Credit & Getting a Job

If you are applying for jobs, be prepared for the dreaded credit check. Not all employers run them, and not all use them in the same way, but it is a good idea to know what is on your report before you let your future boss see it.

Employer Credit Checks

While some states now restrict the use of credit reports in making hiring decisions, many employers rely on them. Credit checks provide employers with information that can confirm a worker's employment history as well as information about how they manage their finances. The priority placed on credit reports as a factor in hiring decisions varies by employer, but they are often used to screen candidates who may be handling money.

High Salary Credit Checks

While the credit report provided to employers is similar to credit reports pulled by other creditors, if the candidate for a position is to be paid over $75,000 per year, their credit report can contain negative information that is older than the usual 7-to-10 year federal credit reporting limits. This means that if you filed for bankruptcy 15 years ago, and you apply for a high-salary job, it may show up on your employment credit report.

Free Credit Reports

First, check your credit reports before you go on the job hunt. If they contain untrue negative information, you need to get it deleted. If the information is true, you need to be able to address it if an employer asks about it. You can get a free copy of your reports every 12 months from annualcreditreport.com. If you have already claimed your free reports for this year, but are unemployed, you can request additional free reports directly from each credit bureau.

Your Rights

An employer cannot look at your credit report without your permission, and if you are denied a job because of what is on your report, the employer must tell you this, as well as the name of the credit bureau that provided the report. For 60 days after the employment denial, you can request a free report from that credit bureau.

Damage Control

If a potential employer wants to run a credit check, and you know that your report contains negative information, take action. Be prepared to explain the negative information on your report: If you were the victim of identity theft, suffered a family crisis, or had health problems, tell the hiring manager or human resources representative about your situation and offer to document it, if necessary. If your credit problems are due to your living beyond your means, you might still be able to save a job offer by demonstrating that you are taking actions to curb your spending and pay down your debt. One way to do this is to enter a credit counseling program.

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How Can You Get the Wrong Information Off of Your Credit Report?

The three major credit bureaus, Equifax, Experian and TransUnion, are responsible for maintaining accurate personal and credit-related information on each person's or business's credit report. Sometimes these agencies make mistakes and may put false information on your report or or keep outdated information there. To correct this, you must initiate a dispute. There is no cost to dispute information on your credit report. Equifax will allow you to dispute online or by mail; Experian prefers that disputes be initiated online; and TransUnion will accept disputes online, by mail or by phone. All three bureaus require a credit report or file number, which is found on your report.

Instructions

1

Go to Equifax.com and select "Start a new dispute" under "Correct Errors" at the bottom of the page. You will need the 10-digit confirmation number found on your Equifax credit report. If you don't have this, go to Equifax's Free and Discounted Disclosures page (see Resources) or AnnualCreditReport.com and enter in your personal information, such as your name, Social Security number, date of birth and address. Plus, answer some security questions like "What bank did you open a student loan with in 1997?"

2

Once you have access to your report, select "Dispute file information" in the left pane. You may initiate a dispute online by selecting the corresponding link next to the item that needs correcting.

3

You may also dispute entries by mail. You will need to include the exact information you are disputing, such as the company's name, company account number and balance amount. (All of this information can be found on your report.) Once your information is received, an investigation will be opened and your information may be corrected.

You can send disputes to:

CSC Credit Services
P.O. Box 619054
Dallas, TX 75261-9054

4

Make corrections to your Experian report. Go to Experian's website and select "Disputes" under "Credit Report Assistance" at the bottom of the page. Enter in your Experian credit report number that can be found on your credit report. Once online, you can view your report by sections (e.g., Personal Information, Negative Accounts or Collections). Then select the "Dispute" option next to each entry that needs to be corrected. You will need to select a reason why the information is inaccurate and hit "Submit" to submit the dispute. Experian will investigate the matter and possibly make corrections to your report, usually within 30 days.

5

Go to TransUnion.com and select "Dispute an item" under "Consumer Assistance" at the bottom of the page. Select "Submit a dispute." You may submit a dispute online, by mail or by phone. To dispute by online, select "First Time Here" and enter in your name, address and Social Security number. You will then have to create an account, or enter in your user name and password if you already have an account. Once you are viewing your report online, click the "Dispute" option next to the entry you want to correct, select the reason why it is incorrect and press the "Submit" button. TransUnion will investigate the matter and should resolve it within 30 days.

6

To submit a dispute by phone you must have a TransUnion credit file number found on the credit report. You'll need your Social Security number, date of birth, current address, the company name on the account you want to dispute, the account number as indicated on your credit report, the reason for the dispute and any corrections to your personal information. Call TransUnion at 800-916-8800, Monday through Friday, 8 a.m. to 11 p.m. EST.

7

To submit a dispute by mail, download the "Request an Investigation Form" (see Resources). Complete the information as requested, including your personal information and details about the account or other information that should be corrected. Sign the form and send it to:

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19022-2000

Disputes requested by mail may take up to 45 days to investigate and resolve, rather than the 30 days for disputes submitted online or by phone.

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How Can I Get a Free Credit Check to See If I Qualify for a Phone?

Most major wireless and landline telephone providers will review your credit report to decide if you qualify for service. Having a credit report with negative information such as late payments, charge-offs, delinquent accounts or collections may cause the company to request a deposit or deny you service altogether. According to the Federal Trade Commission, you can check your credit reports from all three major credit bureaus -- Equifax, Experian and TransUnion -- free once a year through Annual Credit Report. You can order your reports by phone, mail or online.

Instructions

How to Order a Credit Report by Phone

1

Call Annual Credit Report.

2

Provide the customer service representative with your identity information, including name, Social Security number and your mother's maiden name.

3

Give the customer service representative an address where he can send your credit reports.

How to Order a Credit Report by Mail

4

Visit the Annual Credit Report website and click the hyperlink for "Request form."

5

Print out the request form and complete all the required information.

6

Mail the request form to Annual Credit Report. You will receive a hard copy of the credit reports in the mail within two to three weeks.

How to Order a Credit Report Online

7

Visit the Annual Credit Report website.

8

Select your state from the scroll-down menu and click the "Request report" icon.

9

Enter your personal information in the text boxes, including name, date of birth, Social Security number and address.

10

Type the characters you see in the captcha in the text box and click the "Continue" icon.

11

Click the check mark next to the credit reports you wish to view. You can select your credit report from Equifax, Experian and TransUnion.

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What Do Credit Inquiries Mean on a Credit Report?

Anytime you or anyone else accesses your credit report, the credit reporting agency takes note of that inquiry and lists it in your credit file. When you view your credit report, you can see the names of all the firms that have accessed your credit report.

Hard Versus Soft

Credit inquiries are separated into two categories: hard inquiries and soft inquiries. A hard inquiry occurs any time you apply for new credit or an increase or amendment to an existing credit product. All other kinds of inquiries are classified as soft inquiries. When you apply for a job, a prospective employer can perform a soft inquiry. Other soft inquiries occur when a vendor such as a cable TV company checks your credit or when you order a copy of your own credit report.

Credit Report

Your credit report contains a variety of information, but the credit reporting agencies do not share all the information contained in your file with every person or entity that requests a copy of your report. When you view your credit report, you see all the hard and soft credit inquiries, but you do not get to see your actual credit score unless you pay a fee. When lenders view your credit report, they can see your credit score, but they can only see hard credit inquiries and not soft inquiries.

Credit Score

Soft inquiries have no impact on your credit score. However, hard inquiries have a negative impact on your score. You lose a few points whenever you apply for new credit, but you can have a significant drop in your credit score if you submit a large number of credit applications within a short period of time. Credit agencies assume that people who are constantly applying for credit are experiencing financial difficulties and are therefore high risk borrowers. Credit scores of such people are adjusted accordingly. However, you only see a minor drop in your score if you submit two or three applications for the same kind of credit, such as a loan, within a few weeks, because credit scoring models do not punish you for shopping for the lowest rates. You will experience a bigger drop in your score if you consistently make applications for new credit products week after week and submit multiple applications for different kinds of credit products.

Considerations

Generally, people and businesses have to obtain your permission before accessing your credit report, but sometimes you may not realize you have consented to give certain firms permission to access your file. When you apply for a car loan at a dealership, the dealer may ask to check your credit to obtain approval for a loan. However, the small print on the credit application usually enables the dealer to supply your information to multiple creditors. Consequently, you end up having multiple hard inquiries on your credit report from different financial firms as a result of one credit application.

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Unfavorable Credit History

An unfavorable credit history is one that includes information collected and disseminated by any of the three major credit reporting agencies (CRAs)--Equifax, TransUnion and Experian--regarding failure to fulfill credit obligations. CRAs are regulated by the Fair Credit Reporting Act.

Payments

Late payments or non-payments trigger negative reports, which include the number of accounts past due, how long they have been past due and the amount owed on them.

Balances

High balances on credit cards--amounts close to your credit limit--can contribute to an unfavorable credit history.

Many Accounts

Numerous open credit lines may also negatively affect your credit history.

Multiple Applications

A large number of applications for new credit creates an unfavorable credit history because each application results in an inquiry to the reporting agencies.

Collection Actions

Attempts to collect delinquent debt are reported to the agencies.

Bankruptcy and Foreclosure

Bankruptcy--a legally declared inability to repay creditors--and foreclosure--legal proceedings instigated by a creditor to claim property pledged as collateral--will both add to an unfavorable credit history. A bankruptcy remains on your credit report for up to 10 years, while a foreclosure remains for seven.

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How Can I Add Payment History & Auto Loans to My CPN Number?

Your Credit Privacy Number is a nine-digit number used to report information to the credit bureaus. These numbers evolved as alternatives to using a Social Security number. Today, any U.S. citizen can receive a CPN instead for use with their credit profile. Once you have a CPN, you can use this number to check your credit history. If you do not see your payment history listed under this number, you can ask your creditors to begin filing the information accurately.

Instructions

1

Use your CPN or Social Security number to access your credit report. You can go straight to one of the three credit bureaus for this service or use a third-party provider to check your report. AnnualCreditReport.com is a resource supported by the three bureaus that permits one free credit check each year into your own account.

2

Verify your credit information. Your lenders should automatically report information such as payment history and auto loans to your credit report. This information would be carried over on your credit report once you receive a CPN instead of using your Social Security number.

3

Take note of missing or incorrect information. Review your credit report closely and make sure your information is up to date. If your payment history is missing on any account, make a note to yourself.

4

Contact lenders who have not filed your credit information. Call the lenders who have not reported your credit correctly. Supply your account information with these lenders, and ask for a correction of the problem. Be sure to additionally submit the request in writing, documenting the conversation, in case the lender fails to follow through.

5

Check your report again in one month. Allow this 30-day period for your lenders to report the information. You cannot report information yourself at any point, so you must rely on your lenders to accomplish this.

6

Follow up with any tardy lender. If you do not see the information updated, place another phone call and send a second letter. This may continue for some time, but it is the only way you can assure the information is correctly entered.

7

Dispute any incorrect information. If you notice a lender incorrectly inputs information, file a dispute immediately with each credit bureau. Contact the lender to notify them the dispute has been filed, and ask for an immediate correction. See the Federal Trade Commission website for a sample credit dispute letter.

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How to a Get Negative Account Off a Credit Report

A negative credit record can adversely affect your credit score. A lower credit score can cost you more money due to higher interest rates, and can even cause a denial for loans or financing. Also a low credit rating can cause you to pay a higher insurance premium or be denied for a job.

Instructions

1

Gather all three credit reports from Equifax, Experian and TransUnion. It is best to have all three credit reports determine if the negative account is on one credit report or all three. You can get your credit report online on each credit bureau website, or AnnualCreditReport.com, or you can send a letter to the credit bureaus requesting your credit report. Depending on your state, by law you are entitled to a free credit report each year or if you are denied credit for any reason.

2

Look for any negative account information on the credit reports. Look for any discrepancies or inaccuracies on the credit report. By law, based on the Fair Credit Reporting Act, the credit bureaus must investigate and resolve any negative account information that you did not cause.

3

Dispute the negative account with the credit bureau adding any additional paperwork proving the discrepancy. You can dispute by calling the credit bureaus directly and doing so over the phone, or you can do so online, or you can mail the disputes directly to credit bureaus, preferably by certified mail.

4

Mark your calendar for 30 to 45 days after you submit correspondence to the credit bureaus. By law, the credit bureaus have 30 to 45 days to investigate and respond to your dispute. If the original creditor does not respond within 30 to 45 days, the negative account must the completely removed.

5

Contact the original creditor to have a negative account removed. If the negative account is indeed an error, speak with the creditors directly, informing them of the error. Send any documentation or proof of this error. Obtain all correspondence in writing. If the negative account is indeed your fault, you can also speak with the creditor to negotiate a way to have the negative account removed. Sometimes they will remove the account if you promise to pay a certain amount. Be persistent, as they can have negative account information despite what some representatives may tell you.

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How to Increase a Credit Score With a Bank Loan

Your credit score is a number used to evaluate your credit-worthiness based on your credit history. The national credit reporting agencies TransUnion, Equifax and Experian determine your credit score. Each calculates a score for you independently based on the information in their database about your credit history. The MyFICO website provides information on many ways to increase your credit score, such as reducing your debt on revolving credit accounts and having inaccurate information removed from your credit report. Additionally, if you qualify for a bank loan, you can also increase a credit score with a bank loan.

Instructions

1

Get a secured or unsecured bank loan according to your preference. Both work equally well for this purpose.

2

Confirm that your lender reports account status information to at least one national credit reporting agency regularly.

3

Make the specified loan payments on time. A single late payment can damage your credit rating.

4

Keep the account current for at least one year. The longer you make timely payments, the more your credit rating can improve.

5

Request your free credit report from AnnualCreditReport.com after you have been making payments for three to four months. Confirm that the timely payments you have been making on your bank loan are included in your credit report.

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How to Rebuild Credit After a Bankruptcy Dismissal

Filing a bankruptcy doesn't mean you'll receive a discharge or have your debts forgiven. A judge takes a close look at the case, and sometimes, a judge will dismiss a bankruptcy. What's more, you can voluntarily dismiss a bankruptcy if you do not want to proceed with the process. A bankruptcy dismissal means you're still liable for the debts. Fortunately, there are ways to rebuild credit after a dismissal.

Instructions

1

Contact each creditor and workout a new repayment plan. Mention your desire to remove the debt in order to avoid a bankruptcy. Ask credit card companies to lower your interest rate, talk to your mortgage company about a modification to reduce your monthly payment and speak with your auto loan or student loan lender to see if they have provisions for distressed borrowers.

2

Get rid of credit cards. Using credit cards on a regular basis plays a role in high debts and can contribute to bankruptcy. Stop using plastic, and if necessary, damage your cards.

3

Live on a budget. Do a budget at the beginning of each month and cut out extra spending to create additional income. Cancel unnecessary services such as cable, lawn care and hair appointments. Stop eating out and shopping. Put extra money toward debt.

4

Seek part time work and use this money to get rid of debt and rebuild credit. Paying down debt after a bankruptcy dismissal helps increase your credit score because it lowers your debt to income ratio.

5

Extend your due dates instead of missing payments. Pay all creditors by the due date, or contact your creditors if you're having payment issues to get an extension.

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How to Get Wrong Information Removed From Your Credit

A credit reporting agency like Experian, Transunion and Equifax receive credit account information provided by the company managing the account. The companies can sometimes put incorrect information on your reports, or you may end up in a situation where someone has stolen your identity and opened many accounts. You can dispute the wrong information through each reporting agency in order to clean up your credit report.

Instructions

Experian

1

Navigate to the Experian online dispute webpage (see Resources).

2

Get the credit report number from an Experian credit report given within the last 90 days or request a credit report from Experian. You can get a free credit report if you are denied credit within 90 days or through annualcreditreport.com if you have not requested your free report for the year. Experian also offers credit monitoring services that provide credit reports or a $10 credit report.

3

Click "Yes, I Have a Credit Report Number." Put that number in the first field and follow up with your personal information. Click "Submit."

4

Look through your credit accounts using the links along the top of the web page. You can jump between various types of accounts, positive information and negative information. Click "Dispute This Item" when you find an account with the wrong information. Provide a reason from the list provided or enter your own to explain why you are disputing the account. Click "Submit Your Dispute."

Equifax

5

Browse to Equifax's online credit dispute web page (see Resources).

6

Input an Equifax credit report number if you have one. Unlike Experian, you do not need a number to dispute an item on your credit report, so skip this field if you haven't pulled your report recently. Fill in the rest of the personal information fields and click "Submit." Click the answer to each of the personal identification questions presented on the next page and click "Submit."

7

Choose "Start a New Dispute" to begin Equifax's dispute process. Navigate through your credit report by using the navigation links on the side of the report. Click the linked name of the account that contains the wrong information. Click "Dispute This Item" to mark that account for investigation. Use the list of dispute reasons to explain why you are disputing the account or type your own in the text box below the options. Click "Add Dispute."

Transunion

8

Go to Transunion's dispute center on its webpage (see Resources).

9

Click "First Time? Click Here" if you have never registered for an online account. Fill in the required information to create the account then return to this page. Log in to your Transunion account.

10

Click the tab labeled "Credit Report" at the top of the page. Click "Report Inaccuracy" immediately underneath that tab. Choose "Submit Dispute." Examine the list of accounts provided and click "Request Investigation" when you find one with wrong information. Pick the dispute reasons from the list that appears underneath the account and click "Submit."

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What Does "Pays As Agreed" Mean On a Credit Report?

In the United States, Equifax, Experian and TransUnion maintain records pertaining to your credit history. These bureaus rate your credit-management skills in a number of different ways, including keeping track of the number debts that you paid per the original terms of the loan agreement. Paying an account as agreed has a beneficial effect on your credit score.

Pays As Agreed

When you take out a loan or a credit card, you agree to make monthly payments toward the debt. These payments fall on the same day each month unless that day happens to fall on a weekend or federal holiday, in which case the due date usually moves to the next business day. If you make your payment on or before the due date, you pay as agreed. Additionally, most lenders provide you with a 10-day grace period after the due date within which you can make a payment without incurring a penalty fee. However, this grace period normally only applies to installment loans and not credit cards.

Closed Accounts

Credit bureaus maintain records of your currently active accounts as well as your past credit accounts. When you pay off a loan, that debt still appears on your credit report for up to seven years but shows as being inactive or closed. If you repaid the entire balance owed, then the closed account shows as having been "paid as agreed." If you enter into a debt settlement and repay less than you owe, the closed account shows as "settled." A settled account causes a drop in your credit score because it reflects the fact that you did not repay the loan in line with the terms of the original agreement.

Credit Score

Each credit bureau has its own scoring system, but at each firm, payment history accounts for about one-third of your overall credit rating. Payment history includes information related to paid as agreed accounts as well as late payments and loan defaults. Credit scores rely most heavily on recent credit activity rather than past events. Therefore, a settled account has less impact on your credit score as time begins to pass. Credit agencies use credit scores that range from 300 to 850. Anyone with a credit score below 620 has a subprime or below-average score. Lending options are few for subprime borrowers because lenders are wary of taking on high levels of risk. Lenders that do write subprime loans typically charge very high interest rates. The large monthly payments on these loans are unmanageable for some people, and this can increase the likelihood of borrower default.

Limited History

If you have recently established a credit history, when you apply for new credit, you may get declinations that state that you have "too few paid as agreed accounts." You may receive such a notification even if you have never missed a loan payment during your short credit history.

Lenders view new borrowers as unknown quantities and are reluctant to lend to people with limited credit history because these people have yet to fully repay a debt. The failure to "pay as agreed" when you are a new borrower simply means that you have not yet held a car loan, home loan or other fixed-term loan long enough to have paid it off and closed the account.

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Credit Score & Consumer Behavior

A FICO credit score reflects the information contained within a credit report. The use of credit scores helps lenders determine approvals or denials of credit applications. How a consumer handles his finances contributes to how high or low a credit score will be.

History

Fair Isaac Corporation invented the FICO scoring model in 1989. The endeavor was a joint venture with Equifax and the score was known as BEACON at the time. According to Bloomberg, it's the scoring formula most widely used by U.S. lenders.

Significance

Credit issuers use FICO credit scores to gauge how well a consumer handles his financial obligations. A lower score generally indicates a risky borrower whereas a high score indicates that the borrower will be less of a credit risk to the lender. A higher score usually leads to lower interest rates.

Features

A FICO score numerically reflects consumer behavior. Of the total, 35 percent measures how consumers pay bills; 30 percent is how much debt the consumer has; 15 percent is the length of credit history; 10 percent is new credit applied for; and the final 10 percent is the types of credit the consumer has, such as a mortgage, car loan or credit card. FICO scores range from 300 to 850.

Misconceptions

Credit scores do not take into account the age, race or marital status of the consumer. It also does not include payment history on utility bills, cell phone bills or insurance, unless the consumer defaults on those items. In that case, the creditor may report the derogatory account to the bureau.

Warning

Various companies on the web sell or give away their own versions of a credit score based upon their relationships with the credit bureaus. Lenders don't usually use these scores and reliance upon them could mislead the consumer as to the actual status of his credit standing.

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What Are the Tier Credit Ratings?

Lenders use credit tiers to decide the cost of loans because the tiers determine what interest rates they will charge loan applicants. Lenders divide the tiers in similar ways, but they can change them at the lenders' discretion. Furthermore, there's no guaranteed interest rate assigned to credit tiers no matter what type of credit rating a borrower has.

Interest Rates

Most lenders apply tiered pricing to loans based on borrowers' credit scores, according to Bankrate.com. However, there are no industry-wide rules for dividing credit tiers because lenders choose their own cutoff points. Some lenders may charge a higher interest rate to a borrower who has a credit score below 700. Other lenders may not charge a higher rate unless a borrower's score is below 690.

Credit Scores

FICO credit scores can be as high as 850. But borrowers who have scores of 740 or higher are generally in the top credit tier and get the best loan rates. Consumers who have lower credit scores can work on raising them by reducing their debts and ensuring that they pay bills on time. Yet a Bankrate article titled "How Credit Scores Impact Your Mortgage Rate" warns that there are times when raising a credit score won't affect loan terms: Someone who attempts to raise his score from 760 to 800 likely won't get better loan terms even if he manages to increase his score.

Tier Divisions

Auto loan customers with scores of 720 or higher can expect to find themselves in the first tier and should have access to the best rates for auto loans, according to Edmunds. The third tier included credit scores ranging from 670 to 699. The fourth tier, with some of the highest loan rates, included car buyers who had credit scores ranging from 630 to 669. Lenders generally classify people who have credit scores of 619 or below as subprime borrowers. They usually have a more difficult time getting loans without paying high interest rates.

Considerations

No matter what credit tier you're in, it's worth comparing interest rates at various financial institutions. A significant difference can be noted in interest charges even for people with credit scores in the fourth tier. For example, people who got five-year auto loans at banks in 2010 paid about 8.45 percent in interest charges, but credit unions charged an average rate of 7.68 percent, according to Edmunds. Adding even a third of a percentage point to a $165,000, 30-year mortgage results in more than $11,172 in additional interest charges over the life of the loan, according to Bankrate.

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Is Having 3 Credit Cards Going to Damage My Credit Score?

Credit cards are a good method of building credit. As long as you practice responsible spending habits and make all of your payments on time, carrying three credit cards will not damage your credit score.

Facts

Possessing three credit cards does not hurt your credit score, although your score may rise or fall depending on the amount you charge on your credit cards and how recently you opened each account. The older a credit card is, the more beneficial it will be to your credit rating.

Significance

The size of your balances and the amount of your spending limits are used by the credit bureaus to calculate your debt to income ratio, which is 30 percent of your credit score. A high debt to income ratio can lower your credit score.

Considerations

Having an installment account, such as a home loan, appear on your credit report along with your credit card accounts will balance out the types of debt you owe and boost your score.

Misconceptions

While having three credit cards does not damage your score in itself, when you apply for the cards your credit rating will temporarily drop. This is because each time you apply for credit a credit inquiry appears on your credit report. A credit inquiry will drop your score by five to seven points for approximately 60 days.

Warning

If you do not make your payments on time to your creditors, having three credit cards can severely damage your score. This is because you will be receiving three late payment notations on your credit report each month instead of just one.

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If I Cosign on a Vehicle for My Brother, Is My Spouse's Credit Affected?

Before agreeing to help a relative by cosigning on a vehicle loan or lease, consider the potential effects on your family's ability to get credit. Cosigning on a vehicle for your brother, for example, can potentially hurt your credit score. This, in turn, can affect your spouse's borrowing power.

No Direct Effect on Spouse

Your spouse's credit score is not directly affected when you cosign on a vehicle with your brother. You and your spouse have entirely separate credit reports. Unless your spouse also cosigns, that account is not listed on your spouse's credit report and will not change her credit score.

Hurts Your Credit

Even if your brother makes every car payment on time, cosigning on the vehicle will hurt your credit, at least at first. When you apply to cosign for your brother, the finance company runs a credit check on you, which hurts your score. In addition, when the deal goes through, the new account hurts your score both in the area of new credit and in your length of credit history by decreasing your overall account age. The new debt liability also adds to the amount you owe, which decreases your credit score.

Significant Damage Potential

Your brother's management of the vehicle payments can significantly damage your credit score further. Whenever your brother has a late payment, this appears on your credit report just as if you had made the late payment. The lender can also pursue you for repayment of the debt if your brother is not paying. If neither of you pay, the lender will repossess the vehicle and you and your brother will both see your credit scores drop significantly.

Indirect Effects on Spouse

When your credit score decreases, this limits the ability that you and your spouse have to receive joint credit. For example, if you want to apply for a mortgage together, the lender will consider both of your credit scores to determine whether you qualify and what interest rate you will pay. Your low credit score could disqualify you or force you to pay a higher interest rate. In addition, cosigning will affect your debt-to-income ratio. Your total debt payments, including your proposed new mortgage, your spouse's debt payments and your debt payments, including your brother's car, cannot exceed 36 percent of your monthly income, in most cases.

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Information About Beacon Score

Your credit score can affect your life in several ways. Employers sometimes check credit on job applicants and lenders use credit when making loan decisions. It's important that consumers have a general understanding of what credit scores are.

History

BEACON is a trademark of Equifax. The company first introduced the score in 1989 in partnership with Fair Isaac, inventors of the FICO scoring model. This was the first general purpose risk score made available to lenders.

Function

Each credit bureau has it's own proprietary scoring formula based upon the FICO model. BEACON refers to the formula for Equifax. Equifax uses this formula to create a credit score for consumers based upon data found within the Equifax database.

Significance

The BEACON score differs from the scores used by the other two major bureaus, TransUnion and Experian, because each bureau has it's own formula. As such, consumers will have a unique score from each bureau that may vary by several points up or down.

Considerations

Since Equifax calculates a BEACON score based upon information contained within a credit report, it's important that consumers check their credit report on a regular basis to ensure its accuracy.

Warning

Various online websites sell or give away their own versions of a credit score, but these scores could be misleading, since they're not the ones lenders see. According to Fair Isaac, the FICO scoring model, upon which BEACON is based, is the score used most by lenders.

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Does Having a Debit Card Help My Credit Score?

Although a debit card looks a lot like a credit card, it pulls money directly from your checking account instead of borrowing it from a lender. Using credit cards responsibly can help your credit score, but the same is not true of debit cards.

Direct Effects

A debit card does not directly affect your credit score. This is because purchases and payments on your debit card are not reported to the credit bureaus. Only items reported to the credit bureaus can help your credit score.

Indirect Effects

People who use debit cards instead of credit cards may be less tempted to overspend because the money must be in the checking account for a debit transaction to work. In this way, spending on debit cards can help you avoid harming your credit score if the alternative is overspending on credit cards and not enough income to make payments.

Significance

If you are looking to build your credit score, get a credit card and use it responsibly. Try to charge no more than 30 percent of your credit limit and pay it off in full every month for the best results.

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How to Establish Credit with Bad Credit

Even if you have bad credit, you at least already have established credit. Your next step is to turn poor credit around by cleaning up credit reports and taking other steps to improve your credit score. However, don't expect the turnaround to take place overnight. Reestablishing credit requires a commitment of 12 to 24 months. That's generally how long creditors like to see you making on-time payments--on all of your accounts--before extending additional credit.

Instructions

1

Get a copy of your credit report from the website Annual Credit Report (see Resources). The three nationwide credit bureaus established the website to offer free reports as required under the federal Fair Credit Reporting Act.

2

Identify all the "bad credit" items on your report. Look for any accounts that are reporting as past due. Keep an eye out for accounts that have been "charged off" or listed with collection agencies. Credit-card companies and other creditors will close your account and list it as "charged off" if you stop making payments. When this happens, the account may be sold to a debt collection company and listed as a collection item on your report.

3

Bring all your existing accounts current by making payments. Then contact creditors and debt-collection agencies to resolve old debts. Offer to pay off old debts in exchange for the negative entries being removed from all three of your credit reports. Your offer may not be accepted, but it's worth a try. If you cannot get the information deleted on the first try, make a second offer to settle the accounts for less than the full amount owed. The New York Times reported in 1999 that some credit-card companies were settling delinquent accounts for as little as 20 percent of the balance. Settlement agreements usually are about half that amount, however.

4

Obtain a second copy of your credit report after a few months. You can receive up to three free copies a year from Annual Credit Report -- one from each of the credit bureaus. Check the updated credit report to confirm that the bad credit accounts have been updated. Your existing accounts should all be reporting as current, and the charged-off and collection items should have been deleted or changed to note that they were paid. Keep repeating the process if you have more bad credit items to clear. Once you have cleaned them all up, the passing of time and steady on-time payments will increase your scores and strengthen your credit.

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Do All Three Credit Bureaus Delete the Same Information?

In the United States, there are three major credit bureaus that maintain completely separate files of consumer credit information. Your credit reports provided by Equifax, Experian and TransUnion might not all be the same and you have to work with each bureau separately to get inaccurate information deleted from your credit report.

Guidelines for Deletion

Credit bureaus delete information from your credit report only if it is incorrect or has been on your credit report for longer than it legally can be. In general, negative information can stay on your credit report for no more than seven years, or 10 years in the case of Chapter 7 bankruptcy. Unpaid tax liens and criminal convictions have no time limit. If you have negative information that is older than this, you can ask the credit bureaus to delete it.

Examine Reports Separately

When you have information that you would like to have deleted from your credit reports because it is inaccurate or too old, first check to see if the information appears on all three reports. If the mistake was on the part of the credit bureau, for example, if they inadvertently placed an account on your report that actually belongs to someone with a similar name, it will probably be on just one credit report. Look over all three of your credit reports and mark the information on each report that needs to be deleted.

File Separate Disputes

Credit bureaus do not share information between themselves, so you need to file a dispute with each credit bureau to delete incorrect information from each credit report. Find information about how to file disputes on the last page of each of your credit reports. You can either file online or write a letter and send it by postal mail. MSNBC recommends writing letters to increase the chances of having your dispute processed thoroughly. Each credit bureau will handle the dispute separately and determine whether the information is eligible for deletion.

Similar Deletions

When you file a dispute with each credit bureau for an item that appears on each report, they will likely come to the same conclusion. Either the creditor who furnished the information will verify it for each credit bureau and it will stay on your report or the creditor will fail to verify it and all three credit bureaus will delete the information. If they come back with different results, file another dispute with the bureau that did not delete it and request another review. Mention that another bureau deleted the information to help validate your dispute.

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How Can Personal Responsibility Affect Your Credit Record?

Your credit score is a key factor in matters that are totally unrelated to your ability to pay off a debt. A subpar credit score can keep you from landing a job, getting an apartment or obtaining a favorable auto insurance rate. It's no surprise that your credit score is such a big factor in these decisions --- your credit score is the best tool a company has to assess your level of personal responsibility.

Timely Payments

The most critical factor in determining your credit score is your ability to make your monthly payments on time. If you're able to pay on time each month, it's an indicator that you're able to meet your financial obligations in a timely fashion. On the other hand, if you can't pay on time, it shows that you're either forgetful or unable to budget; in either case, it won't help your ability to land a job with any level of responsibility, and it sure won't help your credit score.

Level of Debt

A key to a good credit score is how well you manage the debt you have. Just because you have a lot of credit doesn't mean you have to use it, just as you don't have to take every vacation day in your time bank at work or spend your entire paycheck the moment it's received. If your credit card balances are close to your credit limits, it may lead prospective employers to think you're impulsive and careless with your money and, by extension, company resources.

Number of Accounts Open

Your total number of accounts is a factor in your credit score, but opening up multiple accounts in a short period of time shows that you're desperate for cash. It shows that you're not responsible enough to plan ahead and budget for the future. This has a negative impact on your credit score, and it may be looked on negatively by anyone assessing your level of responsibility via your credit report.

Failure to Comply With Agreements

If you're in a deep hole with your credit cards, you may be forced to turn to a debt settlement or even bankruptcy to get yourself back on your feet. While this alleviates your pressing financial burdens, you may end up destroying your credit in the process. Also, you may be showing that you're unable to carry out the terms you once agreed to. A landlord or employer is likely to see this as a red flag that you'll one day be unable to hold up your end of the bargain with them, which can result in them passing you over for an apartment or a job.

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Credit Repair Process

The credit repair process takes times, and this entails changing bad habits and understanding how credit scoring works. You don't have to pay a professional credit repair agency to fix your low credit score. Although there is no easy fix to repair damaged credit, there are effective ways to raise your score on your own.

Instructions

1

Review the information on your credit report. Disputing wrong entries on your credit report can help increase your credit score. Yearly reports are available from Annual Credit Reports, and you're eligible for one free report each year.

2

Use cash. High credit card balances will hurt your credit score. Resolve to pay down debts by using money from personal savings or paying double or triple your minimum payment until the balance disappears. Once you've cleared your debt, start using cash for purchases and always pay off debt charges with each billing cycle.

3

Avoid past due accounts. Pay your credit cards, mortgage, auto loan and other types of creditors on time to keep your accounts in good standing and to maintain a good credit rating.

4

Take care of collection accounts. Stop ignoring collection letters and calls. Create a plan to pay off these debts and negotiate new payment amounts with your creditors. Creditors are eager to work with debtors who put forth an effort to repay their debts.

5

Acquire new credit. Apply for a secured credit card with your bank or credit union after a bankruptcy to start repairing your poor credit history. Be prepared to pay a security deposit to qualify for this type of credit card. Secured credit cards are intended to help individuals with poor credit or no credit establish a solid credit history.

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How to Separate Credit Scores After a Divorce

Each individual has his own private credit record. When you get married, your credit report is not merged with that of your spouse. Most couples do, however, accrue joint debts over the course of their marriage that will appear on both of their credit reports. It is vital that joint debts be separated following a divorce as each individual's financial behavior can affect the credit score of the other spouse. In this way, credit scores and financial responsibilities can be truly disassociated following a divorce.

Instructions

1

Pull a copy of your credit report, and ask your ex-spouse to also pull a copy of her credit record. Review the reports together, and identify all of the debts you share that appear on both reports.

2

Sell as many joint assets as possible (See References 1). By selling assets that are in both of your names such as a home or vehicle, you and your ex-spouse can absolve your financial obligations to the debts and prevent the accounts from updating in your credit files. As long as an asset appears in both names, both of you are legally responsible for the debt (See References 2).

3

Refinance any items that you either cannot sell or are not willing to part with, into the name of the individual who has been designated by the court to make payments on the item. This will transfer sole responsibility for the payments into the name of the individual who chooses to keep the debt, and the account will cease to update on the remaining spouse's credit record.

4

Close any joint credit card accounts that you share with your spouse. It is best to pay off the balance immediately, but if this is not possible, you have the option to continue making payments. Closing the account, however, will prevent either of you from accruing additional debts that you will both be held responsible for (See References 2).

5

Request novation for any joint debts that cannot be cleared by selling, refinancing or closing the accounts. A novation occurs when a lender or creditor replaces your current contract with a new one. You can use a novation to request that either your name or that of your ex-spouse be removed from the original agreement and the debt be transferred into one person's name only (See References 3).

6

Check your credit reports again to ensure that no joint debts you have forgotten about still remain on your credit file.

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The Best Ways to Remove Inquiries From a Credit Report

A single hard inquiry into your credit history does no more than five points of damage to your score, but several of them could cause significant harm. You may, however, be able to remove inquiries from your report. The best way to remove inquiries might involve no work on your part.

Considerations

You cannot remove an inquiry from a credit report if it was a legitimate request, according to the Federal Trade Commission. Some non-lenders, such as cellphone companies, do a hard pull that counts against you. Soft pulls are not related to credit and won't ding your score. Typical soft pulls include preapproved loans and employment checks.

Contact the Creditor

To remove an unauthorized credit inquiry, you can write a letter to the creditor who pulled your report and request that he contact the credit bureaus and inform them that the application was in error or fraudulent. Sample letters are widely available for this, such as one on the Michigan State University website (see References).

You should send all letters by registered mail, and keep files on all of the letters you write to creditors and any calls regarding credit inquiries. You may need to reference these later.

Contact the Bureaus

If 30 days pass and the creditor takes no action or fails to reply to your letters, you should write to the credit bureaus, suggests Bargaineering. Attach a copy of your credit report with your letter and note the erroneous queries. Mention that you attempted to settle this matter with the credit agency but that they failed to respond. Request a report detailing the investigation if credit bureaus dispute your claim.

Wait

One or two inquiries probably won't hurt your credit score much, so it may be easier to just wait them out. Hard inquiries stay on your report for two years, but under the FICO scoring model they only impact your score for a year, according to Bankrate. Alternative FICO scores, such as the VantageScore developed by the major credit bureaus, count the inquiry for the full two years.

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Tips to Repair Credit Scores

A bad credit score can mean a borrower has to pay higher interest rates or may not be able to obtain credit at all. By taking the appropriate steps, you can begin to repair your credit score and be back in good standing in less time than you imagined. Changing habits and taking the initiative to regain control of your finances will raise your credit score significantly over time.

Check Your Credit Reports

The first step in beginning to rebuild a good credit score is to obtain a copy of your credit report. Credit file disclosures from the three nationwide credit reporting companies are free once every 12 months and can be requested through a website called annualcreditreport.com. This is the only authorized online source to obtain your free credit reports.

Look over your reports carefully and check for errors. If there are current accounts listed as delinquent, charges that you are unfamiliar with, accounts that do not appear to be yours, or any other information that is not correct, contact the companies listed and get the report corrected. It is unfair to be judged for credit problems that are not your responsibility, but it isn't uncommon to find errors on your report and they will not go away if you do not pursue it.

Pay Bills On Time

Pay all bills by the due date. This is one of the most effective ways to raise your credit score, according to the Federal Reserve Board website. Set up automatic payments with your bank if you have difficulty keeping up with due dates. You may even talk to your creditors and ask for a change of due date that will make it easier to remember. It is also important not to overdraw your bank accounts. Keep enough money in the bank to cover the bills.

Avoid Scams

There are countless companies out there who are looking to prey on those in financial trouble. Credit repair scams are a huge problem for people who feel they have nowhere else to turn. These companies offer seemingly easy ways to get out of debt; however, it is best to avoid these scams because they will often do as much damage to your credit score as bankruptcy. In addition, they are not working for free, so you are really just spending more money. Helping yourself out of debt is the best way to handle the situation, according to the Federal Reserve Board website.

Pay Off Debt or Keep Low Balances

If you can pay off a debt, do it. Carrying low balances on credit accounts or paying them off entirely will do wonders for your credit score. Credit scores are determined partially by comparing your available credit to how much outstanding debt you are carrying. If you have a high credit limit but your balance is close to the limit, your credit score will be negatively affected. Keeping accounts open and maintaining a very low or zero balance is likely to improve your score.

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How Can I Check My Child's Credit for Identity Theft?

Identity theft crime rings target everyone, including children -- who make up 7 percent of all identity theft victims, according to the Christian Science Monitor. Checking your child's credit is not as simple as with an adult, because the credit bureaus are reluctant to give out a minor's report, which could lead to more theft.

Identification

You can check a child's credit. If he is under 13, you must mail in your request along with a copy of the child's birth certificate and Social Security card. You, the parent, must furnish a copy of a government issued photo ID, such as a drivers license and a recent utility bill, according to Annual Credit Report. If the child is 13 or older, you can usually request the report online at the Annual Credit Report website.

Why Go Through All This Trouble?

The national credit bureaus require a lot of red tape to get a child's credit report, because they do not intentionally keep files on minors, only if the minor has credit, such as when a parent makes the child an authorized user on a credit card. Also, they want to prevent identity thieves from using a minor's report to get his personal information to take out a loan fraudulently.

Is My Child a Victim?

Accounts listed on your child's credit report do not automatically mean he is a victim of identity theft. If you gave him an account, such as an authorized user card, he will build credit history. The child may have also applied for a loan on his own. Children sometimes get credit on their own by lying about their age or forging a signature.

Legal Guardians

If you are a legal guardian of the child, you must provide all of the documents as you would for a biological child, but also a court order identifying you as the legal guardian.

What If My Child is a Victim?

Contact the credit bureaus immediately and request a fraud alert or a freeze on the child's report if you suspect identity theft. Freezes offer more protection because the creditor cannot see the report without your consent. Also, file a case with the local lawsuit enforcement agency. The Federal Trade Commission can give you some extra pointers on how to recover from this crime.

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Does Negotiating My Credit Card Debt Have a Negative Impact on My Credit?

It is not uncommon for credit card companies to settle debt for 50 cents on the dollar or less, but debt settlement could ruin your credit for years to come and not help your situation as much as you think. Lenders will report your account as settled in some fashion, and you could have to deal with negative consequences from the IRS, too.

Identification

Negotiating your credit card debt for anything less than the original balance has a negative impact on your credit report. Settled accounts are a major delinquency in the FICO credit scoring system. A person in the highest tier of scores -- above a 780 -- would see a drop between 105 and 125 points, according to Ellen Cannon of Bankrate.com.

Considerations

You probably won't see a significant negative impact to your credit rating because you likely already have many missed payments. It is often the delinquencies leading up to debt settlement that do the most damage to your credit report. You recover some of the points you lose from debt settlement by eliminating debt from your record, as debt counts for 30 percent of your FICO credit score.

Taxes

If the credit card company forgives any portion of your bill, the Internal Revenue Service taxes the forgiven debt as if it were income. Thus, you must factor in taxes when you negotiate a debt settlement. For example, imagine the credit card company forgives $15,000 in debt. If you fell into the 30 percent tax bracket, you would owe $5,000 in taxes. In case you cannot pay your tax bill, the IRS might put a lien on your property, unless you worked out a payment agreement. A tax lien or levy is another negative mark on your credit history.

Tip

Debt settlement is usually not the best option for most people, according to Liz Weston of MSN Money Central. You should schedule a session with a credit counselor before you start negotiating a credit card settlement. For example, you might be able to pay off all creditors with one monthly payment through a debt management plan, or bankruptcy might be the best option.

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How a Change in Terms Affects a Credit Score

According to MyFico, your FICO credit score ranges from 300 on the lower end to a high of 850. The higher the score, the better your credit is considered to be. Lenders, landlords and even some employers check your credit score before doing business with you; therefore, it's beneficial to learn how a change in your credit terms affects your credit score.

Identification

Your FICO score contains five components. The first 35 percent of your score measures how well you pay your bills. Thirty percent reflects the amount of debt that you have. Another 15 percent is the length of your credit history. Ten percent is how much new credit you've recently applied for, and the remaining 10 percent measures the credit mix present on your report.

Significance

If you have credit cards, a change in your credit limit can negatively impact your score. If you have debt on the card and the lender lowers the credit limit to the amount of your debt, this decrease in available credit while having no corresponding decrease in debt on the card will make it appear as though you are maxed out on the card. According to Bankrate, a maxed-out credit card can lower your FICO score by as much as 45 points.

Considerations

When you have credit in the form of a credit card, for example, lenders are free, by law, to change the terms of that card and increase the amount of your minimum payment due on that debt as long as they give 45 days' written notice first. If you fail to make that increased payment on time, the late payment will appear on your credit report. Thirty-five percent of your FICO credit score measures how well you pay your bills. A late payment can drop you score anywhere from 60 to 110 points, according to Bankrate.

Warning

Some credit issuers reserve the right to increase your interest rate if you fail to honor the terms of your credit agreement, such as not making payments on time or after the expiration of an introductory rate offer. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 allows credit card issuers to raise your rate if you're more than 60 days late on a payment. An increase in the interest rate will lead to higher finance charges and thus, it will increase the amount of debt that you owe to that creditor. Your debt load is 35 percent of your credit score and if it increases, this can lower your score, depending upon the other factors present within your credit report.

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How to Improve Your Credit Score in Less Than 30 Days

Ready to jump in to the real estate market, but found that your credit score needs a quick boost in order to qualify for a mortgage? Follow these steps to learn the most effective ways to achieve quick improvement of your credit score.

Instructions

1

Obtain a recent copy of your credit report (from all three of the major credit reporting agencies).

2

Determine what your credit limit is for each revolving credit card account you hold (contact your bank or creditor, or review your monthly statement).

3

Confirm that the credit limits listed on your credit reports are accurate (ie, they match what you found in Step 2). If there are inaccuracies, particularly if you have a higher credit limit than what is listed on your credit report, call your card issuer and ask them to update this information.

4

Pay down your balance on each individual card so that the balance is less than 25% of the credit limit for each account. Pay online if possible in order to expedite the posting of the payment to your account.

5

If you are a consumer who pays off their balance in full each month (good for you!) make sure you do not charge more than 50% of your maximum credit limit on any given month (for any individual card), since your available credit is typically averaged over each 30 day billing cycle.

6

Review your credit report for any late payments. If you simply have a single late, and otherwise a clean payment record with the applicable creditor, call and request they remove the negative information from your report - you may find they are willing to do so, particularly if you provide your request in letter form.

7

If you have collections on your credit report that are relatively small, $500 or less, you can contact the appropriate collection agency and most likely get them to agree to remove this negative from your credit report (in exchange for paying it off, of course). Be advised, however, to refrain from sending them the money until you get the agreement in writing!

8

Check your credit report for easy errors that you can fix relatively quickly. This may include credit-related items that exceed the 7-year time limit, negatives that you can conclusively prove are not yours, or accounts that are still listed as unpaid that were included in a bankruptcy. Simply dispute these online directly with the credit reporting agency.

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How to Rebuild a Credit Rating

Your credit rating is determined by several factors on your credit report. These include age and amount of debt, total debt to available balances ratio, payment history and collection accounts. Negative information stays on your credit report for seven to ten years. Thus, rebuilding your credit history can take time. However, you can begin to rebuild your credit rating today by making small changes and by taking control of your credit situation. Many people have successfully rehabilitated their credit rating and you can, too.

Instructions

1

Pay all bills on time. If possible, set up credit card bills to be paid automatically from your checking account each month so that you will know that they are always paid on time. When possible, pay more than the minimum payment on your credit cards.

2

If you are unable to get a credit card because of poor credit history, consider getting a secured credit card. To do this, you make an initial deposit and then borrow against your own money. Use the card regularly, but keep the balance low to build credit.

3

Only use up to 30 percent of the available balance on each of your credit cards. Bankrate explains that potential creditors do not look favorably upon those with maxed out credit cards. The most important factor affecting credit scores is payment history. However, credit utilization is the second most important factor.

4

Avoid closing unused credit cards. These zero balances can improve the ratio of debt to available credit, which can improve your credit score.

5

Avoid opening new accounts unless necessary. Your credit score may drop if you open new accounts, especially if you open or apply for more than one account within a short period of time.

6

Examine your credit report and dispute errors that may affect your credit rating. Visit the Annual Credit Report website (see Resources) to get a free credit report. You can request the report online or by phone. You can dispute errors online when viewing your report, or in writing. In most cases, you will need to submit documentation supporting your dispute. The agency must investigate the dispute within 30 days and notify you of their findings.

7

Monitor your credit report and your credit score. My FICO offers affordable credit monitoring services to help you watch for changes to your report and credit score. My FICO has been endorsed by Kiplinger, a respected source of financial advice.

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Equifax Credit Information

Equifax, Inc. of Atlanta, GA is a company that specializes in providing credit information to businesses and individuals for the purposes of managing their finances and personal credit data. According to the Equifax website, Equifax is the only credit reporting agency authorized to provide a FICO credit score.

Identifying Information

The first section of an Equifax credit report contains information about the individual, such as all names used, date of birth, social security number, previous and current addresses, previous and current phone numbers, and employment history

Potentially Negative Items

An Equifax credit report contains accounts that are potentially negative or that require further review. This section includes judgments, liens, and collection accounts. Negative items remain on the credit report for at least seven years from the date of last account activity.

Satisfactory Accounts

All accounts in good standing, whether open or closed, will remain on the Equifax credit report for up to ten years. This section includes any accounts in deferment or repayment.

Credit Inquiries

All credit inquiries in the last two years appear on an Equifax credit report. Some inquiries, such as prescreened offers of credit, are only seen by the individual, whereas others, like requests to extend credit, are seen by potential lenders.

FICO Score

The Fair Isaac Corporation (FICO) is the company that first established credit risk scoring. A FICO score is a person's credit score. A FICO score is included on the Equifax credit report for an additional fee of about $7.

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Does Paying a Credit Card Balance in Full Hurt a FICO Score?

More than half of all American credit card holders pay their balance in full monthly, according to a 2009 "Consumer Reports" magazine survey. You must make the minimum payment that your card issuer bills you for each month, but you can send more or pay off the whole balance any time. You affect your credit score any time you pay off a debt completely.

Definition

Credit scores were originated by the Fair Isaac Corp., now known as FICO, as a measure of a person's creditworthiness. FICO still calculates these three-digit numbers, and the Experian, Equifax and TransUnion credit bureaus have their own versions, all of which are determined with similar formulas. Your credit card balances and payments are an important part of your scores.

Factors

Your payment history on your credit cards and other loans make up 35 percent of your credit score, while your balances are 30 percent of the score, according to FICO, so paying a card in full affects your credit rating. Lower balances are better for your credit score, so paying off your entire balance is a positive step. The best available credit to owed debt ratio is spending no more than 10 percent of your available credit, although you can go as high as 30 percent without major harm, MSN Money writer Liz Pulliam Weston explains. You make your ratio more favorable whenever you pay off debts.

Considerations

You destroy the positive effect on your credit score from paying a credit card balance in full if you subsequently close the account. You eliminate a credit line by terminating a credit card account, which changes your overall available credit as compared to your debt load. For example, you might have two credit cards, each of which has a $4,000 balance and $10,000 credit line, meaning that you have used 40 percent of your spending power. That drops to a more favorable 20 percent if you pay off one of the cards and leave it open, but it stays at 40 percent if you pay and close one of the accounts.

Warning

Your credit card issuers cannot legally charge you a penalty if you pay your balance in full and then stop using your account, according to the Board of Governors of the Federal Reserve System, but it can close out the account for non-use, which eliminates your available line. You can keep the account active without incurring interest by using your card every few months and keeping the balance small enough to pay in full after every use. Otherwise, your FICO score will drop if the card issuer suddenly cancels your account.

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How to Get My Credit Up With Bad Credit

Having a low credit score can be an extremely frustrating and difficult situation. After all, bad credit ratings can make it really difficult to do everything from renting an apartment to borrowing money from a lender. Although it may seem difficult to increase a low credit score, several tips can be helpful in doing so.

Instructions

1

Be prompt with your bill payments. Although it seems like the obvious answer, always paying your bills on time is the only sure-fire way to raise your credit score. If you have a hard time remembering to pay your bills by their due dates, set-up a payment reminder that will go to either your cell phone via text message, or email inbox. Or, set up automatic bill pay online in which your due amount is automatically deducted out of a credit/debit card or bank account that you link with the website.

2

Avoid moving your debt around. Instead of consolidating and moving around your debt, simply focus on paying it off entirely and getting rid of it. Also, avoid closing out credit card accounts that you don't use, as it generally looks better to have your revolving debt correspond with more credit cards, rather than less.

3

Closely monitor your credit report. Many companies out there make the process of buying your credit report very easy and fast, such as Experian. Be vigilant and go through your credit report with a fine-toothed comb, and watch out for any mistakes that could be printed on the score that could lead to your score being lower. Credit reports also could alert you to any possible signs of identity theft and credit card fraud, both of which could lower your score significantly.

4

Abstain from opening up new credit card accounts. If at all possible, stay away from opening up any new cards. After all, the goal is to reduce the amount of revolving credit, not increase it. Just focus on your current credit cards and paying your bills on time, as this will greatly improve your credit score with some time.

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How Do I Increase My FICO Score From 609 to 620?

A FICO (Fair Isaac Corporation) score helps lenders examine credit history to decide what kind of rate to give borrowers. Scores range from 300 to 850 with 687 as the mean score. Scores are created from a myriad of factors such as payment history, debt, credit history, new credit and types of credit. Lenders typically assign a higher rate to borrowers with a FICO score of 600 or below because a low score equates to a higher credit risk. Although slightly above 600, a score of 609 raises red flags with lenders. Take a few simple steps to raise your score to 620 but aim for a higher score to obtain a lower rate.

Instructions

1

Review your credit report to ensure that the information is correct. Sometimes credit bureau reporting is inaccurate. For example, old debts that have been paid can show up on your current report and diminish your score.

Use the Federal Trade Commission website (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm) to request a copy of your credit report. The site provides access to several different reporting agencies.

2

Contact the credit bureau to revise and update your report if you find inaccuracies or want to dispute a claim. Typically you can either contact the creditor directly or submit a dispute letter to the credit reporting agency. Request an updated report to ensure that changes and corrections were made.

3

Pay all of your bills on time. Your payment history makes up 35% of your score, so it is imperative that you pay bills by their deadline. Review monthly invoices and determine which bills are falling by the wayside. If you are having trouble paying all of your bills on time, contact your creditors to work out a new payment system or seek credit counseling.

4

Maintain a low credit card balance. Debts and debt history is 30% of your score. Keeping your monthly balance manageable will not only help you get monthly bills under control but will have a positive affect on your credit score. Aim to keep your balance at least 30% below your card's limit.

5

Don't open new credit cards while trying to increase your score. New credit is 10% of your score, and opening several credit card accounts at once can have negative implications.

Every time you apply for new credit, the card issuer must contact the credit bureau, which records an inquiry on your report. A few inquires on your report will not impact your score; however, a multitude of inquires resulting from new revolving credit lines will lower your score.

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Will Paying Off Old Debts Restore a Credit Report?

All debts, even old ones, have a negative effect on your credit score. A debt can lower your available credit limit, lead to missed payments or add a negative collection file to your credit report. While paying a debt will not remove the past information from your credit report, it may improve your credit score in other ways.

How Debt Affects Your Credit Score

Carrying debt affects your credit score in several ways. Carrying a high balance on one or more credit cards lowers your available credit limit and drops your credit score. If you do not pay the debts on time, creditors report your missed payment to the credit bureaus, which lowers your credit score even more. If a debt goes unpaid for six months, the creditor will write off the debt as a charge off and send it to a collection agency, which lowers your score, according to MSN.

Resolving Debts Owed to a Direct Debtor

Paying off an old debt before the original creditor turns the account over for collection will bring your account status to current and stop the creditor from reporting future late payments. It will also bring your overall debt-to-credit ratio down, which increases your credit score.

Resolving Debts Owed to a Debt Collection Agency

Creditors typically sell your account to a collection agency after it goes unpaid. From there the creditor will also report the account to the credit bureaus, giving you a second negative mark, and attempt to get you to pay the debt. You can work with the collection agency to reach a settlement on the debt and pay a portion of the total amount due, or pay the debt in full. The collection agency will report your debt paid. However, the mark will stay on your credit file.

When Paying a Debt Helps Your Credit Score

It is best to pay a debt before the original creditor writes off the account. If the debt has already reached a collection agency, the agency may be willing to remove the collection listing from your credit report entirely or report the account as paid as agreed if you pay the debt in full. You will still have a negative mark on your credit report from the original creditor, but removing or altering the collection agency account will have a positive impact on your credit score.

When Paying a Debt Hurts Your Credit Score

As accounts age, they have less of an impact on your credit score and they fall off the report entirely after seven years. When you enter into a payment plan, pay a settlement or pay in full on an account that is several years old, the creditor will update the account information with the credit bureaus. This will cause the account to become current and have a larger impact on your score, which can actually hurt your score worse then just allowing the bill to age and fall off your report.

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Is the FICO Not a Good Measure of Risk?

The Fair Isaac Corp., or FICO, first developed a formula for assessing credit risk during the 1950s, and the three national credit rating agencies: Equifax, Experian and TransUnion, all use credit scoring based on the FICO model. However, FICO scoring models rely on historic data, and some argue that you should not rely on FICO scores alone when measuring risk.

Basics

The credit scoring models used by all three national credit bureaus have certain similarities, such as the fact that credit scores in excess of 750 are viewed as good and scores below 620 are seen as poor or subprime. However, each bureau uses its own scoring model, so given that the firms rely on the same data you would think that the scoring models would look identical. In fact, one credit bureau may give you a much higher score than another due to the differences in how scores are calculated. Therefore, you may or may not qualify for a loan depending on which bureau's risk model your lender decides to use on the day that you submit your loan application.

History Versus Future

Credit scores are based on historic data related to your management of your credit accounts. FICO advocates believe that your past credit management habits are indicative of your future actions. However, you may have an excellent credit score but if you lose your job due to ill health or a layoff, you may suddenly have to stop paying your bills due to a loss of income. When home prices plummet due to external economic factors, people with good credit sometimes choose to let their home fall into default rather than keep paying on a loan that exceeds the property value. FICO scoring models have no way of predicting these actions and events.

Manipulation

You do not have a credit score until you have established credit and you cannot usually obtain credit until you have a credit score. This conundrum leads many people to ask relatives with good credit to co-sign on credit cards or loans as lenders approve the loan on the basis of the co-applicant's credit. However, the failure of the primary borrower to honor the debt has an adverse impact on the co-applicant's otherwise impeccable credit. Likewise, someone can rapidly build a good credit score by becoming a co-signer on a credit card owned by someone with established credit. In these situations, other people's actions can improve your credit or hurt it and the FICO score you are left with does not necessarily reflect your true credit managing capabilities.

Considerations

FICO scores have major limitations but can work well as a risk assessment tool if used in conjunction with other data, such as income verification from loan applicants. A high credit score might suggest someone has high income, but unless you verify their income, you have no way of knowing whether that person has no income at all and just uses one credit account to pay down another. However, if lenders look at a borrower's credit history along with their bank accounts, tax returns and other financial information, then FICO scores are a good tool as part of the overall risk management process.

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Credit Rating Process

Credit Bureaus

There are three major credit bureaus, Transunion, Experian and Equifax, that collect demographic and financial information on consumers. This information includes a person's name, address, employer, loans, credit card accounts and payment history. This information is used to determine the person's credit rating. A poor payment history and other negative information can bring down a credit rating significantly. A good history will contribute to a high credit rating.

Credit Score

A person's credit rating is most often expressed in terms of a credit score. This is a three-digit score that is computed using a formula that takes the person's credit history and financial information into account to determine whether or not she is a good credit risk. The most commonly used credit score is known as the FICO score, which is compiled by an independent company called Fair Issac Corporation. According to Fair Issac, the FICO score is based on the type of accounts a person has, the amounts owed on those accounts and the payment history. The length of the credit history and the amount of new credit that has been granted also is taken into account. Amounts owed and payment history are the two biggest factors in determining the credit rating. Together they account for 65 percent of the FICO score.

Accuracy

A person's credit rating is only as accurate as the information on his credit bureau reports. If he is denied for a loan because of a bad credit rating, he can review his credit reports to make sure there is no incorrect negative information. Every American consumer is entitled to one free credit report from each of the three bureaus on an annual basis. If he finds information that is wrong, he can file a dispute. It must be removed if the credit bureau cannot verify it, which will boost his credit rating.

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Credit Cards to Rebuild Credit After a Bankruptcy

When you're repairing your bad credit, you need to address each of the categories that contribute to the calculation of your score. Using your credit cards responsibly contributes greatly to boosting your score, but the process takes time, patience and diligence. Once you've established yourself as a responsible credit card holder, you will see your score rise significantly.

Opening New Accounts

Ten percent of your credit score is based on whether you have established new credit. However, this area can be a catch-22, because applying for too much new credit at once appears to the credit bureaus as though you're desperate for money. If you haven't opened a new account in some time, consider applying for a card. If you've recently opened a new account, opening a new account isn't necessary.

Paying on Time

The biggest way to positively impact your credit score is to make on-time payments consistently. Your payment history accounts for 35 percent of your credit score. When you're repairing your bad credit, it's vital to set up your credit card accounts with automatic payments to ensure that you don't end up missing any deadlines. A single payment made more than 30 days late can lead to a 110 point drop in your credit score. Pay at least the minimums on time, and over time you'll see your score rise.

Lowering Debt

One-third of your credit score is determined by the amount of credit you're using. Your debt utilization ratio is the relationship between your balances and the credit available to you. The Better Business Bureau suggests keeping your balances below 25 percent of your credit limits to keep your credit score as high as possible. Carrying a small balance shows that you know how to handle debt responsibly, but it's important to keep those balances low.

Using Old Cards

The length of your credit history accounts for 15 percent of your credit score, so if you haven't been using your oldest credit cards, dusting it off and making a purchase will help your score to rise. When you stop using a card, your creditors may stop reporting your account to the credit bureaus, so while it's still listed as open on your credit report, it won't count for as much as cards that you're using. Use each of your cards once every few months; then pay the balances off in full.

Adding to Diversity

Credit cards may also help to repair bad credit if you don't have a good mix of credit. Ten percent of your credit score is based on your credit diversity, so if you have more installment loans than revolving credit, opening a credit card may help your score. Installment loans are those that end once they're paid off, like a mortgage or a car loan. Revolving credit is the type that you may continue to use again once the balances are paid off, like credit cards or lines of credit. If you don't have a credit card at all, adding to the mix will help you to boost your standing in this area.

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What Are FICO Credit Scores?

Fair Isaac Corporation credit scores estimate the risk of lending money to a particular individual. High-risk borrowers are people with low FICO credit scores, likely because they do not have much credit history or because they have managed credit poorly in the past. Lenders prefer low-risk borrowers because these individuals' high credit scores demonstrate that they have consistently repaid debts in the past.

Range

FICO credit scores range from 300 to 850, although most people have scores in the 600s or 700s. According to the Consumer Federation of America, in conjunction with the Fair Isaac Corporation, people with scores over 700 should not have trouble obtaining credit, while people with scores under 600 are likely to be offered very high interest rates or have their credit applications denied.

Types

FICO scores include any credit score calculated using the credit-scoring model developed by Fair Isaac Corporation. Individuals have a few different FICO scores because multiple credit bureaus collect credit data. Equifax calls FICO scores "BEACON Scores," Experian refers to them as "Experian/Fair Isaac Risk Model" and TransUnion as "EMPIRICA." The scores might not be identical because each credit bureau could have slightly different information in the individual's credit report file.

Elements

The FICO score combines calculations from five major areas of the individual's credit use. A person's payment history on credit accounts determines approximately 35 percent of the score, including late payments, bankruptcies and accounts sent to collection agencies. Amounts a person currently owes contributes another 30 percent of the score, especially the ratio of balances on credit cards to the credit limits. About 15 percent of the score looks at a person's length of credit history, including the amount of time that has passed since opening each account and how recently the accounts have been used. Two final areas, which each account for 10 percent of the score, are the variety in types of credit accounts and the amount of new credit and credit applications.

Significance

Many lenders use FICO credit scores to help them determine whether or not to approve an applicant's request for credit. Lenders also generally offer better interest rates to people with better credit. Having a good credit score can save a person thousands of dollars during loan repayment because of lower interest costs. For example, repaying a mortgage of $200,000 over 30 years at 7 percent interest costs roughly $47,000 more than repaying the same mortgage at 6 percent interest.

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Is There a Quick Way to Raise Your Credit Score?

Raising your credit score by a couple hundred points can take over a year, but there are some things you can do to quickly raise your credit score. Some of these tricks for raising your credit score quickly are almost entirely unknown to the general public.

Goodwill Adjustment

Goodwill adjustments are when a creditor will agree to erase a previous late payment from your credit score. To receive a goodwill adjustment you have to make a request in writing to the company. Loyal customers are usually the ones that are successful when asking a company for a goodwill adjustment.

Ask for Your Account to Be Re-Aged

If a debt collector is asking for a payment that is older than seven years old, it cannot appear on your credit report by law. If a creditor is doing this, write them a letter and ask them to remove the inquiry from your credit report. If they don't comply, contact a lawyer. Items like bankruptcy and old debts are not allowed to stay on your credit report for more than seven years.

Pay Off Outstanding Balances

If you have large outstanding balances on your credit cards, it's hurting your credit score. Paying off the balances on your credit cards is the absolute quickest way to raise your credit score. All the other methods of increasing your credit will take at least a few months.

Use Older Credit Cards

If you haven't used one of your older credit cards in a while, put some small charges on it and pay the bill on time. One of the factors that's used to calculate credit scores is length of credit history. If you don't use a credit card for a while, your lender may even close your old account. The longer you have an account, the more it will help your credit score if you pay your bills on time.

Get a Secured Credit Card

If you don't have a credit card, getting one can help you raise your credit score in a few months if you pay your bills on time. Apply for a secured credit card if your credit is so bad that you can't get approved for an unsecured credit card. Secured credit cards require you to put a security deposit down that equals your credit limit. Credit card companies will approve you for a secured credit card even if you have bad credit because if you default on your payments they will just take the money out of your security deposit. Banks will not perform a credit check when you apply for a secured credit card. After you get your credit card, use about one-third of the credit limit each month and make sure you make your payments on time. This will help improve your credit rating.

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