How Does Your Credit Score Affect Car Loan Interest?

If you use credit, the issuer of that credit will report your account history to the credit bureau. The credit bureaus -- TransUnion, Experian and Equifax -- use this information to create a personal credit report on you. According to MyFico, your FICO credit score is based upon data found in your credit report. Your credit score affects the interest rate you receive on a car loan.

Identification

Your FICO credit score is broken down into five key areas: 35 percent of the score reflects how you pay your bills, 30 percent reflects the level of debt that you have, 15 percent measures the length of your credit history, 10 percent is the amount of new credit recently applied for, and the last 10 percent reflects the mix of credit types present on the report. All five areas are considered in computing the score.

Significance

A FICO score ranges from a low of 300 to a maximum high of 850. The higher your score, the better your credit. Generally, as your score increases, the interest rate you receive gets lower. The lower the interest rate, the less you will pay in interest over the life of the loan. Some finance companies offer zero percent financing, which means you pay no interest at all for the loan; however, only consumers with a high score will qualify for such deals.

Considerations

Prime borrowers, or consumers with high credit scores, receive the best rates from the top lenders. Consumers with poor credit, however, are often referred to as subprime borrowers, which means they have a low credit score or other black marks on their credit report, according to Bankrate, a financial website. Consumers in this category often will not qualify for auto loans from traditional lenders. Instead they may receive loan approval from lenders that cater to those with bad credit. The catch is that these loans often have high interest rates.

Prevention/Solution

According to MyFico, one of the best ways to improve your credit score is to make all of your credit payments on time, since this one factor alone accounts for 35 percent of your FICO score. One single 30-day late payment can drop your score by as much as 110 points, according to Bankrate. The later the payment, the more damages it does to your score. Paying off debt and keeping your balances low can contribute to a better score over time as well.

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How to Boost a Credit Score to 700 Fast

A credit score is a three-digit number that affects many aspects of your life. It's a summary of your credit history from the past seven years. A credit score tells potential lenders how credit-worthy you are. A high credit score lets you borrow money at a good exchange rate. A low score can prevent you from getting a loan, buying a house or a car, getting a phone contract, or landing your dream job. A score of 700 or higher is considered good. Although you can't repair your credit history overnight, there are things you can do to raise your score quickly.

Instructions

1

Get a free copy of your credit report. You can request it once a year at www.annualcreditreport.com. It won't have your credit score on it, but it will have your entire credit history from the past seven years.

2

Check the report for errors. Even a small mistake can lower your score by 100 points or more. It can also be a sign of identity fraud.

3

Contact the issuing credit bureau with any mistakes you find. They help you correct them. Unfortunately, in some case, this can take years.

4

Pay off as much debt as you can. Start with any outstanding debt. A single missed payment won't have a significant effect on your score. A few missed payments can be devastating.

5

Check your debt-to-credit ratio. It's the amount you owe, divided by your credit line. The higher the number, the lower your credit score. Lenders don't want to lend to people who have maxed out their credit cards.

6

Close some old credit cards. Having too much available credit can make you a high risk. But don't close all of them. Keep one or two of your oldest credit cards. They help establish the length of your credit history. Creditors like to see that you've stuck with the same lender for several years.

7

Diversify your debt. Having different types of debt on your credit report is better than having just credit cards or just loans. Lenders like to see that you can keep up with payments on different types of debt.

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Where Can I Get My Three Major Credit Scores?

The three major services that provide credit reporting data are Equifax, TransUnion and Experian. Each of these companies provides a variation of the FICO score, using the formula created by the Fair Isaac Corp. It is possible to order your credit report from each of these companies for a small fee. It is also possible to use various credit- and identity-monitoring services, which will provide you with a credit score on a weekly or monthly basis. Finally, you are entitled to see your credit report from each company for free one time annually. However, this free annual credit report does not show your credit score; it only shows your credit report or record.

Equifax

Equifax offers a service called Score Watch, which allows you to monitor your credit score on a monthly basis for a monthly cost. This monthly subscription fee includes access to two FICO scores, explanations of the score(s), and monitoring and alerts when something changes on your Equifax reports. It also offers several other products designed to help you monitor your credit score, including a "3 in one" score report, which gives you access to your credit report from each of the three major credit bureaus, along with your credit score. There is a fee for this report as well.

TransUnion

TransUnion is another major credit bureau. Like Equifax, it offers a monthly monitoring service that entitles you to see your credit score and report on a monthly basis. After a one-month free trial of the service, the TransUnion service also charges a monthly fee.

Experian

Experian is the third major credit bureau that calculates a credit score. It offers free access to your credit report and score for joining a program called Triple Advantage. If you fail to cancel Triple Advantage during the seven-day trial period provided that entitles you to your free score, you will be charged a monthly fee. This membership allows you access to your three major reports and credit scores.

Free Annual Credit Report

Each person is entitled to see his credit report from each of the major credit bureaus once annually. In order to get access to these free reports, you need to visit www.annualcreditreport.com/cra/index.jsp.
The website is the only legitimate place to get these three reports for free. Many companies have names or websites similar in name to "free annual credit report," but these websites actually enroll you in various identity-monitoring programs.
These three free reports do NOT include a score; they just include your report. You can order your score when you download your free report, but there is a cost associated with this service.

Other Sources for Credit Scores

Many banks and credit card companies offer their own identity-monitoring programs that provide you with access to your credit score or scores from the three major bureaus. Like the offers from the credit bureaus themselves, you pay a monthly subscription fee for these services.
There are few, if any, places online where you can get a credit score for free. One possibility for free credit scores is a website called Credit Karma. This site offers a credit score for free for providing basic information. However, this score may be an estimation of your actual credit score and may not match exactly the credit score from the three credit bureaus.

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How to Remove Your Name From Bad Credit

No matter what your credit situation is, the Fair Credit Reporting Act (FCRA) is a law designed to promote accuracy and fairness when a business reports information to the nation's consumer credit reporting companies. Enforced by the Federal Trade Commission (FTC), the FCRA includes safeguards and avenues you can take to correct or improve your credit rating.

Instructions

1

Review your information from all three credit reporting agencies to make sure they all have the same information. It is important to ensure creditors are reporting the same information to one or all of these agencies.

2

Identify entries on your reports that include negative information and determine whether the information is accurate and how old the information is. If the negative information is correct, the consumer agencies may report it for up to seven years from the date the event took place. Bankruptcies may be reported for up to 10 years.

3

Notify the reporting agency of any items you are disputing in writing and include copies of any documentation supporting your dispute. The agencies are obligated to investigate any items in question and will make a determination based on your information as well as any documentation on the claim from the company you are disputing.

4

Dispute, in writing, any information you feel is inaccurate or fraudulent to the complaint department of the creditor listed on your reports if the reporting agencies fail to resolve a claim to your satisfaction. Have the reporting agencies include a statement of dispute on the unresolved item and make your statement available for future credit inquiries to aid companies in their decision.

5

Follow up with the reporting agencies to ensure the corrected information is reflected in your credit report when an issue is resolved. You can also request that the agency(s) provide an updated report to anyone that you applied for credit within the six months beforethe dispute.

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How Is Credit Score Affected by Marriage?

Couples need to have pre- and postmarital money and credit conversations wherein they openly discuss their views about credit; these conversations should continue throughout the marriage. Never assume you both think the same way about how to use and manage credit. One essential point to understand is that marriage in itself will neither help nor hurt your credit score. Instead, the smart credit moves you and your spouse make or fail to make before and during the marriage will affect your personal credit score.

Spouse's Credit History

Your spouse's individual credit history has no impact on your credit profile. However, each spouse should know the other's credit history and score. If a couple ever decides to combine their credit accounts, they have essentially created a credit partnership to go along with their marriage partnership. If one spouse cosigns for the other or becomes an authorized user on the other's credit card, both individuals' credit reports will affect that information. Thus, if the spouse who opened the credit card pays the account 30 days or more late, the authorized user's credit report will also take a late payment hit. Late payments remain on a credit report for seven years.

Marriage and Debt

Though many people think they know how much debt their spouse has, one can easily rack up debt unknowingly. Credit card debt is the easiest debt to hide; by the time your spouse finds out, the debt may have already spiraled out of control. If you are carrying too much credit card debt and secretly struggling to make the monthly payments, confess this to your spouse and ask for help before it harms your marriage and credit score. If you need help to bring your debt under control, seek the advice of a financial counselor. To find a counselor near you, visit the National Foundation For Credit Counseling website (see link in Resources section).

Marriage & Credit

If you or your spouse has a low credit score, make a decision on how you will handle credit applications---whether the spouse with the good credit score will apply for the loan or credit to get a lower interest rate, or you decide to apply jointly and accept higher interest rates to help improve the other spouse's credit score. Taking your shared goals into consideration, discuss in detail an appropriate strategy on which you both can agree. Visit the Federal Trade Commission's website for practical tips on building a better credit report.

Joint Accounts

If you and your spouse open a joint account to buy, for example, a house or car, both of your credit reports will reflect this information. With joint accounts, both spouses are responsible for making credit and loan payments. If the account becomes delinquent, the lender will attempt to collect from both spouses.

Credit Report Review

If your financial plans include opening joint accounts, the sooner you see what you may be up against, the more time you'll have to develop an appropriate credit management strategy. Each spouse can order one free credit report annually from Equifax, Experian and TransUnion by logging on annualcreditreport.com or calling 877- 322-8228 (see link in Resources section). When you receive your credit reports, review them carefully for accuracy.

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How to Write a Letter Expressing an Error to a Credit Report Agency

Your credit report contains information about your borrowing history that is used to calculate your credit score. This score determines whether your applications for credit are approved and what interest rate you pay, so it is important that your score be as high as possible. However, sometimes your credit report contains errors that could drag your score down. The Fair Credit Reporting Act gives you the right to dispute any piece of information on your credit report that you believe is in error. The credit reporting agency must investigate your dispute within 30 days of receiving your letter.

Instructions

1

Obtain a copy of your credit report from Experian, Equifax or TransUnion. If you have not gotten your free credit report yet this year, you can get the report for free through the Annual Credit Report website.

2

Circle each error on the credit report.

3

Open a word processing document. Type today's date and your full name and address at the top. Skip one line and type the name of the credit report agency and its mailing address.

4

Type one to two paragraphs to explain why you are writing. In these paragraphs, you should identify each piece of incorrect information and state what needs to be done to correct it. For example, you could write, "The late payment listed in January of 2011 on my Visa credit card account is incorrect. I paid on time that month and request that you delete the late payment entry."

5

List the enclosures that you are providing with the letter. These include your credit report and copies of documents that back up your claim. For example, if you have a bill that shows the on-time payment, this supports your claim that you were not late.

6

Print a copy of your letter and print or make photocopies of supporting documents.

7

Mail your letter through certified mail with return receipt requested. This gives you proof that the credit report agency received the letter.

8

Edit the letter so you can send a copy to the company that provided the incorrect information. This could be your credit card company or lender. Include the company's address in the header and change the text so it asks the company to report the correct information to the credit bureau. Again, mail it through certified mail with return receipt requested.

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How to Remove a Judgement Lien

A judgment lien is a lien placed on your credit report by a court order. Judgment liens are put in place when a creditor takes you to court for unpaid bills and he is awarded the judgment. Judgment liens have a bad effect on your credit score and if it makes your score low enough, you may be unable to get credit cards, loans, or even a job.

Instructions

1

Use Annual Credit Report to get a free copy of your credit reports from Transunion, Experian, and Equifax. Compare the reported judgment lien to the judgment lien filed in court. File for a Motion to Vacate if the judgment lien was filed incorrectly and the court documentation supports this position. If the court vacates the judgment, it is removed from the credit report.

2

Pay off the judgment lien and obtain the judgment release if you cannot vacate the judgment. This paid judgment remains on your credit report, but all real property liens are removed.

3

Dispute the judgment lien through the credit reporting agencies if you cannot pay off the judgment or vacate it in court. The judgment lien is removed from your credit report if the court does not verify the validity of the judgment lien within 30 days. This does not dismiss your financial responsibility for the debt, however.

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What Does the Vantage Credit Score Mean?

Vantage is a newer credit scoring system, introduced in 2006, that the three major credit bureaus developed to compete with the FICO scoring system. The FICO system is purely a numerical one, whereas the Vantage system uses numbers and letters.

Significance

Whenever a lender asks to see your credit report, the lender traditionally receives your FICO score. The lender pays the credit bureau for this information, and the credit bureau pays Fair Isaac, the corporation that trademarked FICO. By using Vantage, the credit bureaus don't have to pay Fair Isaac.

Features

The FICO score ranges from 300 to 850, whereas Vantage ranges from 501 to 990. Vantage reads more like a school report card. The range of 501 to 600 is an "F," 601 to 700 is a "D," 701 to 800 is a "C," 801 to 900 is a "B" and 901 to 990 is an "A."

Function

Vantage uses six variables to create your score, whereas FICO uses five. Vantage scores you in this order: payment history, utilization, balances, depth of credit, recent credit and available credit. FICO scores you in this order: payment history, length of credit history, amounts owed, types of credit uses and new credit.

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Factors Affecting Credit Rating

Credit ratings are reports that lenders use to determine an individual's credit risk. Banks, credit card companies and other lenders retrieve credit ratings on people from credit reporting agencies. Credit reporting agencies use various factors to determine credit ratings. These factors can range from credit history to current debt.

Past Credit

An individual's credit history is kept on record for years. Credit agencies use a series of checks and balances to determine a person's credit rating based on this history.

Lines of Credit

Having open lines of credit is considered a good thing because it means a person has established credit. However, too much credit can negatively affect a credit rating because lenders may consider an individual with too many lines of credit a potential risk.

Bill Paying

Paying bills on time is the most important factor when determining a credit rating. Late or delinquent payments can lower a credit rating dramatically.

Current Debt

Outstanding debt plays a part in determining a credit rating. If an individual has numerous lines of credit or multiple credit cards at or near their maximum lending limit, it can lower a credit score.

Credit Applications

When a credit report has multiple credit checks or applications for credit in a short period of time, it sends up red flags to lenders. Adversely, closing multiple lines of credit rapidly is also cause for concern among lenders.

Employment

The US Consumer Protection Credit Protection Act forbids credit reporting agencies from using your employment history as a consideration in credit rating. But most lenders use employment history in conjunction with credit reports to determine credit worthiness.

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FICO Score Meanings

A FICO score is one way for lenders to measure your creditworthiness when they are considering extending you a loan or a line of credit.

Score Scale

The FICO scoring scale runs from 300 to 850, with higher scores meaning a lower risk of default on the loans. According to MyFICO.com, the median credit score is between 700 and 749.

Good Scores

According to Bankrate, a score of 760 puts you in an excellent position. Scores of 720 and higher will also generally qualify you for most credit cards.

Bad Scores

According to Bankrate.com, subprime borrowers are those who have credit scores below 620. If your score falls beneath this level, you will have a hard time getting approved for loans and will pay a much higher interest rate when you do get approved.

Function

Factors the score looks at include your payment history, how much money you owe, how long you've been using credit, how much new credit you've applied for and the variety of credit that you have used.

Time Frame

Most items the FICO score examines remain on your credit report for seven years. Exceptions include inquires, which only remain for two years, and Chapter 7 bankruptcies which remain for 10 years.

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How to Use Your Credit Card to Build Your FICO Score

A good credit score, known as a FICO score, is essential for getting the best rates on loans. If you have bad credit or no credit at all, you can use your credit card to build your FICO score. Remember that a good credit score comes from using credit responsibly. If you abuse your credit, you'll see a drop in your score rather than an increase.

Instructions

1

Check to be sure that your credit card reports to the credit bureaus. Some credit cards, particularly secured credit cards, don't report to the credit bureaus. Check your credit report--you should see your credit card listed as an open account. You can order a free copy of your report through www.AnnualCreditReport.com (see Resources), which is the only official source for a free credit report. Note that there is a charge to find out your score.

2

Pay your credit card bill on time every month. Your payment history plays an important role in determining your credit score. Your credit card company will report if you are more than 30, 60 or 90 days late, which will decrease your score. To improve your credit score with a credit card, you must pay your bill in a timely fashion.

3

Keep a low balance or no balance at all. Another aspect of your credit score is your debt to credit ratio, or debt load. To determine this, divide your current debt by the available credit and multiply by one hundred to get a percentage. You want the lowest percentage possible. By keeping a low balance, you'll improve this ratio, which will in turn help your credit score.

4

Ask the credit card company to increase your limit. Again, the more credit that you have available, the better your credit score will be. If you have been responsible with your credit account, you can ask the company to increase your limit.

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Good Vs. Excellent Credit Scores

Financial institutions look at credit scores when deciding if they will accept or deny a loan application and what the interest rate will be on an approved loan. The higher your credit score, the better interest rate you will receive.

Excellent Credit

An excellent credit score is over 800. This score reflects a long time of paying bills and loans on time, having filed no bankruptcy, and having no collection accounts. All signify that you're an excellent credit risk.

Very Good Credit

A very good credit score is between 750 and 800. As with excellent credit, this score means that your credit report shows that you pay your bills in a timely fashion each month; however, your established credit history isn't as extensive as needed to fall into the excellent credit category.

Good Credit

A good credit score is between 700 and 750. This means that your credit report shows that you do not have an excessive amount of credit card debt and loans are paid on time; however, you may have been late on some payments.

Know Your Score

You can receive a free credit report annually from each of the three major credit bureaus (Equifax, TransUnion and Experian). You will not receive a penalty to your credit score by requesting these reports.

Improving Your Score

You can improve your credit score by paying down credit card debt; charging a small amount to older credit cards to keep the accounts on your report, and paying them off on time; asking a lender to erase a late payment from your credit history; and checking your credit report for errors.

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Credit Score Factors

Although a credit score is one three-digit number, it is calculated using five separate factors. Fair Isaac Corp. has developed a formula that uses certain information from credit reports to determine this number, which is used by lenders and financial institutions to rate your creditworthiness. You should know the five factors and how much weight each one carries so you can improve your credit score or maintain it if you have a good one.

Payments

The payments made on credit cards and installment loans have the biggest effect on your credit score. Fair Isaac Corp. (FICO) says this factor counts for 35 percent of your credit score. Several factors related to your payment history are taken into account. This part of your credit scare is based on whether you make payments on time, how late you make them or whether you skip some payments entirely.

Balances

FICO states that the amount you owe on various credit cards and loans is the second biggest factor affecting your credit score. If you have several accounts with high balances, this will have a negative effect. Smaller balances in good proportion to your income will make a positive impact. The account types also play a role, depending on the proportion of installment loans, credit cards and other accounts on which you carry a balance. Thirty percent of your credit score is based on this information.

History Length

Your credit history accounts for 15 percent of your credit score. The longer you have had credit accounts paid promptly, the more this factor will affect your credit score positively. If you are starting out and have only one or two accounts, this will keep your score down until you establish a more lengthy history.

Account Types

Your credit account types factor in your credit score at 10 percent. FICO says that the variety of accounts, including installment loans, home loans, credit cards, store cards and other types of credit, influence your score. A balanced mix has the most positive effect.

New Accounts

The age of your loans and credit accounts also play a role. FICO says it accounts for 10 percent of the score. Your credit score can suffer if you have recently opened a large number of new accounts. This could indicate potential financial need or problems.

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How Long Does a Late Payment Affect Your Credit Score?

Late payments on your credit accounts can cost you in both late fees and damage to your credit score. While a single instance of a late payment may not do too much damage to your credit rating, it can trigger concern in other creditors which can raise your interest rates. Keep an eye on your payment due dates, and keep in touch with your creditors if you need to delay a payment.

Credit Reports and Scores

Your credit reports are records of your history of requesting and using credit, as well as paying back what you owe. Your creditors send this information to credit bureaus who then compile it into a report. Your credit score is a three-digit number that reflects the information in your credit reports. Banks, credit card companies, employers, landlords and insurance companies look at both your credit score and credit report when making decisions about giving you a job, renting you a home, setting your insurance premiums, or lending you money.

Time Frame

Creditors can report late payments to the credit bureaus, which stay on the report for up to seven years after the late payment occurs. Your credit report will also show the length of the delinquency, usually by listing the late payments as 30 days, 60 days or 90 days past due. The older the negative item on your credit report, the less impact it has on your score.

Credit Considerations

If you have a good payment record, one 30-day late payment probably won't affect your credit score too much. But a 90-day late payment can have a very serious effect on your credit score, as will a pattern of late payments.

Other Effects

Your creditors monitor your credit report. If a creditor notices that you've missed a payment on one account, it may decide to reevaluate your credit terms. For example, it might reduce your credit limit or raise your interest rate. A higher interest rate can cost you a lot of money and make it more difficult for you to eliminate your debt. A lower credit limit reduces your available credit. Since your use of available credit makes up 35 percent of your credit score, that reduced credit line can do some significant damage.

Prevention/Solution

If you can't make the minimum payment, call your creditor. Explain your situation and ask for some extra time to get your payment in. If the problem is that you regularly forget to make payments, ask your bank about automatic bill pay options, or ask your creditor if it can send you an e-mail alert reminding you to pay your bill. Some creditors will remove a late payment from your credit report upon request if you have a good history of on-time payments.

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What Are My Options for a Car Loan When I Have Poor Credit?

A poor credit score doesn't mean you're stuck walking or relying on public transportation. Most people need reliable transportation, but having a bad credit score may stop you from applying for an auto loan. Because automobiles secure auto loans, there are ways to acquire financing without the best credit history. Explore your options and get the car loan you need.

Bad Credit Lenders

Some auto dealerships are less accommodating when borrowers have a poor credit score. Finding an auto dealer that specializes in or offers bad credit loans can help you get approved with poor credit. Contact larger dealerships and ask about loan products for people with bad credit, or go smaller and finance your car with a privately owned, yet reputable, dealership that offers in-house financing and bad credit auto loans. Do your research and check with your local Better Business Bureau to ensure the reputation of privately owned dealerships. Only choose dealerships that report regularly to the credit bureaus in order to help improve your credit score.

Check Your Bank for Financing

Shopping around and securing your own financing on the auto loan can help you get a better financing deal with poor credit. Dealers that offer financing to people with bad credit do charge higher interest rates on the vehicle loans. Check with your personal bank or credit union to compare loan terms and interest rates, suggests Warren Clarke, Automotive Content Editor for Edmunds.com.

Co-Signing

Financing a car with someone who has a good credit history can help get your foot in the door. Plus, finance companies use the median of both your credit scores to determine the interest rate on the auto loan. For example, if you have a 580 credit score, and your co-signer has an 810 credit score, the median credit score is 695, which can help you qualify for more favorable rates on the auto loan.

Down Payments

Consider taking money from your personal savings account to put a down payment on the car. Putting a down payment on the vehicle helps you qualify for a loan with poor credit, and lenders may reduce your interest rate, according to CarsDirect. Because down payments aren't required to buy a car, there's usually no minimum requirement. However, the higher your down payment, the better. Financial Web recommends down payments between 20 and 25 percent of the sale price.

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Do Wages Garnished Appear on a Credit Report?

Anybody can find out about your wage garnishment because it is a public record, but it may not affect your credit rating. However, a garnishment can make it difficult, or at least more expensive, to acquire a loan. If you already have a wage garnishment, you probably cannot stop it, but you can prevent future wage garnishments.

Identification

The national credit reporting bureaus do not list wage garnishment orders on credit reports, even though they collect information on other public records, such as bankruptcy and civil judgments. However, the fact that you have a wage garnishment order in your name likely means that you have several late payments on a debt that have wrecked your credit rating before the garnishment order went into effect.

Debt-to-Income Ratio

Most loan applications ask you to list any debt obligations, even those not considered a traditional debt, like wage garnishment. Lenders often want to see a low proportion of debt obligations to income more than a high credit rating. Once your debt-to-income ratio reaches 36 percent or more, you usually enter a lender's high-risk category, according to Erin Peterson of Bankrate. Creditors can garnish up to 25 percent of your wages. If you make $1,000 a month and have monthly debt payments of $250, for example, a garnishment of 25 percent of your income takes your debt-to-income ratio from 25 percent to 50 percent.

Considerations

When a lender sees a garnishment order listed under your debt obligations, it may make an informal judgment about your credit. For example, it may assume that you have a hard time paying debts, even when you have an income that supports the loan. Some credit accounts that require too much administration to delve in a person's financial history, such as a credit card, may not ask about specific liabilities.

Prevention

Never ignore a debt so long that a creditor feels it must force payment by taking you to court. Offering the creditor something, even if it is only a few dollars each month, likely avoids a lawsuit. It costs money to file a garnishment order for each check, and many companies do not want to deal with the legal system, so the lender probably will agree to an installment plan, suggests Consumer Credit Counseling Service of Orange County.

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When Do Medical Collections Drop Off Your Credit Report in Florida?

Unpaid medical bills that result in medical collection efforts are a common blemish on credit records and among the leading causes of bankruptcy filings. While such negative events will stay on your credit record only for a specified period, in Florida or any other state, the medical provider or debt collection agency can continue to take legal action for the payment of this unresolved debt after that point.

Credit Reports

Credit reports are large and detailed files that are kept by three private organizations in the United States. TransUnion, Experian and Equifax, which are the three main credit bureaus, collect information about your financial status from financial institutions like banks and car financing companies that arrange loans for auto purchases. In addition, medical companies and even large retailers that extend consumer credit will report your timely or delayed payments to the credit rating agencies. All of this information is collected, analyzed by powerful software and presented in an easy-to-read format to both to you and the corporations that wish to evaluate your creditworthiness. A composite score is also produced that compares your financial history to other consumers in statistical terms.

Default

You should note that there is a significant difference between a default and a collection effort. A default occurs when you fail to pay an outstanding bill within the "grace period." The grace period is the amount of time, beyond the due date, during which you can pay a bill and still avoid a default. If for instance, the due date on a bill is February 10th and the grace period is 15 days, you can avoid a default by sending in your payment, in full, until the 25th of February. Furthermore, the due date on medical bills can usually be frozen while you have an ongoing dispute with your medical insurer. By calling the medical service provider and explaining that you have contacted the insurer regarding the bill, you can usually avoid a default while the insurer is investigating the claim.

Collections

A bill will be sent to collections only after you have defaulted on it, and the medical service provider has all but given up any hope of receiving payment. The right to collect your outstanding debt will then be sold, usually at a fraction of the outstanding amount, to a collection agency that specializes in collecting unpaid balances. At this point, you will no longer deal with the medical service provider but with the collector. Both a default and the initiation of collection efforts will negatively impact your credit report. The effect of the latter, however, is significantly worse.

Time Frame

Once an adverse event such as default on a bill or collection effort is reported to the credit agencies, such information will remain on your credit report for seven years. A bankruptcy filing will stay in the files for ten years.

The reporting of the event on your credit report and any efforts the collection agency might make to collect the outstanding payment are unrelated. The collector may continue to press for payment until the statue of limitations has passed, which depends on numerous factors.

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How to Change Charge Off to a Good Tradeline

Replacing a charged-off account with a good trade line takes time and money. Creditors charge-off delinquent accounts when you fail to pay on a debt for an extended period of time. Charged-off accounts are often sold to collection agencies, and you cannot re-open a charged off account. However, if you work with your creditor and the collection agency to settle the debt then you can eventually establish a new credit account. Charged-off accounts remain on your credit report for up to seven years, but as time goes by, older accounts have less of an impact on your credit score.

Instructions

1

Contact the collection agency or the creditor that owns the charged-off account. Find out how much you owe on the debt including penalty fees and interest. Ensure that you have the correct mailing address for the collection agency.

2

Go to your bank. Make a cash withdrawal of the exact amount of money that you need to settle your charged off account. Ask the bank teller to convert the cash into a cashier's check made payable to the collection agency or creditor that owns the debt.

3

Mail the cashier's check to the debt holder. Make arrangements to settle any other delinquent or charged-off credit accounts you have. Contact each creditor a few weeks after you make your payment to ensure that each debt has been settled.

4

Order your free credit report from each of the national credit reporting agencies: Equifax, Experian and TransUnion. Review the reports to ensure that the charged-off accounts now show as having been paid in full. If necessary, contact the credit reporting agencies with evidence of the payoff.

5

Pay your bills on time and try to keep low balances on your revolving debts such as credit cards and home equity lines. After several months of paying your debts on time, you can re-apply for a new credit line with the creditor that previously charged off your debt. If possible, ask someone with good credit to act as a co-signer on your application in order to improve your chances of getting approved.

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Little Known Things That Hurt Your Credit Score

When it comes to important elements of your financial portfolio and history, few things are more critical than your credit score. Lenders look at this score to determine whether you're eligible for a new line of credit, such as a mortgage or a loan, as well as what kind of interest fees to charge you. Thus, keeping your score high is essential. Alas, several little-known things can actually tarnish your score.

Library Fines and Parking Tickets

That $2.50 fine from your library, and that $40 ticket from parking your car at the wrong curb, may seem insignificant. Unfortunately, most municipalities now turn over unpaid fines -- no matter how minor they are -- to collections agencies if the tickets go unpaid. Craig Watts, a company spokesperson for the Fair Isaac Corporation, told CNNMoney.com that ignoring even the tiniest library fee can cause your credit score to plummet by 100 points.

Paying Off Closed Accounts

This may fly in the face of most advice you've heard, but sometimes it's okay to not pay off your credit card balance right away. This is true when you've closed a credit card account that has a small balance. Under new credit card laws enacted in 2010, your interest rate won't be hiked on your balance. Additionally, paying off the balance completely closes that line of credit, thus reducing your credit utilization ratios and hurting your score.

Shopping Around

When you're in the market for a new credit card, it may be tempting to fill out several applications and shop around to see where you get accepted and who offers the best deals. Every time you apply for a credit card, you generate a credit inquiry that causes your credit score to dip. But that doesn't mean you shouldn't shop around; otherwise you could miss out on a deal. Instead, limit all of your credit applications to a 45-day window. The credit agencies will then view this as a single shopping period instead of multiple inquiries, thus limiting the damage to your score.

Maxing Your Cards

Approximately 30 percent of your credit score is calculated from something known as your debt utilization ratio, which is the amount of credit you've used compared to the amount of credit you have access to. The greater the gap between the two, the better your score. For optimal credit scores, try not to use more than 30 percent of your available credit.

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How Can I Improve My FICO Scores Right Now?

Your FICO score is a credit score calculated using the formula developed by the Fair Isaac Corporation. Financial institutions report your financial history to credit bureaus, and the credit bureaus calculate your credit score. The three major bureaus in the United States are Experian, Equifax and TransUnion. Having a good credit score will increase your chances of being approved for a loan and getting a low interest rate. Though it takes time to drastically improve your credit score, there are steps you can take to improve your score in the short term.

Instructions

1

Check your credit report to understand the different accounts that are used to calculate your score. According to the Fair Isaac Corporation, you can check your own credit report with no negative consequences for your own credit score.

2

Get any delinquent accounts current as quickly as possible. Current does not mean that you have to have them paid off, just up to date. For example, even if you only make the minimum payment on your credit card, you are still reported as being current on the account.

3

Pay down your balances. According to MSN Money, your credit score will be higher if you are using less than 30 percent of your available credit.

4

Even out your balances on your different credit cards if you cannot pay them down. For example, if you have two credit cards, each with a line of credit of $5,000, instead of carrying a balance of $4,000 on one and $0 on the other, it would be better to have $2,000 on each, according to Bankrate.

5

Challenge any errors you find on your credit report. All three credit bureaus allow you to dispute any incorrect information online through their websites. Even correcting a late payment or two can help improve your FICO score.

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What Can You Do if You Do Not Have Enough Credit History?

Having not enough credit history can cause rejections for credit just as if you were someone with poor credit. You can overcome an insufficient credit history, but you must use credit to do so. You probably have to start off at the bottom of the credit food-chain, but you may build enough credit within months to move up to premium accounts.

Identification

There is nothing you can do to counteract a limited credit history other than starting new accounts to build credit or using the ones you already have. If you open any new accounts, it may take six months before the bureaus have enough history on them to add them to your credit score calculation. You should have a few credit cards and at least one installment loan, such as a car loan, to have a good mix of credit.

Starting New Accounts

If you need to add new accounts to your credit history, start with the easiest ones to qualify for, because a hard inquiry in your credit history can take up to five points off of your credit rating, according to the Fair Isaac Corporation. A good first credit card is a secured account because it requires a security deposit on the limit, so lenders take on very little risk. You can also try department store and gas station credit cards.

Alternative Credit History

You can self-report recurring bills that do not appear on a traditional credit history, such as most utility bills, to alternative credit reporting bureaus. An alternative credit bureau charges you to verify a self-reported payment, but a creditor must consider an alternative payment history in the absence of a traditional credit history. Relying on an alternative credit bureau is risky because most lenders prefer and have more experience dealing with credit reports from the three major national credit bureaus.

Tip

Do not open up too many new accounts at once and keep balances low on the accounts you own. Lenders want to see accounts that have never been late on your credit report, so focus on paying promptly. You can piggyback on another person's credit by co-signing on their accounts -- allowing you to forgo the credit check -- but this makes you dependent on the primary borrower to pay his bill on time or else missed payments hit your credit rating too.

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The Evaluation of Credit Scores

A three-digit credit score evaluation is sometimes the only thing a lender needs to reject your application for credit or approve your for the lowest rate possible. A high credit score does not always mean the creditor wants you as a customer. Also, technically, there is no standard definition of what is good credit.

Credit Score Algorithms

Credit score algorithms evaluate your credit history based on how well you repay loans compared to people in a similar financial situation, not your ability to repay a debt. The most common scoring system in the U.S. -- the Fair Isaac risk model -- gives a score that predicts the chance you might miss a payment, but not whether you are a good borrower. Alternative scoring models might rank your creditworthiness. The VantageScore system, for instance, rates scores like grade school papers, such as an "A" for scores in the 901 to 990 range.

Lenders

Lenders are the last process in credit score evaluation and thus hold the ultimate power to decide if you are a good risk. As long as you have a score close to the average or above it, you can probably get a loan. A high credit score evaluation usually means you can receive a much lower rate. Scores above 700 are prime -- qualify for the top rates at most lenders -- and anything less tends to receive a rate adjustment -- increasing the prime rate. However, a high score does not guarantee a loan or a low rate, because lenders consider additional factors, such as monthly income, other debt and job history.

Rejection for Credit Reasons

When an evaluation for credit ends in a rejection, the lender must inform the consumer of the rejection, according to the Federal Trade Commission. This usually occurs with a letter stating the reason or an email if the consumer allows electronic communication. As of 2011, the Fair Credit Reporting Act requires any party to give a free credit report to the consumer if the party denies him a service or loan because of credit. Parties required to disclose rejection for a credit reason includes employers and landlords.

Tip

Evaluate your own credit. You do not have to purchase a score from the credit bureaus, as an online estimator can give you a close approximation to your actual FICO score. Lenders usually look for negative items, such as missed payments and collection accounts. Once negatives hit your report you can do little to remove them, but you can counteract their presence by adding as much positive payment history as possible and eliminating debt.

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How Do Judgements Affect Credit Scores?

A judgment occurs when the court orders the defendant to pay the plaintiff a certain sum of money. Once a judgment is entered, that information appears on the defendant's credit report and impacts the credit score.

History

The Fair Isaac corporation created the FICO scoring model in 1989 in partnership with Equifax. Back then, it was called BEACON, a trademark of Equifax. It is the score used most by lenders, according to Fair Isaac.

Significance

Lenders use credit scores to help ascertain approvals or denials on loans. They also use them to decide what interest rate a consumer will pay on that loan. Higher scores usually receive more favorable rates.

Effects

According to FICO, how well you pay your bills accounts for 30 percent of your score. A judgment is an adverse public record, and it indicates a failure to honor a loan agreement and thus, it will lower your score. How much it drops depends on the other information contained within the report.

Misconceptions

Once a judgment is on your credit report, it will remain there for seven years. Even if you later pay the bill, it will not remove it from the report. Credit bureaus can report negative information as long as it's accurate. The older the judgment becomes, however, the less it will affect your overall score.

Warning

Never pay anyone to repair your credit or remove accurate items. You can fix errors yourself. The Fair Credit Reporting Act (FCRA) gives you the right to dispute inaccurate information on your report. Bureaus then have 30 days to investigate and make corrections.

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Debt Consolidation vs. Do it Yourself

If you want to save for your future, one important first step is to get rid of your debt. If you're paying 5, 10, 15 percent or more on a debt account, paying off that debt quickly is a way of saving money in interest costs. You can pay off debt either by consolidation or by initiating your own personal debt payoff plan.

Debt Consolidation Option

A debt consolidation is a plan to pay off debt by combining all debt into one loan account. Debt consolidation companies often offer to negotiate with creditors to get better terms and then combine the adjusted balances into the new loan. You must make one payment each month for all debts until you pay all them off.

Debt Consolidation Considerations

Using a debt consolidation company is sometimes beneficial if you need help negotiating your balances. For instance, some consolidation companies can cut the balance due on each account significantly to make it simpler for you to pay off the loan quickly. But the downside of using a debt consolidation company is that you must pay an additional fee for their services. Also, you may end up with lower payments each month, but in some cases consolidated loans come with high interest rates that stretch the loan term out for many years. Working with a debt consolidation program could possibly have a negative effect on your credit history and score.

Do-It-Yourself Option

If you choose to eliminate debt yourself, you must make a budget and use a debt-reduction technique without the assistance of a plan provider. One of the most common methods of DIY debt reduction is to pay off your highest interest rate debts first. So in this case, you would pay all extra funds toward the debt account with the highest rate, while maintaining the minimum payments on the other accounts, until that high-rate debt balance is gone. Repeat the action for the next-highest rate until all accounts show a zero balance. Another option is to try to apply for a home equity loan or other low-interest rate credit card that will allow you to consolidate all of your debts into one without the help of a provider.

Considerations

When you choose the DIY approach to debt elimination, you may experience challenges as well. For one, if you decide to choose a basic debt reduction strategy, you may have to continue to pay the same balance on each account, whereas with a debt consolidation the provider might be able to negotiate a lower amount. Doing it yourself may require more time and dedication on your part since you don't have the help of a consolidation company, but you don't have to worry about its affect on your credit history as long as you continue to make on-time payments.

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Why Do They Do a Credit Check for a Job?

As part of a background check, many companies will take a look at your credit report. Some companies feel a credit report will provide some insight into who you are as a person, as well as information about your work ethic.

Character

If you are applying for a job where you will be dealing with money, many companies will take a look at your credit report to see if you are paying your debts on time. This provides insight about your ability to handle money for the company.

Theft

A company may be concerned about the amount of credit you have outstanding. Someone with too much debt, or bad credit, may decide to steal or embezzle money from a company if they are handling money on a daily basis.

Security/Government

As a matter of security some companies will take a look at your credit file. If the job you are applying for requires you to have a security clearance then the company wants to make sure your credit history is in good shape. If you have bad credit or a lot of credit you could decide to divulge top secret information to another country in exchange for cash. This is a concern for government agencies.

Significance

A company must receive your written permission before they take a look at your credit file.

Considerations

If you are not hired for a job because of your credit report, the company must let you know that their decision was based on your credit file.

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How to Raise Your Credit Score by 10 Points

It would be nice to know that certain actions could raise a credit score by at least ten points. In reality, there's no way to predict precisely how many points your credit score will rise because of the myriad complex calculations that go into determining a credit score. The important thing is to take the steps that work with rules and logic of the scoring agencies. Those are the moves that are likely to increase your score.

Instructions

1

Learn about the FICO scoring system. FICO, named after the Fair Isaac company which devised the scoring system, decides credit rating on the basis of an algorithm. People with higher credit scores, for example, lose more points for financial gaffes than people with low credit scores. Steps that appear likely to raise your score -- such as closing down old credit accounts or refusing to use existing credit actually can hurt your score. Avoid these actions.

2

Clean up any errors on your credit report. Order your free annual credit report and see if there are mistakes. Send documents showing the errors and a letter of dispute to the credit reporting companies so they will remove the errors from your report.

3

Pay down debts rather than applying for lower interest cards. Your credit score will be negatively impacted by transferring balances from card to card. You should have only a few cards and the balance on them should be as low as possible relative to the amount of credit extended. If you can get the balance below 30 percent of the credit available, it will improve your credit rating.

4

Redistribute credit. Credit agencies look at use of credit. They score higher for people who have credit cards or lines of credit with low balances. If you can't reduce your balance to 30 percent of your limit, see if you can shift some of the debt to another existing account. Alternately, ask to increase your credit limits, which reduces the amount used -- but only do so if you can discipline yourself not to use the extra money. A third method of diluting negative credit is to add positive credit to your account. Some accounts, such as cell phone accounts, are rarely included. Ask the credit reporting agencies if they will add those.

5

Pay off debts before they enter collections. Don't pay off debts in collection to increase your credit rating. This can actually have a negative impact on your credit rating, according to Liz Pulliam Weston of MSN Money. Some old charges drop off your credit rating in time. What matters most is what the original creditor says about the amount due. When an account goes into collections, the creditor often reports the amount due as zero.

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What to Do If I Want to Find Out My Credit Score

The information in a credit report is used to help calculate a credit score. A high credit score can mean better credit options, such as lower interest rates and higher credit limits. Part of maintaining a credit score is monitoring it annually.

Who Calculates Credit Score

Credit scores are often referred to as FICO scores. The majority of scores given to consumers by credit bureaus are produced from software developed by Fair Isaac and Company. Lenders obtain credit score information from the major credit bureaus: Experian, Equifax and TransUnion. Scores may be different depending on the credit bureau and the information contained in the credit report from the bureau.

Information in Credit Report

The Fair Credit Reporting Act allows consumers a free copy of their credit report annually from the three major bureaus. The credit score is not included. The information in the credit report can be used as a guideline for determining a credit score. Payment history, credit utilization, type of credit and credit inquiries all affect a credit score. Consumers can obtain their free credit report by visiting Annual Credit Report (see Resources for link).

Credit Scores

Some companies advertise free credit scores. Usually a free score is provided with the purchase of a product or subscription to a service. The Federal Trade Commission has issued warnings to warn consumers of the misleading marketing. Credit bureaus do not provide FICO scores for free. Consumers who want their credit score should purchase the score through a reputable company such as a major credit bureau.

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Is Permission Needed to Run a Credit Check in Oklahoma?

A credit report contains detailed information about a person's current and past use of credit and other forms of loans. If you want to check someone else's credit report in Oklahoma, sometimes known as performing a credit check, you have to meet the standards imposed by federal law. Generally, this means that you either have to get the other person's permission or engage in a credit transaction with the person.

Credit Report Laws

The Fair Credit Reporting Act, or FCRA, is a federal law that governs the use of credit report information and applies in Oklahoma and all other states. This law limits who can look at your credit report information and limits this information to either those who have your explicit permission, or those with whom you engage in business and who have a valid business need to check your credit.

Permission

If someone in Oklahoma wants to check your credit report, the easiest way for him to do that is to ask your permission. You can grant your permission to whomever you wish, though you are not under an obligation to do so. Three consumer credit reporting agencies collect and disseminate credit reports --TransUnion, Equifax and Experian -- and each company's credit report contains different information. Anyone who wants to check your report has to prove to the credit reporting agency that he has your permission to do so, usually by getting you to provide a written authorization.

Business Need

A company or individual who engages in a business transaction with you does not need your permission to check your report. Typical situations in which a person would want to look at your credit report include when you apply for credit, apply for a rental property or when you look for insurance. For example, if you apply for a rental apartment, the landlord typically asks you for information such as your Social Security number and date of birth. Using this, the landlord can then check your credit report.

Employer

Your employer may also check your credit report but needs your permission to do so. Employers often check a person's credit report as a condition of employment or when considering an applicant for a job. If, for example, you grant an employer permission to check your report as part of the application process, the employer can look into your credit history and use that information as a basis for its hiring decision.

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How to Contest a Credit Report

A credit report is a compilation of information on how a person pays his debts, where he lives and whether he has been arrested, sued or filed for bankruptcy. A credit reporting company compiles the information and sells it to banks, employers, creditors and landlords. An error on a credit report may stop an individual from getting credit, a job, an apartment or a mortgage.

Instructions

1

Obtain your credit report from each of the three consumer reporting companies: Equifax, Experian and TransUnion. You can do this over the phone, online or by mail. Contact information is on each company's website. Or you can visit annualcreditreport.com and receive copies of all three reports for free. According to the Fair Credit Reporting Act, the three companies must provide a free credit report every 12 months.

2

After receiving the credit reports, scan each thoroughly. Compare them with your list of creditors. Mark any errors.

3

Gather corroborating evidence such as documents, bills and any correspondence that shows the information is wrong.

4

Inform the consumer reporting company of any error. This should be done in writing in a letter. State why the information is wrong, and provide copies of all corroborating documents that support your claim. Be sure to provide your name and address within the letter.

5

Make a copy of the letter, and send the original letter by certified mail with a return receipt request to the consumer reporting company or companies.

6

Once the consumer reporting company has replied, take action. If the reporting company provides a credit report, check to make sure any errors have been corrected.

7

Request that all errors are reported to whoever received your credit report during the last six months.

8

Ask that a statement of the dispute be added to your credit report if the reporting company's investigation does not resolve the issue.

9

Inform the entity that reported the information that you are disputing it. You can use the same information and documents that you sent to the consumer reporting company.

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Does Canceling Your Credit Cards Hurt Your Credit Score?

Canceling your credit cards can hurt your credit score. The damage doesn't come from the act of canceling the accounts, but rather from the effect that canceling them will have on key factors involved in calculating your credit score: the amount and types of credit available to you, the amount of available credit you are using and, in the long term, your payment history.

Credit Scores

Fair Isaac Corporation, the company that developed the formulas used to calculate consumers' credit scores, says those formulas involve five types of information, most of which can be affected by canceling credit cards. Your payment history accounts for the largest chunk, about 35 percent of your score. The amounts you owe on your accounts, including credit cards, make up about 30 percent. The length of your credit history is about 15 percent. The types of credit you use is 10 percent and recently opened credit lines account for 10 percent.

Payment History

If you've consistently been on time with your payments on your credit cards, then that will be reflected in your payment history, the biggest single factor of the score. Once you cancel a credit card, the account remains on your credit report, but it's listed as "inactive." Credit reporting bureaus will automatically remove inactive accounts after 10 years -- but the accounts can come off a lot sooner. Once a credit card issuer removes a closed account from its own records, the account also disappears from credit reports. When it does, that portion of your payment history disappears with it.

Amounts Owed

Credit scores consider not just how much money you owe, but also how much you owe in relation to your available credit. If you owe $10,000 but have $100,000 worth of available credit, that may look better on a report than owing $500 when you have only $600 worth of credit. When you cancel a credit card, you reduce the amount of your available credit. Say you have three cards, each with a $2,000 limit, and a total balance across all cards of $1,000. You're using only about 17 percent of your available credit. If you decide to cancel two of the cards and consolidate the balances onto the third, suddenly you're using half of your available credit. That can hurt your score.

Other Factors

Canceling credit cards may also hurt your score in terms of the types of credit you use. If you have a home mortgage, a car loan and credit cards, you're a more diversified credit customer than someone with just a mortgage and car loan, and that's reflected in a higher score. Cancel the credit cards, and the score comes down. Also, if the credit card you cancel is the one you've had the longest, that will shorten your credit history, which will also pull your score down.

Expert Insight

Barry Paperno, product support manager for Fair Isaac, told Bankrate.com in 2008 that as far as credit scores are concerned, there's "never" a good reason to cancel a credit card account. The scoring formula does not penalize you for having "too much credit," and it doesn't penalize you for having accounts open but not using them.

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