2012 ~ Personal Finance and Money Management

Monday, December 31, 2012

Does a Refund Anticipation Loan Affect Your Credit?

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Tax preparation companies earned more than $600 million off of taxpayers in 2009 from fees for loan servicing, according to Consumer Federation of America and the National Consumer Law Center. Although the CFA and NCLC consider refund anticipation loans predatory, the loans have the benefit of being unlikely to affect your credit rating.

A refund anticipation loan, or RAL, does not affect your credit because it is not an actual loan, but an advance on your refund. The tax preparation firm does not care whether you are a good or bad credit risk. In the past, tax preparers pulled a debt indicator report from the federal government to determine if the IRS would offset your refund check, but the IRS stopped this practice in 2010. A debt indicator does not affect a credit rating, either.

You might end up with a smaller than anticipated refund if the IRS discovers a mistake with your return and adjusts your refund. If the remaining refund cannot repay the anticipation loan, you will have a negative balance with the tax preparer. If you cannot repay the loan, the firm can send the delinquent debt to a collection agency or sue you -- both options can damage your score by 100 points or more.

Tax refund loans have one of the highest annual percent rates of any type of loan. The average RAL has an APR in excess of 24 percent, according to Rachel Ochman of SmartMoney. If you are considering this type of loan, you might have financial problems, such as defaulted loans, that hurt your credit. Alternatively, you might not have a checking account or any creditable accounts that would boost your credit rating to provide alternatives to the RAL..

Modern technology has improved refund processing so much that anticipation loans are obsolete, according to Kay Bell of Bankrate. If you E-File your return, which you can do for free, and provide your bank account information for a Direct Deposit, you should receive your refund within two weeks. You may have other, less expensive options to a RAL available to you, such as a credit card.

Will Not Using Credit Affect Scores?

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In an ironic twist of fate, not having any debt is usually worse for your credit score than carrying some existing balances. Once you gain a line of credit, however, the FICO scoring system will not ding you for failing to utilize credit, except some factors in the equation may hurt if you do not use an account every so often.

The credit bureaus cannot give you a credit score until you establish a sufficient amount of credit history, according to the Privacy Rights Clearinghouse. Also, the accounts you own must report to a credit agency for them to appear on your profile. Despite popular conception, the credit models employed by the credit bureaus do not lower your score for having too much available credit.

If you stop using a line of credit, the lender will not send any new data to the credit bureaus and the account will eventually become dormant, which lowers an important part of the FICO score calculation -- credit utilization. Credit utilization equals your outstanding balance over your available credit limit. When a card goes dormant, you lose the limit on the card and thereby raise your credit utilization ratio.

Ten percent of your credit score comes from types of credit used, according to the Fair Isaac Corp., the company that developed the FICO scoring model. Only carrying one type of debt, such as a single revolving account, does not display a wide variety of credit accounts.

Use your credit card every few months, even if you just put a small charge, like your cellphone bill, on it. If you have a good credit score, do not rush out and open up an installment account just to raise it. Adding debt to your profile lowers your credit score and so does applying for new accounts.

Is Checking Your Credit Score Bad?

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Nearly all people of legal age who have taken out a loan or a line of credit are issued a credit score by credit reporting companies. This score is a measurement of the likelihood that the person will back a loan on time and in full. According to U.S. law, a person is legal entitled to check his credit score once a year free of charge. Some companies, particularly lenders, may also check your score in certain instances, such as when you apply for loans. Some types of credit inquiries car harm your credit score.

According to the financial reference website Bankrate.com, there are two types of credit score check -- hard inquiries and soft inquiries. A soft inquiry happens when you check your own credit score, when a company is prospecting your credit score while deciding whether to extend you a line of credit, and when an employer looks at your score. Meanwhile, a hard inquiry is when a lender looks at your score when you apply for a line of credit.

Soft inquiries do not harm your credit score at all. Although these inquiries are visible to you when you view your report, they are not visible to others. However, hard inquiries will remain on your score for two years and will negatively affect your credit score for a single year. However, the total reduction in your score is usually very small.

Generally, the only time that a credit check can harm your credit score is if the credit check derives from a borrower's attempt to secure new credit. For example, if the credit check is made by a mortgage company to whom the borrower is applying, or by an auto financing company, this will pull down the borrower's score.

According to the Privacy Rights Clearinghouse, you do not need to be concerned if you have recently applied to a number of lenders, such as when applying for a loan for a home or a car. Generally, similar inquiries made within 30 days generally count as only a single inquiry, Your credit score is affected as if only one inquiry had been made.

The reason that a hard inquiry harms your credit score is that credit companies consider attempts to take out new credit to be a risk factor in defaulting on loans. People who take out more loans are generally considered to be at a higher likelihood of defaulting; by this same rationale, people who apply for loans receive a small ding to their credit score, as it may be a sign of financial trouble.

Can an Authorized User Affect a Credit Score?

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An authorized user is a person who has a credit card that draws from the primary cardholder's credit line. The primary cardholder is still fully responsible for the payments on the account. Although the act of adding an authorized user does not affect the cardholder's credit score, the authorized user's charges can.

The main way in which an authorized user can affect the cardholder's credit score is through the debt-to-limit ratio or utilization rate. When the authorized user spends on the credit card, it brings the debt on the card closer to the limit. CNN Money recommends keeping the debt to under 30 percent of the limit to avoid lowering a credit score.

If the authorized user unexpectedly charges thousands of dollars on the card, the cardholder may be unable to afford the minimum payments. Missing payments will hurt the cardholder's credit score.

To avoid ending up with more charges from the authorized user than anticipated, cardholders should ask the credit card company to set a lower credit limit on that card. In addition, cardholders should only add authorized users who they trust to spend responsibly.

How Does Credit Accumulate?

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Credit is one of the most important financial aspects of your life. It affects whether you can buy a new car or house or qualify for a loan, and the type of job you are able to obtain. Here's how exactly can you accumulate not only credit, but good credit.

Credit cards are one of the most common and popular ways to accumulate credit. A credit card can come from a variety of lenders and constitutes a line of cash that the lender loans out to the card holder up to a specific limit. You gain credit from the credit card lender by paying your bills on time and keeping your card balance at a low percentage to the available credit limit.

Loans are another way to accumulate credit. Like credit cards, loans act as a line of cash that a lender loans to you to use for personal or business matters. The only difference is that a loan usually comes as cash all at once and is considered settled once the balance is paid back while a credit card continues with the same available line of credit until you cancel the credit card or neglect to pay your monthly bills. You accumulate credit through loans by paying off your loan within the agreed time line in your loan terms. Loans may be for houses, cars, school or a host of other items.

Financing is another way to accumulate credit. Financing is a tool most often used by businesses for their clients or for stores for their customers. A line of credit works like a credit card or loan in that the lender extends to you a line of cash or gives you merchandise in exchange for the promise that you will pay them back. You accumulate credit through this by paying back the item in monthly payments by the terms of the agreement. You accumulate credit through this by paying on time.

There are two different kind of credit that you can accumulate. You can either accumulate bad credit, or good credit. Good credit is achieved by staying vigilant and abiding by the terms of your credit agreements. Paying on time is crucial to accumulating good credit. On the other hand, you can accumulate bad credit by paying late or not honoring the credit terms and agreements.

Does Opting-Out Improve My Credit Score?

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Adults in the United States commonly receive dozens of credit card offers in the mail every year, most of which end up in the trash. People who would prefer to not get these can opt out of receiving pre-screened credit card offers. This action has no direct effect on the individual's credit score.

Opting out of receiving pre-screened credit offers does not impact your credit score at all. Although the companies sending these offers pull your credit report and appear in the "inquiries" section of the report, these are categorized as soft inquiries. A soft inquiry is one that was not initiated in response to your application for credit. Soft inquiries do not affect your credit score at all. Therefore, stopping the soft inquiries will not improve your credit score.

Opting out might indirectly affect your credit score if you apply for credit you do not need just because you are receiving offers in the mail. Each time you submit an application for a credit card, this creates a hard inquiry that lowers your credit score slightly. In addition, opening a new credit account hurts your credit score as well. In this sense, opting out can improve your credit score indirectly by removing the temptation to get more unnecessary credit cards.

When you receive pre-screened credit card offers in the mail, this puts you slightly at risk for identity theft. This is because someone could steal your mail and apply for one of the credit cards in your name. This can damage your credit score until you notice the identity theft, at which time you can repair your credit, although it can take some time and effort. Receiving pre-screened credit card offers can have some benefits, namely that some of the best credit card promotional offers are only available to people who choose to receive pre-screened offers. If you are in the market for credit, receiving these offers can help you choose the best card.

The only official method for opting out of pre-screened credit card offers is to use the Opt Out Prescreen service. Opting out through the website stops all credit offers for five years. You can also opt out for five years by calling 888-567-8688. If you would like to permanently opt out, you will need to print the form from the website and mail it to Opt Out Prescreen.

Change in How Credit Scores Are Calculated

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The FICO score has long been the industry standard for determining the creditworthiness of potential borrowers. The VantageScore was developed from 2003 to 2005 by the three credit bureaus, Experian, Equifax and TransUnion, before being released to lenders. The FICO score is still the primary score that is used by lenders to determine whether you will receive credit. The VantageScore is still being used on an experimental basis to determine whether it should replace the FICO score as the industry standard.

The FICO score bases your credit score on five factors, but the VantageScore uses six factors. Both formulas look at your payment history and how much credit you have recently applied for. The FICO score groups three of the VantageScore factors into one: the percentage of your credit that you are using, your outstanding balances and your amount of available credit are grouped into total amounts owed. The VantageScore groups two of the FICO score factors--how long you've had credit and the types of credit you have used--into one factor referred to as depth of credit.

Though they use similar factors, the factors are weighted differently in FICO scores and VantageScores. For the FICO score, 35 percent is based on your payment history, 30 percent on the balances you owe, 15 percent on the length of your credit use, 10 percent on how much credit you've applied for recently and 10 percent on the mix of credit you've used. The VantageScore weights your payment history at 32 percent, your use of credit at 23 percent, your amounts owed at 15 percent, your depth of credit at 13 percent, your applications for new credit at 10 percent and your available credit at 7 percent.

Both FICO scores and VantageScores report your credit worthiness as a number. FICO scores range from 300 to 850, with 850 being the best credit score. VantageScores range from 501 to 990, with 990 being a perfect score. VantageScores also give a letter grade to each score. A score between 501 and 600 is an F, between 601 and 700 is a D, between 701 and 800 is a C, between 801 and 900 is a B and any score over 900 is an A.

VantageScores claim to be more detailed than FICO scores in terms of how negative information affects the score. According to Experian, the VantageScore takes into account not only whether the individual has negative credit information, but also how often that negative information occurs. For example, the VantageScore claims to differentiate between customers who have one or two negative reports from customers with a dozen or more negative reports.

The VantageScore was created to better judge the creditworthiness of people without lengthy credit histories. The FICO score reports that individuals who have less than six months of credit history or have not used credit in six months as being unable to be scored, resulting in those people usually not receiving loans even though they might be a low-risk borrower. The VantageScore extends the inactive period from six months to two years. The VantageScore is looked upon as a better predictor of creditworthiness for individuals with three or fewer credit accounts.

What is the Meaning of Credit Score Comments?

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Your credit score is meant to be a numerical representation of your overall credit worthiness and credit history. For this reason, there are no official comments that go with your credit score. However, there are some comments on your credit report that can significantly influence your credit score.

While credit score reports can come in different types of formats, your actual credit report has a set format it must follow. The report lists all of your accounts and the terms of each account, as well as your past payment history for each of your open lines of credit. Credit report comments fill in the blanks to describe those areas of your credit profile that don't fit elsewhere. This includes information about your account, such as its current status and how the account was closed.

Your creditors can use the comments field on your credit report to describe any sort of situation your count may be in. For example, if you have a student loan on forbearance, the creditor can indicate as much in the comments section. This is also true for a debt management program or a bankruptcy. Creditors use the comments to indicate if an account has been included in a bankruptcy or has been discharged from bankruptcy, in which case the balance should reflect this. The comments will state if you've disputed any of the information provided by that credit bureau.

If your account is relatively normal with no adverse history, it's customary to see a note in the comments simply saying your account is "open" or is in "good standing." If your account is closed, however, the comments can make a huge difference to your credit score. A comment stating that your account was closed and not paid in full, which is noted if you settle your debt, is an indication that you're not able to meet the obligations of your credit agreement. This one indication can destroy your credit as severely as a bankruptcy. It's important to make sure this information is correct; if it's not, you should dispute it with the credit bureaus.

If you've ever retrieved your credit score as part of a credit monitoring service, you've also received information about what your credit score means. This information isn't official and doesn't get reported to creditors, but it can help you understand how your credit score has been affected by your actions and how it can improve in the future. Practically speaking, these notes are more important than the information on your credit report, as it's impossible to interpret your credit report's true meaning without gauging how your credit compares to the credit of others.

Tips to Increase a Credit Score

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Your FICO score affects the interest rate you'll receive on auto loans and mortgage loans. If you have a bad score, you may not qualify for such loans. Fortunately, there are ways to reverse bad credit and improve your credit score. The key is recognizing the value of maintaining a high score and making smart credit decisions.

Credit report errors are common and they can affect anyone. Creditors may inadvertently place someone's negative information on your credit report, or someone can steal your identity and open accounts in your name. Failure to check your report annually can result in a lower credit score and higher rates on loans. Make a habit of ordering your report once or twice a year. Thoroughly review the report and look for anything unusual, such as unknown accounts or reporting errors. Contact the credit bureaus and the reporting creditors to dispute and remove errors.

Paying your creditors on time is another key element to increasing your credit score. Late payments or missed payments knock points off your FICO score, and it can take months to recover these points. Do everything in your power to pay your bills on time each month. If necessary, write your due dates on a calendar, or pay statements upon receipt to prevent late payments. Another way to avoid late payments is to sign up for automated bill-pay, wherein creditors automatically withdraw payments from your bank on a specified day each month.

Unfortunately, paying your bills on time each month isn't enough to maintain a high rating. Your debt-to-income ratio affects your credit rating, and increasing your score involves curtailing spending and reducing your debt. There are several ways to decrease your debt. To begin, you'll need to calculate your disposable income (subtract your total expenditures from your monthly income). Instead of spending your disposable income on clothing, entertainment or other indulgences, use this money to pay off your debts. Increasing your income by working overtime or finding a second job also provides money to reduce your debts.

Why Can't I Get My Free Credit Report Online?

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As of 2011, the Fair Credit Reporting Act gives consumers free access to their credit reports once a year, according to the Federal Trade Commission. Requests can be made through AnnualCreditReport.com. No other website is authorized by the FTC to provide free yearly credit reports. Any other website that boasts "free" reports is likely snagging you into a free trial period that ends in your credit card being charged monthly membership dues.

If you're being denied access to your free credit report online, you may have already obtained a copy within the last 12 months. The FTC only allows once-annual free access to your credit report, according to AnnualCreditReport.com. Trying to obtain it more than once in the same year costs up to $10.50 per copy.

Cookies, which consist of text information, are shared between your web browser and your web server to enhance your Internet experience and make your computer recognizable to websites. Cookies must be enabled so that you can obtain your credit report online, according to AnnualCreditReport.com. You can select your cookie preference in "Internet options".

It's frustrating to apply for your free annual credit report online only to be told it will be mailed to you within 15 days, but this often happens. In this case, the credit bureaus may be overwhelmed with requests, according to the FTC. This can also happen if the bureaus need to verify your information.

No one younger than 13 can obtain a copy of his credit report, either online or otherwise. In fact, no credit bureau can knowingly create a report for a person under 13, according to AnnualCreditReport.com. If you think the identity of a child of this age has been stolen, call the credit bureau directly to report the crime. A legal guardian has to provide his identification to prove his legal ability to call on behalf of the child.

There are four other qualifying situations in which you can obtain a free copy of your credit report, according to the FTC. These are: if negative action, such as a loan denial or rejected job application, has taken place because of your credit report; if you're on welfare; if you're unemployed but plan to seek work within the next 60 days; or you believe you're the victim of identity theft. Any of these situations allows you to get another free copy in addition to your annual copy.

Reasons Why You Would Get Turned Down for Instant Credit

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Instant credit is not really instantaneous, although the process generally takes just a few minutes. You can apply for an instant credit card or other account online or at a retail store. The lender checks your credit report and decides whether to open an account immediately, investigate further or deny your application. Many factors influence your creditworthiness, according to credit score company Fair Isaac Corporation, which created the FICO score, so you could be turned down for a variety of reasons.

Lenders do not like to extend more credit to people who are regularly making delinquent payments on their existing accounts. FICO explains that your payment history is a major factor in your score. You are unlikely to be able to make timely payments on a new account if you cannot handle your current financial obligations.

Lenders check your current account balances before granting more credit, even if you are current on your payments. You may not be able to handle the new instant credit account if you have a lot of debt and are only making minimum payments on the existing accounts. FICO explains that lenders also compare your balances to your available credit limits before extending a new line.

You may not be able to get instant credit if you recently opened several other new accounts. FICO explains that lenders look negatively on consumers who open too many accounts within a short time. They also look at the number of times other creditors have reviewed your credit reports, even if you were turned down for those accounts.

You may be turned down for instant credit if you do not have much of a credit history, even if you have modest balances and pay your bills on time. Some lenders want you to have a mix of revolving and installment accounts, according to MSN Money columnist Liz Pulliam Weston. They also like to see a lengthy history before they will open an account. FICO explains that it considers the amount of time you've had your accounts and the time since your last activity, so inactive accounts do not help.

Identity theft victims often do not realize their information has been stolen until they suffer unexpected negative effects. The Federal Trade Commission warns that you might be turned down for credit if you are a victim, even if you handle your finances responsibly, because thieves have opened accounts in your name. They charge as much as possible, then abandon the accounts. The bills quickly become delinquent, but you do not know until your instant credit application is denied because the fraudulent statements are going to a different address.

Does Your FICO Score Change With Your Credit Score?

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A FICO score is your credit score. FICO is the credit score used most by lenders when assessing your credit risk, according to MyFICO. The numerical score runs from a low of 300 up to a high of 850, and the higher the score, the better your credit. It's wise to understand how a FICO score is generated, and what causes a change in your FICO credit score.

Your FICO score contains five key elements, according to MyFICO. How much debt you have is 30 percent of your score. Thirty-five percent reflects how well you pay your debts. Fifteen percent is the average length of your credit history. Ten percent is the amount of new credit you've recently obtained, and the remaining 10 percent reflects the mix of credit types found on the report.

Your FICO credit score is based on the data located within your credit report. The score reflects both positive and negative information but isn't a stagnant number at all. Your FICO score changes as the data within your credit report changes. This means that you can improve your score if it's lower than you would like. How you pay your bills is 35 percent of your score. That's the largest component, so making on-time payments on all of your bills will have a major effect on your FICO score over time.

It's important to make sure your credit report is as accurate as possible. Federal law provides consumers with the right to receive a free credit report. This law is called the Fair and Accurate Credit Transactions Act. Under FACTA, you can order the reports once a year from Experian, TransUnion and Equifax by using the AnnualCreditReport website. Once you have your report, you can dispute any credit report errors online at the credit bureau's website or by phone or mail using the bureau's contact information located on your credit report.

Negative accounts on your report will lower your FICO credit score. The Fair Credit Reporting Act dictates how long negative items can remain on your credit report. Under the FCRA, if you have late payments, charge-offs, repossessions, a foreclosure or other derogatory data on your report, that information will remain there for up to seven years. In New York, paid judgments and paid collections can remain for up to five years. Bankruptcy can remain for up to 10 years. Unpaid tax liens remain 10 years in California and indefinitely in all other states.

How to Write a Letter to Request a Copy of Your Credit Report

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A credit report is a record of your credit history. It tells potential creditors, landlords and sometimes employers how you pay your debt obligations. There are three major credit bureaus --- Equifax, Experian and TransUnion --- that handle the majority of credit-reporting activities. You can request a copy of your report by mail, but you must provide certain information in your request letter so the credit bureau can positively identify you as the person named on the report.

Instructions

Write the date at the top-left side of the paper. Write the name and address of the credit bureau you are requesting a credit report from. Address the letter "To whom it may concern" or "Dear Sir or Madam."

State your desire to receive a copy of your credit report and the reason for your request. Include credit denial information, such as the date of denial and the creditor name, if you are requesting a free report because you were denied credit. Note that you are entitled to one free report per year if you are requesting your annual report.

List your full name, date of birth, Social Security number, current address and phone number. Include your previous address if you have recently moved.

Sign your name at the bottom of the letter. Include payment for the report in the form of a check or money order if you do not qualify for a free report.

What Is the Ideal Credit Score?

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The ideal credit score is one that allows you to access the most competitive interest rates on financing, whether it's a mortgage, a car note or another type of loan. This number can be something of a moving target, as lenders tighten or loosen their underwriting guidelines, but you should do all you can to improve your credit in advance of seeking a loan.

The three major credit agencies, Experian, TransUnion and Equifax, compute credit scores using slightly different models. The score generated by the Fair Isaac Corporation, your FICO score, is the one generally used by most major lenders. The top credit score you could possibly have, if you had a lengthy credit history with no sort of blemish, is 850. The lowest score is 300. Clearly, few if any people have a score at the theoretical perfect level.

As of 2011, most mortgage lenders will only offer their best rates if your score is at or above 740. If you have achieved this level, you should be sure to maintain it by continuing your excellent payment record, but it is not necessary to take strenuous measure to improve your credit, as you will achieve little extra benefit. If your score is between 620 and 740, you should qualify for a loan without any problem, but you probably won't secure the best rate. Below 620, you may find yourself shopping around before you can get approved.

If your score is below that ideal 740, you can take many measures to improve your credit. If you are planning to apply for a mortgage or other major loan, begin working on your credit well in advance, as some improvements can take a while to work into your score. The first step to take is to make all of your payments on time. If possible, put as many of your monthly bills on automatic payment from your bank account so that you never ding your credit simply by forgetting a bill.

Don't apply for new credit -- especially unsecured accounts such as credit cards -- when you are trying to improve your score. Instead, concentrate on paying down existing balances so that you improve your debt-to-available-credit ratio. Be sure to keep open your oldest credit card account, and use this one in preference to the others; the age of your credit history has an effect on your score. Use your credit card regularly, but pay off the balance each month if you possibly can.

Credit Ratings & What They Mean

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A person who has taken out some form of credit, be it a loan or certain kinds of bills, even way in the past, will have a credit report. This credit report is a compendium of information related to the person's credit history. Credit reporting bureaus keep this information as a way of formulating a person's credit score, which is used by lenders to measure a person's creditworthiness.

A credit report is formed from both public and private information. Creditors report information about current debts that individuals have taken out to credit reporting bureaus. These bureaus also comb public records for information about a person's financial status. This information is logged into a person's credit report, which provides a thumbnail sketch of his credit history. Information in this report is fodder for a person's credit score.

A credit score is a number between 300 and 850 that measures -- in the opinion of the credit reporting bureau -- a person's creditworthiness, as calculated using the information contained in his credit report. This score is not public knowledge, but is only accessible to parties that have a legitimate business interest in knowing a person's credit score. Nearly everyone who has a credit report also has a credit score.

A credit score is primarily used by a lender to determine the likelihood of a person paying back a loan that is issued to him. This score helps the lender determine how risky it would be to loan a person money. In addition, scores can be used by landlords to make a guess as to whether a tenant will pay his rent on time and by employers to gauge a person's financial responsibility.

A high credit score can lead to a number of direct benefits to the score holder. Not only might an employer be more likely to hire a person with demonstrated financial responsibility and a landlord more likely to rent to him, but lenders will likely offer him lower interest rates on loans. For large loans, like mortgages, even a small difference in a credit score can translate to thousands of dollars in savings.

How Can I Remove Negative Accounts From My Credit Report?

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A negative mark can appear on your credit report for seven years. Any negative information found on your credit report can lower your credit score, which could hurt your chances of getting approved for new credit in the future. You cannot remove accounts that you actually owe, but you can remove accounts that do not belong to you. The credit bureaus must investigate and remove any negative reports that do not belong to you.

Instructions

Order a copy of your credit report from Equifax, TransUnion and Experian. By law, you can get a free copy of your credit reports once every 12 months through Annual Credit Report. You can also order copies through the credit bureaus directly.

Review your credit report and circle any inaccuracies you find. This could include accounts that do not belong to you, accounts you paid that show unpaid on your credit report or collections with inaccurate information.

Create a dispute letter for every inaccuracy you find in your credit report. Request that the credit bureau investigate your claim and state why you feel the information is inaccurate.

Make a copy of your credit report with the error circled. Attach your credit report to the back of your dispute letter.

Gather any supporting evidence you have, such as copies of personal checks, bank statements or any letters from the creditor. Make a copy of these documents and attach them to your dispute letter.

Mail your dispute letter and documents to the credit bureau. Note the date you mailed the letter to the credit bureau.

Contact the credit bureau after 30 to 45 days if you do not receive a response to your dispute request. The credit bureau must legally investigate claims within this time frame. You can contact the credit bureau by phone or by mail to request a follow-up.

Order a second copy of your credit report once you receive a response from the credit bureaus. Verify that credit bureau corrected or removed the inaccurate information.

What Is the Best Identity Theft Protection?

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Identity theft occurs when someone finds your personal information such as your Social Security number and uses it for criminal purposes such as credit fraud, according to the Federal Trade Commission website. Consumers need to protect themselves from identity theft using proven protection methods. Taking the time to protect yourself from identity theft reduces the chances of having your financial world ruined.

One of the ways that criminals get your personal information is through the bills you throw away in your garbage, according to Dani Arthur, writing on the Bankrate website. To prevent your bills from becoming sources of valuable criminal information, shred all of your documents before throwing them away. Documents to shred include all bills and invoices, credit card offers and non-bill correspondence from your creditors. Consider buying a filing cabinet and saving invoices and creditor correspondence.

Criminals looking to steal your identity will use common communication means that may not seem unusual to you, according to the Federal Trade Commission website. Some of these methods include sending you emails asking you to confirm your account information by clicking on a link to log into your account or calling you at home and asking you to confirm your account information. You should always be suspicious of any correspondence or phone calls from a bank or creditor that asks you to confirm your personal information. Do not click on links in emails that will send you to a login page. That may look like the login page you are used to, but it is a page used by criminals to get your personal information. Log in to the creditor website directly to see if it has any messages for you about confirming your information. If you get a call saying that the person is from a bank or creditor asking you to confirm your account information, tell him you will call the financial institution at the customer service phone number you have to check on any account issues.

The Social Security Administration website reminds us that your Social Security number is an important piece of your information that identity thieves would like to get ahold of. Do not carry your Social Security card around in your wallet. It could fall out of your wallet without you knowing it, or if your wallet gets lost or stolen your card would be in there. Only use your Social Security number for select and secured situations such as applying for a loan or credit account, or applying for a job.

When you are shopping online, your credit card information could be subject to identity theft if you are not careful, according to the Bankrate website. A standard Internet website address starts with "http://". If you look in the address bar of your browser, you will see the address starting with this indication. A secure website starts with an "https://". If the website address you are on does not start with the secure website indication, do not input any of your credit card or personal information on that page.

Consumer Credit Rating Rules

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The Fair Isaac Corporation produces FICO scores, which are the standard for determining the creditworthiness of potential borrowers. These credit scores are based on information found in the individual credit reports. The FICO score is based on five factors: payment history, the amount of money you owe, the length of your credit history, your recent applications for new credit and the types of credit you use.

Your payment history accounts for about 35 percent of your credit rating. Your payment history looks at how often you have paid your accounts on time, how many of your payments have been late and any accounts you have defaulted on. Your recent history is counted as a higher percentage of your score---a missed payment five years ago will hurt your score less than a missed payment within the past year.

Approximately 30 percent of your credit rating is based on your level of indebtedness. This section takes into account all of the money you owe, whether it be on credit cards, installment payments or mortgages. It also takes into account how much of your available credit is being used. For example, if all of your credit cards have a combined limit of $1,000, and you are using $800 of that available credit, your score will be lower than if you had a total credit limit of $4,000 and you owed that same amount.

The length of your credit history makes up about 15 percent of your total credit rating. The longer you can show you have been responsible in using your available credit, the more trustworthy of a borrower you will be perceived to be and the higher your credit score will be. To help improve this part of your score, keep your oldest credit card accounts open to show a longer history of credit management.

The amount of new credit you have applied for recently accounts for about 10 percent of your credit rating. Lenders perceive people who have recently applied for large amounts of new credit as a greater credit risk. An exception to this is when you are applying for a car loan or home mortgage. Since most people will apply to multiple financial institutions for these types of loans, as long as the loans are made close to each other, the FICO score only counts them as one inquiry. This exception does not apply to multiple credit card applications.

The variety of credit you use counts for about 10 percent of your score. Lenders view individuals who have used a variety of credit types as a better credit risk because they are usually more informed about how to use credit; someone who uses only credit cards will tend to have a lower score for this section than someone who has a mortgage, installment payments and credit cards.

Is Your Credit Score Negatively Affected When Closing out Accounts on a Credit Report?

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The average American consumer had 3.5 open credit cards as of 2008, according to the 2010 "Survey of Consumer Payment Choice," conducted by the Federal Reserve Bank of Boston. This is often in addition to other accounts like car financing, miscellaneous loans and mortgages. You can close credit cards and other accounts if you wish to reduce your available credit, but this affects your credit score.

You have three credit reports, which are individually compiled by the Experian, Equifax and TransUnion credit bureaus. Your files at each bureau show your current and past accounts, including opening dates, balances, credit limits and timeliness of payments. Closed accounts, like most items, stay on your reports for 10 years, according to the Experian website. Everything on your credit reports figures into your credit score, although older accounts are outweighed by your most recent financial activities.

Closing credit accounts negatively affects your credit score in two major ways. According to the MSN Money website, credit scoring models compare your available credit with your currently owed balances. An unused credit card with no balance provides a credit line to offset your debt on other accounts. The ratio shrinks if you remove that credit line from your records by closing the card. Closing accounts also stops their history. This reduces your score because older accounts look good on your records.

Your credit score is influenced most strongly by your loan and credit card payments, which make up 35 percent of the total, according to the MyFICO scoring website. Your owed balances account for another 30 percent, while the length of your history only makes up 15 percent of your score. You can offset any damage caused by closed an account if you concentrate on making on-time payments on all your remaining accounts and keep your overall debt load down.

Prevent a negative effect on your credit history by keeping your oldest credit card accounts open. The Credit CARD Act, a federal law, forbids banks from charging inactivity fees, according to Bankrate website, but they can close infrequently used accounts. Involuntary closure looks bad on your credit reports. Consumer advocate Clark Howard's website recommends using the old card occasionally for purchases you can quickly pay off. Using them keeps the accounts active, and helps your score by generating positive entries on your credit reports.

What Is a Hawk on a Credit Report?

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A hawk alert is a fraud detection tool used by the credit reporting agencies. When a company orders a credit report on someone, a search is done across all the credit reporting databases for fraudulent or incorrect information. When material discrepancies are found, they are printed out as a hawk alert.

Hawk alerts can be generated because the address or telephone number supplied on a credit application belongs to a business or another institution. Since creditors want the applicant's residential address and this is requested on the application, a business address indicates the possibility of fraud and requires investigation.

A Social Security number used for a death benefit application is a good indicator of potential fraud. The Social Security Administration does not reuse Social Security numbers after a person's death. The hawk alert can also detect different names, addresses and dates of birth associated with an SSN.

All credit reporting agencies record addresses used in cases of potential or proven fraud and discovered as a result of attempts to identity theft victims and other reports received from subscribers. If this data matches data on a recent application, a hawk alert is added to the application.

If no hawk alerts are detected, the application will be noted and marked as clear for all searches performed. This does not mean there is no possibility of fraud, just that there are no indicators of past fraudulent activity.

If credit is declined due to information on his credit report, the applicant can request a copy of the credit report free of charge within 60 days of the denial. The denial letter will have instructions on how to get the report, along with telephone, mail and online contact information. Review the report for accuracy and contact the reporting agency if there are errors. Have the agency delete the incorrect information.

Anyone can get a free credit report from the three reporting agencies (see Reference section). By federal law, the report is available every 12 months. It is a good way to catch identity theft and incorrect information on the reports. Incorrect address information is a frequent error on credit reports.

Damaged Credit Rating

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A credit score is a number used by lenders to determine a borrower's ability to repay money. Credit scores are determined by evaluation of information provided to credit agencies primarily by lenders. A bad credit score can make it extremely difficult and expensive to receive a loan, if not entirely impossible in some cases. Once a credit score is damaged, however, it can be repaired.

Credit scores are numbers provided by a number of institutions that are used to gauge a borrower's ability to repay money. There are several different credit rating agencies, meaning that every borrower likely has more than one credit score. The most popular credit score is known as the FICO score and ranges from 300 to 870, with 870 being the highest score.

Credit scores take a variety of factors into account. These include payment history, outstanding debt, length of credit history, recent credit inquiries and type of credit outstanding. The two most important elements of the credit rating are payment history and amount of outstanding debt. Individuals who have struggled or failed to make payments in the past or have a great deal of outstanding debt, therefore are likely to have very low credit scores.

A poor credit score will at the very least mean higher interest payments for borrowing money. Lenders will assume that individuals with damaged credit expose the lender to a great deal of risk of default and that they must be compensated for that risk with higher interest rates. If a potential borrower's credit score is low enough, he may be unable to find any lender willing to risk money on a loan to him. This can be particularly difficult for first-time home buyers.

While a damaged credit rating can be very detrimental to an individual's finances, it is far from permanent. A damaged credit rating can be repaired over time, primarily by consistently paying off outstanding debt. A credit score can be thought of as a snapshot of an individual's ability to repay debt at a particular period in time. The same individual struggling to pay off $100,000 in student loans and other debt at age 23 might be virtually debt-free with a high paying job at age 40.

Five Components of a Good Credit Score

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Your credit score is a three-digit number that represents your creditworthiness to lenders. When you apply for new credit, lenders determine whether or not to loan you money and at what rate based on your credit score. The higher your score, the more likely you are to be approved for new credit and the better your interest rate will be. If you credit needs improvement, learn what five components make up a good credit score.

Your payment history makes up the largest part of your credit score. According to myFICO.com, 35 percent of your credit score is based on whether or not you pay your bills on time. Late or missed payments on a single account can cause your credit score to drop significantly. Multiple delinquencies, collection accounts or judgments can be even more devastating. Paying your bills on time each month helps you to establish a solid payment history, which can boost your score over time.

The second component of a good credit score involves your debt-to-credit ratio. Thirty percent of your credit score consists of how much debt you owe versus your total amount of credit. If you have a total credit line of $25,000 and total debt over $24,000, you have a high debt-to-credit ratio, which works negatively against your score. Paying down outstanding debt can increase your ratio and improve your credit score.

The age of your accounts also factors into determining your credit score. The length of time your accounts have been open accounts for 15 percent of your credit score. While you may be tempted to close old accounts as you pay down debt, this can actually hurt your credit score. If you're trying to improve your credit score, keep older accounts open and use them periodically to maintain activity.

Any time you apply for new credit, it is recorded on your credit history. Ten percent of your score is based on the number of new inquiries for credit. If you're trying to rebuild your credit, you may be tempted to open multiple new accounts. This can actually have the reverse impact on your score because it can make you look desperate to lenders.

The type of credit you use accounts for 10 percent of your credit score. For example, you may have revolving credit accounts, charge accounts, installment loans, mortgage loans or vehicle loans. Having a diverse blend of accounts demonstrates to lenders that you are responsible enough to handle different types of credit.

Credit Reporting of Credit Limits

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One of the factors that determines your overall credit score is your credit limit. Your credit limit is the maximum amount you are able to borrow for a particular revolving credit account. All lending institutions will report your credit limit to the credit reporting agencies that compile your credit score.

According to FICO (the agency that calculates your credit score), "amounts owed" accounts for 30 percent of your FICO score. This includes the number of accounts with balances, types of accounts, the amount owing on accounts, outstanding installment loans and proportion of credit lines used. The last item involves your credit limits.

Your credit limit is most important in relation to the amount you have borrowed. In general, it is best to have a high credit to debt ratio. For example, if you have a Visa card with a credit limit of $2,000 and a balance of $1,000 and an American Express card with a limit of $6,000 and a balance of $1,000, you would add up the limits to get $8,000 and then divide it by the sum of the balances ($2,000). Your ratio is about 4-to-1.

Note that it is important that your credit to debt ratio be high regardless of the amount you owe. For example, it is far better to have a credit limit of $10,000 and owe $2,000 than it is to have a credit limit of $1,000 and owe $500. In the first case, your ratio would be 5-to-1. In the second, you have a credit to debt ratio of 2-to-1.

Limits on department store cards, credit cards and other revolving credit accounts are reported to credit agencies. Loans such as mortgages, auto loans and student loans do not have a credit limit, as they are not revolving credit accounts.

Because of the importance of credit to debt ratio, it may be contrary to your best interests to cancel credit card accounts that you do not use. For example, if you have two credit cards, one with a $10,000 limit and another with a $5,000 limit, by closing the second one, you are halving your credit limit. It is may be a good idea to keep your oldest accounts open and in good standing.

Definition of a FICO Score

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Whenever you apply for a mortgage, car loan or other form of credit, the lender checks your credit rating. The most important item the lender looks at is your credit score, or FICO score. This is a number that summarizes how much risk you represent as a creditor, based on your credit history. The acronym FICO stands for Fair, Isaac, & Co., the company that developed the credit score system. FICO is used by the three major credit agencies to calculate your credit score, although they each use a trade name for their FICO score. Equifax calls the FICO score Beacon, and TransUnion uses the name Empirical. Experian calls it the Fair Isaac Risk Model.

The FICO score is a three-digit number between 300 (very poor) and 850 (perfect). The exact method of calculating a FICO score is not public knowledge (Fair, Isaac, & Co. won't say) but the general makeup of the score is known. There are five parts to a FICO score (see next section) based on your use of credit. Additional factors are also taken into account. If you order your FICO score you may see that each credit reporting company gives you a slightly different score. That's because they use their own records about your credit use to calculate the score. Since each company has its own database, the information used doesn't always match up exactly.

The biggest part of the FICO score is based on how promptly you make bill payments. This counts for 35 percent of the total. Rare lapses of a few days doesn't lower a score much, but even one payment more than 30 days late can drop the FICO score 100 points. The total debt and monthly payments compared to income counts for another 30 percent. Lenders hesitate to extend more credit to someone already overburdened with debt. The type of debt also is a factor (10 percent). Secured debt where there is collateral is better than unsecured debt. Another 10 percent is based on stability. Constantly applying for credit or closing accounts is seen as a sign of poor money management. The final part of the FICO score is time (15 percent). The longer a person's record of credit use is, the more points he/she can gain (or lose).

In addition to overall credit behavior, the FICO system takes specific problems into account. Having a tax lien, defaulting on a debt or losing a court judgment for not paying a debt can all stay on a credit record for years. In the case of a default on a student loan, the black mark remains for life. A foreclosure or bankruptcy also is a serious negative when a FICO score is calculated, although bankruptcy falls into a special category and is handled differently (see below).

When a person declares bankruptcy, he almost always has a low FICO score already. However, one aspect of a Chapter 7 or Chapter 13 bankruptcy is that, although the bankruptcy goes on the credit history, other information (such as late payments) is removed. The net result is that the FICO score usually doesn't drop much (in some cases it even goes up a little). More important for a person hoping to rebuild his credit, those with bankruptcies are placed in a separate category in the FICO system. Their credit score from that point on depends primarily on how they handle credit after the bankruptcy. With good money management, an individual can restore his credit to a reasonably good level within two or three years.

FICO is the standard used by Fannie Mae, Freddie Mac and other major mortgage providers. These companies look for a score of at least 640, but may accept one as low as 620. The Federal Housing Administration and the Department of Veterans Affairs allow scores as low as 580. Most lenders regard 620 as a dividing line. Lower scores are "subprime" and viewed as poor. The "good FICO score" is around 680 or higher. Borrowers with subprime scores can get credit from some lenders, but have to pay higher interest rates to compensate for the added credit risk they represent.

Does Joint Credit Help Your Credit Score?

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A joint credit account can become a useful tool to boost your credit rating, but often turns into a huge liability that damages your credit. The danger with opening a joint credit account is that you may have to depend on someone to handle the account responsibly. Unless you have no other way to obtain credit, you usually do better opening an individual account.

Opening a joint credit account can help your credit score if you and the other borrower always pay the monthly bill on time. Also, the account provider must report to the credit reporting bureaus. In general, only accounts that involve borrowing money appear on a report. For instance, a credit card company likely reports the account to the credit bureaus, but banks never report joint savings or checking accounts unless you have a delinquent balance.

You share the payment history on a joint credit account with the other borrower. This becomes a liability when the other borrower mishandles the account, such as maxing out the limit and not paying it back. You must repay the balance on a joint credit account under any circumstances, even when you do not use the account or the other borrower declares bankruptcy. If you cannot repay the balance on a joint credit account, your score can drop by several hundred points due to missed payments.

If you have no credit history or a history with many negative items, cosigning on a credit account may be your only path to building a new credit history. For instance, if you recently declared bankruptcy, it may take several years before you can qualify for an unsecured line of credit at a reasonable rate. If you and a spouse want a mortgage, a joint application may lower your interest rate a few points, which means you'll save thousands of dollars over the life of the loan.

Even when you trust the joint borrower, you can never predict how the relationship may change in the future. Married couples sometimes ruin their credit rating when they go through divorce, because of disputes over who owes what portion of a bill. If you have joint accounts, separate them, especially if you anticipate a divorce. You can still share a credit account. For instance, the other borrower can become an authorized user -- someone with a card linked to the account, but no authority to change account settings -- on your credit card. A jointly held mortgage requires one borrower to refinance the account. The other borrower can provide support, such as a security deposit.

How to Increase Your Credit Score and Improve Your Life

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Buying a nicer home and financing a reliable car requires a good credit score. According to Experian.com, a good credit score is 700 or higher. People in this category tend to acquire easy loan approvals and the best interest rates on financing. But what if you have a lower score? Credit scores aren't written in permanent ink, and there are practical ways to improve your score and your life.

Instructions

Keep small balances on revolving accounts. Credit card usage impacts credit scoring. Pay down your balances and control spending to avoid going over your limit. Balances should stay below 30 percent of credit limit.

Reverse bad payment habits. Delinquencies reduce your credit score, wherein it becomes harder to get loans. Always pay credit cards and loans on time to keep a good rating. Call-in payments or use online systems.

Limit new accounts. Your credit score drops whenever someone reviews your credit file. Stop applying for credit cards and loans unnecessarily. This includes disregarding pre-approved offers that arrive in the mail and in-store invitations for charge accounts.

Work with your lenders. Make creditors and lenders aware of hardships in order to protect your credit score. Do not miss payments or send in late payments. Inquire about skip payment options or a reduced monthly payment.

Check credit file for mistakes. A low credit score may result from creditor mistakes. Get a free credit report from Annual Credit Report each year. Spend time reviewing the report and checking it for accuracy.

Definition of Credit Information Companies

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Legally, credit information companies or credit reporting agencies are charged with the responsibility of maintaining and issuing accurate bill-paying histories on adults, according to the Federal Trade Commission. The Fair Credit Reporting Act governs the major credit information companies and also protects citizen rights in the event of inaccurate credit reporting.

The major credit information companies in the U.S. are Equifax, Experian and TransUnion, according to the Federal Trade Commission. Each company must issue consumers one free credit report each year; the consumer must request this report and should consider only using the government-approved website AnnualCreditReport.com.

Positive accounts, such as on-time credit card payments, report for at least 10 years from the date of account closure, according to Experian. Most negative information, ranging from late loan payments to unpaid medical bills, reports for seven years from the date of delinquency.

If you had an account go to collections and pay it, you still have the negative information on your credit report, according to Experian. Paid collections are still negative types of credit information and can potentially impact your ability to obtain new credit.

Will Paying 3 Year Old Debts Increase Your Credit Score?

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Having old, unpaid debt can bring penalties, fees and collection efforts. The unpaid debt also brings a negative blow to your credit score. The worst damage to your score occurs in the first 24 months following the negative entry. Ironically, paying three-year-old debt may hurt your credit score rather than help it.

A statute of limitation limits the time a creditor can legally take you to court to collect on the debt. The SOL depends on the type of debt and the state where you live. To determine the statute of limitation on debt in your state, contact your local clerk of the courts office and ask for the website or a document showing the state SOL on debt. When a debt is past the SOL, the law considers the debt no longer collectible. Choosing to repay the debt at that time is your choice, but you should realize it resets the statute of limitations. The creditor can then resume collection efforts, including phone calls, and he can sell the debt to another collector.

Making payments on a debt more than three years old is something you must do with extreme caution. When you begin to make payments, you bring the debt current. Failing to make a payment, or defaulting again on the debt, will create additional damage to your credit score and may allow the creditor to take legal action. For example, if the SOL in your state is three years, and your unpaid credit card debt is more than three years old, the credit card company cannot get a judgment against you. The company can ask you for payment but cannot pursue legal help to collect. Making payments on the old debt at that point does not help your credit score.

Your record of late payments is what damaged your score. Even if you pay off the debt, those late payments still show on your credit report. By the time an account goes to collection, the lender or credit card company will have closed it. Thus, the credit bureaus no longer calculate the amounts as part of your use of credit.

Paying off collection accounts might not help your credit score, but it comes into play if you plan to buy a house. When your potential lender checks your credit report, you must have all collection accounts paid in full if you hope to get financing.

Is There a Way to Check Your Credit Report for Free?

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Your credit report contains information about your lines of credit and your history of payments on those lines. It also contains information about any outstanding debts that you have not settled, such as phone bills. Banks use your credit report to decide whether to give you a loan for a home or a car, and some employers use a credit report to determine an applicant's eligibility for a job opening. Get a free copy of your credit report to make sure inaccuracies do not preclude you from homeownership or a better job.

Instructions

Navigate to AnnualCreditReport.com. This is the only website authorized by the Federal Trade Commission to provide your credit report at no charge. Other sites may try to entice you into buying something, such as credit protection, in exchange for your report.

Select your state from the drop-down box on the left side of the page under the words "Start Here," and click "Request Report."

Complete all the text fields marked with red asterisks. You will need to enter your first and last name, Social Security number, birth date and current address. Click "Continue" at the bottom of the page when you have filled out all the fields.

Select which of the three reports you would like to receive. You are entitled to each report once a year. Monitor your credit by ordering a different report every four months. Click "Next" after you have made your selection.

Confirm your personal information when you are redirected to the credit reporting agency's website and click "Continue" at the bottom of the page.

Click "Submit Order Now" at the bottom of the page to confirm that you want to view your credit report. Your credit report appears on the next screen.

How to Refinance With Less Than Perfect Credit

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You can refinance an auto or home loan through a new or existing lender, which essentially means you agree to pay off an existing loan with money from a new loan. The process is moderately easy, but requires a lot of research and legwork. A less than perfect credit score can decrease your chances of receiving a low interest rate -- which is typically reserved for consumers with a higher credit rating; however, it's possible to negotiate a competitive and attractive interest rate for your financial situation.

Instructions

Purchase a copy of your credit score from all three of the consumer reporting bureaus. It's common for TransUnion, Experian and Equifax to each report a different credit score for one consumer, so purchase a copy from each bureau to determine your credit score range. For example, your credit scores may range from 680 to 705 depending on the bureau.

Raise your credit score as quickly as possible. Pay down the balance on your credit card accounts to within 30 percent or less of each line of credit before each billing cycle closes for an immediate boost. Paying down debt lowers your card utilization rate as well as your debt-to-income ratio, both of which creditors view favorably.

Sign with a co-applicant or co-signer -- who is a person who agrees to take equal responsibility for the loan amount. Select a co-applicant with a high score, especially if your credit score has dipped since signing the original loan agreement.

Borrow less money when refinancing to lower your monthly payments and thereby reduce your monthly interest fees, which permits more allowable income to pay down your mortgage or auto loan as well as your other credit accounts.

Does Getting Prequalified Hurt Your Credit?

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You can cause significant damage to your credit rating due to credit preapproval, even though the credit bureaus tell consumers that the inquiry for a preapproved credit application does no damage to your credit score. Although the damage from prequalification rarely catches your eye, it can cause significant damage in certain cases.

The meaning of "prequalified" depends on the type of loan. Credit card preapproval has no impact on your credit rating, because you did not request an account. If you accept a preapproved credit card, the lender then performs a hard credit check, which damages your credit rating. Mortgage prequalification -- where you apply for a mortgage and choose a home later -- hurts your credit rating, because you request a loan. In both cases, the resulting inquiry initially causes zero to 5 points of damage, and causes additional damage based on much debt you add.

Limit how many times you request credit, because six or more inquiries are as bad as a negative entry such as a collections or charge-off account. Although a lender probably won't reject your application for credit based on excessive inquiries, too many inquiries may magnify the impact of missed payments or a high debt burden, according to the Fair Isaac Corporation.

Preapproved credit cards have the potential to cause havoc in your credit history and personal life, because of the chance of identity theft. If you toss preapproved credit applications in the trash, a thief can sift through your garbage and retrieve the application. By the time you find out about the fraudulent line of credit in your name, the thief may max out the credit and stick you with the bill.

To abate the flow of preapproved credit offers or avoid the temptation of new credit, sign up for Opt Out Pre-Screen. Shred any other mailings with your personal information on it. If you seek prequalification for a mortgage or car loan, apply to several lenders as soon as possible. The latest FICO model -- FICO 08 as of 2011 -- gives you 45 days to rate-shop, which means all inquiries in that time period only count as a single application. Ask the lender which FICO version it uses, because earlier versions of the FICO model only give you 14 days. Reviewing your credit history every month is a good idea in general. You receive three free reports each year from the Annual Credit Report website, so you can pull one every four months.

How Long Do Closed Accounts Stay on Credit Reports?

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Your credit reports list a variety of personal and financial information, including both open and closed accounts. If this information is positive, it helps to boost your credit score. If it is negative, it brings your score down. This information stays on your credit reports for a certain length of time, after which it should drop off your report. If it does not, and if it is negative information, you can challenge it.

Closed accounts on your credit report are significant because they have a direct effect on your credit score. According to FICO, the major credit score provider, your payment history makes up 35 percent of your overall credit score. If you have a closed account on which you always made on-time payments, it will contribute to a higher score. If you were frequently late with your payments on the closed account, it will bring your score down as long as it remains on your credit report.

There are many types of closed accounts that will show up on your credit report. Your credit card accounts will appear, as will closed mortgage accounts. Closed loans will show up, too, including personal and car loans. If you financed furniture, appliances or anything else through a store account and closed it, that will show up, too.

According to the Experian credit bureau, positive accounts that have been closed will stay on your credit report for 10 years. It is beneficial to have this information on your credit report for as long as possible, since it has a good effect on your credit score. If you want the account to remain on your credit report indefinitely, don't close it once it has been paid off. It will sit there with a zero balance permanently unless you close it later.

Experian says that negative closed accounts remain on your credit report for seven years. This starts from the date of your initial late payment. A closed negative account will have a bad effect on your credit score for as long as it remains on your report, although its effect will lessen over time if you consistently pay your current accounts on time. If you have a negative closed account on your credit report and believe that it contains incorrect information or that it cannot be verified, you can file a dispute. If the credit bureau cannot verify the information, the negative account will be removed immediately.

Even though negative closed accounts are supposed to be removed from your credit report after seven years, this does not always happen automatically. If you have negative closed accounts that are due for removal, request a copy of your credit report from each of the three bureaus. TransUnion, Experian and Equifax all must give you a free copy upon request each year. If you find that any negative closed accounts are still there after seven years, file a dispute to have them removed.

What Happens to Your Credit When Going Bankrupt?

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Bankruptcy is a court action that provides protection from creditors by either discharging debts or dictating a repayment plan. Bankruptcy Abuse Prevention and Consumer Protection Act statistics from the United States Courts show that almost 1.4 million people filed for bankruptcy in 2009 to relieve themselves of consumer debts. This action may relieve repayment pressure, but it also devastates the filer's credit reports and score.

The bankruptcy process stops creditors and collection agencies from harassing you for repayment because they must stop contacting you once you notify them of your bankruptcy filing. This court action also halts foreclosures, car repossessions and utility turn-offs, according to the Federal Trade Commission, or FTC. All of these negative entries still appear on your credit reports and impair your ability to open more accounts.

Bankruptcy either wipes away most of your debts if you filed Chapter 7 or makes a court-approved repayment plan if you filed Chapter 13, the FTC explains. This process does not automatically restore your credit. The bankruptcy is reported by the credit bureaus for 10 years, where it is visible to everyone who requests your report. MyFICO, the website for the largest credit score firm, advises that bankruptcy lowers your score. The impact is worse for people who start out with good credit, but most see less of an effect because their scores are already damaged by the financial problems leading up to the filing.

Bankruptcy does not hurt you badly for the entire 10 year reporting period if you manage your finances properly afterward. The law forces you to undergo credit counseling before filing and budget training afterward, according to the FTC. Your credit score goes up if you use your new knowledge to build a history of appropriate credit use and on-time payments. Liz Pulliam Weston, a MSN Money website writer, states that you may have to start with a secured credit card account. You deposit enough money to cover the credit limit, which may be as low as $300, and the bank keeps that as collateral. It reports your activity to the credit bureaus and your account is usually converted to a regular credit card if you pay on time for one to two years. Your good record helps you open other accounts and loans, which also help you if you keep the balances down and make timely payments.

The FTC explains that there are alternatives to bankruptcy which have a less severe impact on your credit. Late payments have the worst effect, according to MyFICO, so making a budget that allows you to catch them up and keep them current improves your credit rating significantly. A credit counselor can help you if you are unable to make a workable budget on your own. Most counseling agencies also create formal debt management plans if you need more extensive help. Your late payments, charged-off accounts and other negatives look bad, but they disappear in less time than a bankruptcy. Most delinquencies are erased in seven years.

How Can I Improve My Credit Without a Job?

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Credit scores affect your ability to secure housing and make purchases. If you're looking for employment, a poor credit history may affect your ability to land a job. Improving credit without a job is about maximizing your existing resources. Simple behavior changes can boost your credit rating over time.

Instructions

Make monthly payments on time. Try setting up automatic monthly payments to prevent late payments. You can do this through your bank's online bill payment function. If losing a job is making it difficult to re-pay debt obligations, talk with your lender. Lenders prefer to work with borrowers rather than send accounts to collections.

Avoid racking up high levels of debt. When struggling with unemployment, try not to tap into credit cards. According to MSN Money, if your credit card balances are below 35 percent of your available credit, it can boost credit scores. If your balances creep past this percentage, you risk damaging your credit score.

Talk with collection agencies. If your accounts have already been sent to collections, don't bury your head in the sand. Instead, contact the creditor and work out an arrangement you can afford. Creditors will start reporting positively again, and your credit rating will improve over time.

Keep unused credit card accounts open. Closing old credit card accounts might be tempting, but getting rid of these accounts may drag down credit scores, according to Entrepreneur magazine.

Clean up credit reporting inaccuracies. Inaccurate late payments and accounts you don't own could be dragging down your credit score. Order a free credit report every 12 months from all three credit bureaus, including TransUnion, Experian and Equifax (see Resources). Review the credit report in detail and complete a dispute form for inaccuracies (see Resources).

How Long Does It Take for Issues to Hit Your Credit Reports?

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A negative item, such as a late payment, does not show up on your credit report immediately, but it will only be a matter of time before your credit report displays a red mark. How long it takes an issue to reflect on your creditworthiness depends on the diligence of your creditor.

Credit reporting agencies depend on individual creditors to report the status of your payment history and accounts, according to Credit Factor. Typically, once a creditor updates your account it shows up on the first of the following month. For instance, if you open a credit card on Jan. 3, your credit report shows this on Feb. 1.

Your creditor may not report all negative issues. If you are a few days late on a payment, for example, your creditor may not update this with the credit rating agencies, according to the Motley Fool. Creditors will probably report any serious offense, such as a payment later than 90 days. You should not, however, rely on your creditor to have "mercy" on you rather than paying your bills on time.

It takes six months of credit updates before the credit reporting agencies will calculate your score, according to MSN Money Central. Even if you have negative marks on your credit history, it won't show until you have a sufficiently long credit history. Once you do hit the six-month mark, the credit bureaus will factor in any negative issues into your FICO score.

Not all creditors report to the three major credit rating bureaus: TransUnion, EquiFax and Experian, according to True Credit. After seven years, all negative information leaves your record -- 10 in the case of a bankruptcy. Also, you can dispute any errors on your report, such as an account erroneously reported under your name. You should make an aim to pay all bills on time, even if a single late payment probably won't affect your score much in the long run.

What Is a Prime Credit Score?

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Just a few points can come between a lender considering you a good risk and a terrible or "sub-prime" borrower. While nothing is ever set in stone in the lending industry, lenders have come to general consensus over time on what constitutes a prime borrower. Holding a prime score, however, does not guarantee you the best rate on a loan, because the prime score range contains many levels.

The Fair Isaac credit scoring system ranges from 300 to 850. In general, scores between 620 and 850 fall into the category of "prime," according to Bankrate. This means that borrowers in this category have a high rate of repaying their loans on time. Lenders below 620 have a default rate so high that the creditors must account for the risk by raising interest rates by a few points.

Lenders tend to recognize varying degrees of "prime" credit. The most important tiers in prime scores are 750 to 850 and 700 to 740. These top two levels garner the lowest rates from lenders, with 750 to 850 getting a few tenths of a percent lower then the second highest tier. This might seem like an insignificant difference, but means thousands on large, lengthy loans like a mortgage or car loan.

Since the use of credit scoring in the 1980s, credit scores and credit report have gained importance in circles outside of the lending industry. Insurance companies, for instance, set premiums in part on a borrower's credit score in states that allow it. Employers can take credit history into consideration when choosing a new hire. Utility providers often charge higher rates or a security deposit for customers with less than prime credit.

Most borrowers can enter the prime category by paying their monthly bill on time and reducing debt levels. If you are close to the cutoff line, Go Banking Rates suggests holding off on applying for new credit until and instead working on the accounts you already have. Consumers should at least make the minimum payments -- this maximizes the amount of interest you pay, but lets the creditor report the account as "paid as agreed."

If You Dispute Something Will It Figure Into Your Credit Score?

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Credit report disputes remove information from your credit bureau files if Experian, Equifax and TransUnion rule that your complaint is true. Your credit score comes from the data in your bureau files, so successful disputes affect the number. Your score does not change until the bureaus' investigations are complete and they decide in your favor.

You may dispute any mistaken information in your credit reports, from wrong addresses and phone numbers to falsely reported payment delinquencies, but your credit score is only affected by the correction or removal of negative information. Scoring formulas do not use your demographics or employment data, so correcting personal and work information does not help or harm your score. The only dispute limits are a prohibition in the Fair Credit Reporting Act against making frivolous or irrelevant complaints, according to the Divorcenet website.

You improve your credit score when you concentrate most heavily on delinquent payment disputes, since late payments affect 35 percent of your score, according to the MyFICO scoring website. On-time payments reported by lenders as late make up the majority of credit report errors, Dayana Yochim of The Motley Fool website advises. Check your credit limits to ensure they are not under-reported, and make sure your owed balances are not overstated. Your score weighs the owed amounts against your available credit and penalizes you if your balances are too high.

Your credit score takes at least a month to change based on dispute results. The credit bureaus get 30 days to process your disputes. Then they must erase whatever information they did not directly confirm with the companies that originally added to your reports. Removal happens after the month-long investigation. Your score changes the next time a lender requests it after dispute process is complete, according to MyFICO, since it is calculated on demand and is based on your report contents.

Your credit score goes up if you notice that accounts with positive histories are missing and get the lenders to report that data. You cannot add information by filing credit bureau disputes, but you can contact the relevant lenders and ask them to report the information. For example, you might have a credit card on which you keep a low balance and always make on-time payments. Your score goes up if you get the bank to report it to Experian, Equifax and TransUnion because timely payments and low credit card balances count for a combined total of 65 percent of the number, according to the MyFICO scoring website.

How to Dispute a Credit Card Interest Rate Increase

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Credit card companies are known to increase interest rates regardless of your payment history, credit score or purchases. Consumers have long felt these practices are unfair and soon the law will change to reflect that. There are two types of interest rates on credit cards. A fixed rate means your interest rate is set for a stated period of time. A variable rate card will fluctuate with the prime rate. Credit card rates will almost certainly rise in the future. You have the option to ask for a lower rate or opt out of a proposed rate increase.

Instructions

Gather your past statements showing your payment history. Prepare for the call before you dial the phone. Do your research. Find out the current prime interest rate. Variable rate cards are based on the prime rate, plus a percentage. However, if your rate was set some time ago, the prime may have lowered since then, which gives you a bargaining chip to have your credit card rate lowered. Find an alternative card with a lower interest rate that you are willing to switch to if the current company will not lower your rate. Write down the card name and the interest rate. Understand your right to opt-out of the higher interest rate. Think about what you are going to say and write down your key points to keep you on track and in control. If you have received a notice of a rate increase (by law, the credit card company must give you 45 days notice before an increase takes effect) be sure to call before the deadline for a response. Keep notes as your conversation progresses.

Start the call by introducing yourself and asking the representative for his or her name. Write down the date and time of the call and the representative's name. You will be far more effective if you stay calm and polite during the transaction. If you have trouble understanding the representative due to a language barrier, politely tell them you are having difficulty with their accent and ask to speak to someone else.

Ask the representative for a lower interest rate. Explain your positive payment history and the length of time you've been with the company. Your agreement with the credit card company will state that your rate is a certain percentage over the prime rate. If your rate is higher than that, explain to the representative what your terms are, what the current prime rate is and ask for your rate to be lowered. If they will not lower the rate, or if you have received a letter of intent to raise your interest rate, tell the representative that you are willing to switch to another credit card company if your rate is increased (or is not lowered from its current standing.) If you cannot get a lower rate, your other option is to tell the representative you want to opt out of the rate increase.

Understand that opting out means you can no longer use your card. It also means you must pay off the balance of your card. There are a few different options for paying off the card. You may be able to continue the terms you've always had for payment. Unfortunately, the creditor does have the right to double the amount of the minimum payment you've been paying previously. The creditor may also give you a period of time in which to pay off the balance, and that could be as longh as five years. The one thing the creditor cannot do is demand you pay off the complete balance in full just because you chose to opt out. Negotiate for the best option you can get and write down the terms you agree to with the representative. In addition, ask the representative to send you the agreement in writing.

Follow up the phone call with a letter stating what took place during the call. Keep a copy of the letter. Mail it by certified mail with a return receipt requested so you have proof of delivery. Follow through with all the terms you have agreed to in the call.

How to Build Credit Online

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When you are ready to buy a car or real estate, you may need to take out a loan to do so. The interest rate that you get when you are approved for that loan is directly related to your credit score. Credit scores are also used for things such as insurance rates and even in hiring decisions. Fortunately, you can work on maintaining a good credit score by building your credit. You can even focus on building your credit online from the comfort of home.

Instructions

Apply online for a credit card. Do not apply for multiple credit cards because each application creates an inquiry on your credit report, which lowers your credit rating. Many banks, such as Wells Fargo, have online applications for their bank credit card. You can even get a secured credit card, which is a card where you deposit money to be used as your credit limit.

Pay your bills on time each month online. If your bank has free online bill paying, you can sign up and put your bills on auto-pilot, which ensures that they are paid on time each month. My Check Free is an online site that specializes in online bill payment for a variety of companies, such as AT&T and Bloomingdale's. Regular on-time bill payments can build your credit.

Check your favorite department store website, such as Gap.com, to see if it offers a store credit card. If so, apply online for a store credit card at one of your favorite stores. Wells Fargo recommends getting one or two department store cards, or gas station cards, to build your credit. Some other stores that offer store card applications on their websites include Target, JCPenney, Home Depot and Sears.

Order your credit report from the Annual Credit Report website once a year. Monitoring your credit report online can help you catch inaccuracies, which uncorrected can lower your credit score.

Monday, December 31, 2012

Identification

Potential

Predatory Lending

Tips

Identification

Potential Damage

Not Having a Good Mix

Tip

Sunday, December 30, 2012

Types

Effects

Significance

Misconceptions

Explanation

Saturday, December 29, 2012

Utilization Rate

Missed Payments

Prevention/Solution

Friday, December 28, 2012

Introduction

Credit Cards

Loans

Financing

Conclusion

Direct Effects

Indirect Effects

Other Considerations

How to Opt Out

Wednesday, December 26, 2012

Score Components

Component Percentages

Scoring Scale

Detailed Reports

Effects of VantageScore

Tuesday, December 25, 2012

Credit Report Comments

Account Status

Account Closure

Credit Score Comments

Check Your Credit Report Annually

Sign Up for Automated Bill-Pay

Lower Debts

More than Once

Are Your Cookies Enabled?

Just Plain Busy

How Old are You?

Other Qualifying Situations

Sunday, December 23, 2012

Delinquent Payments

High Balances

Other New Accounts

Credit History

Identity Theft

Identification

Significance

Prevention/Solution

Warning

Instructions

Friday, December 21, 2012

Possible Scores

A Good Score

Improving Credit

Other Measures

Credit Reports

Credit Scores

Uses

Effects

Wednesday, December 19, 2012

Instructions

Tuesday, December 18, 2012

Shredding

Be Suspicious

Social Security Number

Internet

Payment History

Amount You Owe

Length of Credit History

Applications for New Credit

Types of Credit