly affect your FICO Expansion Score, an alternate credit score created by Fair Isaac Corporation, developer of the original scoring model. The Expansion Score is an alternative score for people without a traditional credit rating, based on information from rent-to-own furniture and electronics stores and high-risk lenders such as payday loan companies, according to MSN Money writer Liz Pulliam Weston. This score also incorporates data from firms that track people who write returned checks. Normally, such firms create blacklists for bank use, which only affects your ability to get new checking accounts. The bounced checks hurt your ability to get credit accounts with lenders that use the Expansion Score.

Considerations

A bounced check may affect your credit in an indirect way if it was sent as payment for a loan or credit card and caused you to miss the deadline. The creditor usually imposes a late payment fee, and your account is marked delinquent and reported as such to the credit bureaus. This falls under the payment information section of your credit score, and it continues to hurt you every month you let the delinquency persist. The effect stops when you bring your account current, but that does not erase the prior delinquency.

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How Does a Collection Negatively Impact My Credit Score?

Credit card companies and businesses to whom you owe money usually do not pursue you forever. MSN Money website writer Liz Pulliam Weston explains that they try to collect for about six months. Most write off the owed balance if you make no payments in that time frame, but this does not remove your liability. The account typically gets sold to a debt collector, which compounds the damage to your credit score.

Effects

Your Experian, Equifax and TransUnion reports show past due and charged off accounts, which hurts your credit score. Most debt collectors add another entry when they purchase accounts, reflecting the collection status. The MyFICO credit score website states that charge-offs and collections are considered part of your overall payment history. Thirty-five percent of your total score is based on this category, so collections have a major negative impact.

Time Frame

Collection accounts do not impact your credit score forever, even if you never pay off the debt entirely. The Federal Trade Commission explains that the credit bureaus remove most negative items, including collections, after seven years. Credit scores are based on information in your reports, so erased items have no effect on your score. You may request the removal of an item by filing disputes with Experian, Equifax and TransUnion if a collection account still shows up after seven years from the original delinquency day. Check for outdated collections by ordering free credit reports through AnnualCreditReport.com, which provides them once per year.

Solution

Collection agencies have the ability to remove accounts from your credit reports, although they do not do this automatically, even if you pay. You can negotiate erasure as part of any settlement agreement on an old bill, and you can insist that the debt collector put that promise in writing, Bankrate columnist Steve Bucci advises. Do not agree to a "paid" or "settled" notation, because the collection account negatively impacts your credit score as long as it appears on your credit reports, regardless of its status.

Warning

Unscrupulous collection agencies sometimes threaten to add outdated debts to your credit reports after the legal reporting time has elapsed. These firms are known as "zombie" debt collectors, because they buy old bills that are no longer legally collectible and try to trick consumers into paying, Pulliam Weston warns. Every state puts a limit on collection times. Ignore threats from collectors who try to get money from you once the statute of limitations has passed. File disputes with the credit bureaus if the account ever shows up on your records.

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Why Is My FICO Score Impacted From a Signer Account?

The FICO score is a credit score calculated by using the Fair Isaac Corporation's scoring algorithm. The score is used by lenders as an important factor in determining eligibility for loans and loan terms, such as interest rates. Cosigning a loan refers to guaranteeing to repay a loan in the event that the primary borrower does not repay it, and it can affect your credit score.

Potential

When someone cosigns for an account, the cosigner is considered to be just as liable for the account as the person he is cosigning with. The account will be listed on both credit reports, and the creditor can come after the cosigner for repayment of the loan even if the borrower has not been pursued yet, according to the Federal Trade Commission.

Purpose

Lenders usually require a cosigner on an account when the primary borrower does not meet the lending criteria or does not have a sufficient credit history. For example, a teenager going to college may need a cosigner on a credit card if she has not had a credit card before or does not have a significant income. Borrowers may try to get someone to cosign their loan in order to receive more favorable terms, such as a lower interest rate, if her past credit is shaky. For example, if a person has a lower credit score but gets a person with stellar credit to cosign the loan, the lender is more likely to offer a lower interest rate.

Significance

The most obvious impact on a FICO score from cosigning a loan will be that the payment history of the loan will be added to the cosigner's payment history, which accounts for 35 percent of the loan. If the loan is paid on time and as agreed, the payment history can be beneficial because the cosigner will have another account reported as being in good standing. However, if the borrower makes late payments, the cosigner's credit history will suffer as well.

Considerations

The FICO score can be affected in several ways by cosigning for a loan, besides just your payment history. Thirty percent of the FICO score comes from the amount of money a person owes and what percentage of her available credit is being used. When someone cosigns for a loan, that amount of debt is added to her outstanding debt, which can bring down a FICO score because of the higher debt load. In addition, because of the higher debt, other lenders may limit how much additional money the person can borrow in her own name.

Warning

People should be very cautious about who they cosign for on a loan. When cosigning, the cosigner should ask the lender how much he could be liable for in the event of the borrower defaulting. Some lenders will allow a cosigner to only be liable for the principal owed when the borrower defaults, rather than also being liable for court costs, interest and finance charges. Cosigners should also get a copy of all the loan documents and a written agreement that the lender will alert the cosigner if the borrower ever misses a payment.

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Who Do I Contact if I Am a Victim of Identity Theft?

Identity theft is increasingly pervasive, and it can be devastating to victims. If someone gets hold of your Social Security number and uses it to open credit accounts in your name, or otherwise compromise your financial information and security, you need to take steps quickly by contacting credit bureaus, your lenders and the police department.

Credit Bureaus

Three credit bureaus collect and hold information on your financial life, and if you have been the victim of identity theft your first step should be to contact at least one of them, either Equifax, Experian or TransUnion. Ask the credit agency to place a fraud alert on your report. The bureau that you call is then obliged to call the other two bureaus who will place a similar alert on the files they hold. You should then order a free credit report from each of the agencies and review it carefully for fraudulent activity.

Lenders

If you do find accounts in your credit reports that have either been tampered with or opened fraudulently, your next step should be to call the companies these accounts are held with. Ask for their fraud or security department and outline your situation and ask for any fraud dispute forms the company may need you to fill in. Follow that call with a letter, and include the completed fraud dispute forms and copies of documents that support your claims. You should keep your original documents and copies of all correspondence relating to your identity theft case.

The FTC

Once you have taken these initial steps, contact the Federal Trade Commission and file a complaint. You can do this through the FTC's online complaint form or by calling the commission's ID Theft Hotline 1-877-438-4338. This step allows the FTC to better track identity thieves and share information with other government agencies that may be able to help.

Police

The final step should be to contact your local police department and ask it to open a file on your case. When you attend your local department to file the complaint, take a copy of your FTC complaint form and any supporting documents you have. Ask for a copy of the police report once it's completed, as this will help you dispute any fraudulent charges that result from the ID theft. If your local police department is reluctant to allow you to file a complaint, try contacting your state Attorney General's office.

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Requirements for Home Warranty Coverage

When you buy or own a home, you may need to establish a number of policies to protect the structure and items inside the house. One policy to consider as a homeowner is a home warranty. Learn about home warranty coverage, including the requirements for securing this type of policy.

What Is a Home Warranty?

A home warranty is a contract, similar to an agreement with an insurance agency, that covers certain items in the home. The home warranty, which usually stays in force for about a year, covers the costs of either a repair or replacement for appliances and systems in the home. That includes cooling and heating systems, as well as appliances, like stoves and refrigerators in the kitchen. The contract also pays for issues with electrical and plumbing systems in the home. The homeowner calls a service provider recommended by the warranty service to perform the repair or replacement, then the warranty service pays the claim.

New Homeowners

One of the most common scenarios where an individual seeks a home warranty is when he has just purchased and moved into a new (used) home. The new homebuyer doesn't know how the appliances and home systems function nor if they will continue to function in the future. The warranty provides the homebuyer with the peace of mind of knowing that he can get the items repaired or replaced if they malfunction.

Requirements

The main requirement for getting coverage with a home warranty is that the covered party owns a home in his name. If a prospective homebuyer wants a home warranty, she usually must ask her real estate agent to contact the warranty company to initiate the policy. An existing homeowner can establish the policy herself. Getting a policy is a simple matter of choosing the items to cover and purchasing the warranty --- similar to buying a warranty for a television. The homeowner must also agree to pay a deductible payment to the service provider.

Suggestions

If you are in the market to buy a new home, in some cases, the real estate agent will offer a home warranty policy as a freebie. The real estate agent pays for the warranty as a perk of closing the deal. If this is not offered, ask directly if you can receive this coverage as a part of the deal. Once the initial warranty expires, you can ask the warranty company to extend the coverage for another year or more.

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