Credit Bureau Reporting Rules

Credit bureau reporting can be a major source of contention for both policymakers in Washington and the average American. With the vast amount of information updated each day at credit bureaus, some mistakes are inevitable. Errors on such a vitally important financial document can wreak havoc on your ability to borrow money and even get hired, so stringent rules have been created to monitor and manage those who report information about your finances to credit bureaus.

FACT Act

The FACT Act (updated in 2003 with stronger identity theft protections) is a piece of legislation that controls what others can see in your credit report. Generally, those who can view and analyze your credit report are lenders, insurance agents, employers and landlords. The FACT Act is the best protection you have against negative or inaccurate credit reporting.

DCA Due Process

The DCA Due Process law requires all reporting agencies to inform borrowers if a delinquent notice will be placed on their credit report. It passed to protect you against negative history--whether or not it was legitimate--and offer a chance for borrowers to make their debts right or file a notice of fraud to their bureaus.

Free Credit Reports

The updated FACT Act allows you to view reports from all three of the credit bureaus, for free, once a year (see resources, below). This part of the act is designed to help you manage your financial health without having to go through lending channels and put unnecessary inquiries on your credit reports.

Protections for Those Other Than Consumers

The updated FACT Act now stipulates that employers can investigate their employees' credit reports if they think an employee has been engaged in fraud, embezzlement or theft. Employers were granted this privilege so as not to tip off possible criminals. Employers use this part of the law to monitor what is being reported to the employee's credit report--for example, if an employee is using a corporate account for personal purposes.

Consumer Opt-Outs

Before the updated FACT Act, lenders could share your information with their affiliate companies and competing lenders for a price. The FACT Act lets customers opt out of this arrangement. This was added to the FACT Act to prevent unethical lenders from posting inaccurate or misleading information on a credit report so as to encourage financing.

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How to Get Your Beacon Score Online

A Beacon credit score is the name of your credit score from Equifax. Each of the three credit bureaus (Trans Union, Equifax and Experian) has different names for the credit score it provides; however, each score is derived from the Fair Isaac model. This ensures consistency in the way items on your report affect your credit score. Each year, you are entitled to a free credit report from annualcreditreport.com. While this report does not include a free score, you have the option to purchase one from Equifax or any of the other credit bureaus.

Instructions

1

Navigate to the Equifax website.

2

Select a credit score product. You may select a monthly subscription product or a single-use product. Monthly subscriptions may offer score updates or scores from all three credit bureaus. Consumers who monitor scores in preparation for lending or similar activities may consider this option attractive, while consumers who simply want to know a current score may select a single-use product.

3

Click the "Buy Now" button.

4

Enter your personal information. This includes your name, address, Social Security Number and date of birth. Click "Continue".

5

Enter your payment information.

6

Answer verification questions. Equifax pulls information from your credit report to verify you are requesting access to your account. Examples of verification questions may include prior address verification, monthly payment obligations or the names of companies you have current or prior accounts with.

7

View your product online.

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Explanation of the Credit Score

A credit score is a calculation of how likely a person is to pay bills. Higher credit scores enhance a person's chance of credit approval.

Credit Approval

A person seeks credit approval to purchase new items such as cars, homes or credit cards. A high credit score leads to credit approval, lower interest rates, and smaller payment options.

What is the Credit Scoring Process?

A credit score forms from the information lending companies report to credit bureaus. Late payments or failure to make payments cause lending companies to report to credit collection agencies, and the information transfers to an individual's credit report.

Credit Score Models

The credit score models are Equifax, Experian and TransUnion.

Credit Score Range

The credit score number range is 300 to 850. A rate of 720 or higher receives the finest interest rates. A rate of 499 or below receives higher interest rates. Low credit scores often lead to credit rejection.

Achieving High Credit Scores

An individual develops credit by purchasing cars, homes or credit cards. If the individual makes payments in a timely fashion, the credit score grows into a great credit score.

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What Is a Good Credit Report Score?

Outside of your Social Security number, your credit score might be the most important number associated with your identity. Your credit score is the key to unlocking the best things life can offer. With a good score, you have access to the best interest rates, saving you thousands over rates offered to people with lower scores. It's important to know your credit score and whether it's considered good in relation to the rest of the population.

Credit Score Basics

Your credit score is a snapshot of your credit profile at the specific moment your score is given. Your score is based on your credit report, which contains your entire credit history. This document includes the good and bad of your credit-related decisions, the latter of which stay on your credit report for seven years. Having a good credit score is important because the power of a good score is growing in significance; credit checks are now customary when trying to get an apartment or a new job.

Composition of a Credit Score

The main type of score used by creditors to determine your credit worthiness is the Fair Isaac Company score. The FICO score comprises five factors - in order from most to least important, these factors are your payment history, your amount of outstanding debt, the age of your credit accounts, the number of recent requests for credit you've made and the mix of different types of credit you have. A change in any of these factors would then result in a change in your credit score.

A Good Credit Score

The key to a good credit score is to have a history of on-time payments and a low utilization of credit. If you pay your bills on time and don't carry a balance on your credit cards, you'll have a good credit score. According to Bankrate.com, the median FICO score is 723, with 45 percent of customers having scores in the 700s. If your score is above 700, your score is considered very good and you should have no problem being approved for credit. A score in the high 600s should also get you credit approval; however, scores below 600 are considered poor and will result in either credit denial or a very high interest rate.

Types of Credit Scores

The FICO model is the most widely used and most commonly known credit score, but it's far from the only credit score. Each of the three main credit bureaus offer their own variations of the FICO score; these scores are similar to FICO scores, but are not identical due to weighing the parameters of the score differently. Also offered is the VantageScore, which was created by the credit bureaus to give a more standardized credit score. In the end, it doesn't matter which scoring model you use as long as you track that score over time and realize its limitations in relation to the FICO score. For example, the FICO score ranges from 300 to 850, while the VantageScore ranges from 501 to 990. Both scores are effective, provided you place your score in the proper perspective.

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Are Credit Reporting Agencies Required to Provide a Credit Score?

In the United States three consumer reporting agencies -- Equifax, Experian and TransUnion -- compile consumer credit reports. In certain situations you are entitled to a free credit report from each of these agencies. However, the credit report does not contain your actual score and these firms are under no legal obligation to share your score with you, although, generally you can obtain it if you agree to pay a fee.

Report Versus Score

Your credit report contains information related to your credit history including details of your payment history on accounts that you currently hold, as well as records of unpaid debts and events, such as foreclosures and car repossessions. Credit reporting agencies use information listed on your credit report to calculate your credit score. If you have a good credit history, then you have a high credit score, and you have a low score if you have had past problems with your credit. Each credit agency has its own scoring system, but the scores range from 300 to 850.

Information Sharing

Credit agencies can share information listed on your credit file with lenders, service providers and even your employer -- but only if you provide your consent. These entities and organizations must pay a fee to obtain your credit report and the report the agency provides to these entities includes your credit score. Under federal law, you are entitled to receive a free copy of your credit report from each of the credit reporting agencies once every 12 months. You are also entitled to a free report within 60 days of being declined for credit, but only if the lender cited your credit report as the reason for the declination. However, federal laws does not entitle you to have free access to your actual credit score and, therefore, the credit reporting agencies require you to pay a fee to see this score.

Reporting

Lenders typically make monthly reports to the credit reporting agencies with data relating to credit accounts. However, a lender can only submit data to a credit bureau if it has established a credit reporting account with that bureau and doing that costs money. Some lenders reduce costs by only establishing reporting relationships with one of the credit reporting agencies. This means that your credit file at Experian may look very different from your credit report at Equifax or TransUnion and these differences also impact your credit scores.

Considerations

Credit reporting agencies rely on information provided from creditors, as well as information contained in public records, to compile your credit report. However, if you never establish any credit accounts and pay your debts on time with cash, then the bureaus would have little or no information to list on your report. A credit bureau cannot give you a credit score if it has insufficient data to calculate your score. Many people who rely on cash rather than credit simply do not have credit scores.

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Will a One-Time Late Bill Affect My Credit?

Your FICO credit score can determine the interest rate you'll pay on a loan or credit card. It can also impact whether an employer will hire you or not. It's a very important three-digit number that ranges from 300 to 850. Credit scores reflect how you handle your credit, so it's prudent to understand how a one-time late payment on a bill can impact your score.

Your Score

The information on your credit report determines your FICO credit score. The score reflects both positive and negative payment history. Creditors report late payments to the credit bureau. The later the payment, the more damage it does to your score. One late payment can drop your FICO credit score between 60 to 110 points, according to MSN Money. The higher your credit score, the more it falls when a late payment hits your report.

Consequences

The late payment will continue to affect your credit for a very long time. Late payments linger on your credit report for seven years from the date the late payment posts to the report. FICO will continue to consider the late payment in the calculation of your score for as long as it remains on the credit report. The older the late payment gets, the less of an impact it will have.

Prevention/Solution

How you pay your bills is the largest factor in the calculation of your FICO credit score. It is the biggest determining barometer on how high or low your score will be because payment history accounts for 35 percent of your score. If your score is damaged from one or more late payments, continuing to make on-time payments will improve your credit score over time as your build a positive payment history and the negative credit items fall off your credit report.

Considerations

Credit bureaus sometimes make mistakes. To achieve the best score, you have to keep an eye on your credit report and ensure that the data on it is accurate. Under the Fair and Accurate Credit Transactions Act (FACTA), you can receive one free credit report each year from TransUnion, Experian and Equifax. The official site to order your free credit report is AnnualCreditReport.com. The site allows you to order the report online, or gives you information on how to order the report by mail or phone. Also, bureaus are required by law to include only accurate information on a credit report. If you discover an error, you have the right to dispute it with each bureau. The bureau then has up to 30 days to investigate and make corrections. You can file a dispute in one of three ways: online at the bureau's website, by phone or by mail.

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How to Buy a Credit Report

Whether or not you can obtain a loan to buy a house or car and how high your interest rate will be depends on your credit rating. Obtaining a credit card, qualifying for a rental lease and even some jobs are also based on your credit score. Keep track of your rating by buying and reviewing your credit report. Identify any errors and have them corrected before they adversely affect your rating.

Instructions

1

Go to Equifax.com and click the red "Get Started" button.

2

Enter your name, address and email address. Click the red "Continue" button.

3

Enter your social security number, date of birth and telephone number. Create a user name and password, then type a secret question security answer. Do not choose a user name or password that is easily stolen, like your birth date. Instead choose a mixture of letters and words to prevent any of your sensitive information from being compromised. Click the "I Accept" button under Terms of Use, then click the red "Continue" button.

4

Confirm your identity by answering two security questions regarding your current credit cards or mortgage. These will be questions only you will know the answer to, such as the name of your mortgage company or your monthly mortgage amount. Click the red "Continue" button.

5

Choose the payment type and enter your credit card payment information. Click the red "Submit Order" button. You will receive an email confirmation of your order. You have the option to print your credit report immediately or you can log in and print for 30 days.

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How to Rebuild Your Credit and Bring up Your Credit Score

Your credit score takes a beating if you go through a rough period of late bill paying, default on any accounts or even go through bankruptcy. A low score and credit reports full of negatives keep you from getting competitive interest rates, and you may not qualify for loans and credit cards at all. Credit rebuilding is possible, although it takes time and effort. Your score goes up and creditors are willing to give you accounts once you prove financial responsibility.

Instructions

1

Open a new credit card account if your old accounts were closed because of delinquency or bankruptcy. You must use credit to rebuild it and raise your score. Some banks offer secured cards if you cannot qualify for a normal account. You put down a minimum of as little as $200, according to Karen Datko of MSN Money, and get an equivalent credit line, with your deposit acting as a payment guarantee.

2

Use your credit card regularly for small purchases that you can easily pay off every month. Thirty-five percent of your credit score is based on how promptly you make payments, according to the FICO scoring company. Regular purchases paid for by the due date create a history of positive items on your credit reports, which raises your score. Spending small amounts keeps your debt-to-credit limit ratio low, which also looks good on your reports.

3

Apply for a small loan once you build up some good history with your credit card. You need a mixture of accounts for the best possible credit score, MSN Money writer Liz Pulliam Weston advises. Adding an installment loan to your revolving credit, and making all the payments on time, helps your credit rating.

4

Order your credit reports from Experian, Equifax and TransUnion through the official AnnualCreditReport.com website and confirm that your positive activity appears on all three reports. Creditors do not know you are rebuilding your credit and your efforts do not affect your credit score if your reports do not reflect the good information. Ask your credit card and loan companies to report your accounts if they do not show up.

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Can Closing Accounts Better My Credit Score?

Companies like FICO and the three credit bureaus calculate your credit score through a proprietary formula. This three-digit number summarizes your perceived ability to meet financial obligations. Creditors use it in their decision-making process when you apply for new accounts. You can take certain steps to make your score better, but closing existing accounts is not always a wise move.

Negative Effects

Credit scores take numerous factors into account, including how long you have had each of your accounts, how well you meet payment deadlines, your available credit limits and outstanding debt. Scorers look more favorably on older accounts, so it can actually hurt if you close those accounts. You also need to keep a good balance between the amounts you owe and your credit limits. Closing accounts means losing those credit lines, which makes your debt load look worse, according to Liz Pulliam Weston on MSN Money.

Positive Effects

You can indirectly help your credit score by closing some accounts if you have problems budgeting and are tempted by available spending power. You need on-time payments and modest balances for a good score. People who max out all of their cards often have trouble making payments, and delinquencies quickly trash the score.

Considerations

You can also manage your accounts to keep your credit score up, rather than closing them. Use the credit cards twice a year for items that are small enough to pay off immediately. Prompt payment means no interest charges, and the positive activity gets reported to the credit bureaus and helps improve your score. The federal Credit CARD Act of 2009 forbids card issuers from charging inactivity fees if you keep your account open without using it frequently.

Alternatives

The My FICO credit score website discusses several ways to improve a credit score. On-time payments are the most important factor, and maintaining low balances and limiting credit applications also help. Only apply for new cards or loans when they are truly needed. Use older accounts instead when possible. Confine shopping for big loans like mortgages and car financing to a week a two, so FICO and the other credit scorers count the multiple applications as one inquiry to minimize the impact on your score.

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Do Returned Checks Go on Your Credit Report?

Writing a bad or "bounced" check could become fraud and might even ruin your credit history. The major credit reporting bureaus do not report banking history, so it is likely that a returned check only hampers your ability to acquire a bank account. As credit scoring models evolve, however, bounced checks could become part of any standard credit risk analysis.

Identification

As of 2010, the major credit bureaus in the U.S. use a credit scoring model developed and maintained by the Fair Isaac Corporation that does not factor bounced checks into a consumer's credit score. The Fair Isaac Corporation does have specialty scores that use nontraditional payment data, such as bounced checks, for people without credit history--called FICO Expansion. If your lender uses a FICO Expansion score, returned checks go on your report and damage your credit.

Banking History

Bouncing a check almost assuredly ruins your banking history. Credit educator Carreon and Associates says 80 percent of banks and credit unions belong to the ChexSystems network--an agency that reports banking information like credit rating agencies do for consumer credit data. ChexSystems reports bad items such as bounced checks for five years. As of 2010, ChexSystems reports have stopped 19 million Americans from acquiring a bank account, according to Carreon and Associates.

Potential

Because bounced checks can become a criminal and civil matter, you could receive a judgment which may show up on your credit report. The major bureaus frequently scan national databases for public judgments, so it will only be a matter of time before they find out. Each type of public judgment has an unique effect on a credit score, but they are all serious negative information and will probably drop your score by at least 100 points if you have good credit, according to CNN.

Prevention

You can prevent most returned checks by keeping an on your account balance and registering checks in your logbook as soon as you write them. Financial institutions often offer "bounce coverage" plans on their accounts, which come with a $20 to $30 fee for each returned check, but prevent consumer reporting agencies from finding out about it. You can also link other accounts to your checking account and purchase a special line of credit for overdrafts. If for some reason you still bounce a check, cover the outstanding balance and fees immediately to prevent further overdraft or bounced check fees.

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Can a Criminal Record Affect Your Credit Score?

The average person has a 5.1 percent chance of doing time in a state or federal prison, according to the U.S. Department of Justice. Going to jail can affect finding gainful employment but not a credit score. People with a criminal record are not totally in the clear, because even minor crimes can prevent you from getting a loan. If a criminal past makes you not creditworthy, you might be able to "hide" this information.

Identification

The credit rating agencies are legally allowed to include criminal records when calculating credit scores, but they have had a longstanding practice to exclude them from reports and score calculations, according to the Privacy Rights Clearinghouse. Only certain public records, such as judgments, tax liens and tax levies, count against a consumer's credit score.

It Might Affect Credit Applications

Large or risky loans may result in the bank delving deeper into the applicant's past than with most other lines of credit. Business loans usually require the borrower to have good character. This usually means a clean criminal record. The loan officer could use the presence of misdemeanors, which stay on a person's record for life, to deny an application for credit.

Considerations

Lenders and other entities that perform background checks may use a consumer report, which can list criminal convictions. Employment background checks and insurance reports are the most common "consumer reports" that can affect your life when you have a criminal past.

Tip

Civil infractions, such as jaywalking and speeding tickets, leave your criminal record as soon as you pay the fine. Consumers with a misdemeanor or more serious crime might be able to seal their records--effectively preventing anyone from learning about the offense. The process of expunging a criminal depends on state law, but usually you can only be a first-time offender and must wait at least a year before starting the process.

Warning

Civil infractions could affect your credit score, because some local governments send outstanding fines to debt collectors. Once a fine goes to a collections agency, it will become public record and affect your credit, probably by about 100 points, according to CNN.

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How to Fix Credit Report Inaccuracies

When a potential lender is determining if he will extend credit to you, he will use your credit report to impact his decision. You cannot afford to have your information compromised with inaccurate information, especially if the lender is already on the fence about extending credit to you in the first place.

Instructions

1

Order a copy of your credit report. In order to repair inaccurate information you need to identify the mistakes. The Fair Credit Report Act allows for a consumer to view and correct any mistakes on his credit report. (The act was created, in part, to reduce mistakes and to recognize any incidents of identity theft). You will need to order a copy from the three major credit bureaus: TransUnion, Experian and Equifax. Most states allow for a consumer to view his credit report annually for free.

2

Identify which credit bureau has the incorrect information. Once you have viewed your reports, you need to identify which credit bureau has the inaccurate information. To fix the mistake, a letter needs to be written to the credit bureau to dispute the error. When the agency receives the dispute, it will notify the creditor. If the creditor is unable to prove the debt is legitimate within 30 days of receiving your letter, the information has to be removed from your credit report. (Mailing addresses can be found on the Website of the relevant credit bureau).

3

Provide proof. Before you send your letter disputing the discrepancy on your credit report, you need to gather proof that the financial mishap is a mistake. Any information that you have to support your innocence should be included with your letter of dispute. (Keep a copy of everything that you send to the credit bureau).

4

Contact the creditor who provided the false information. You are not required to contact the creditor who provided the false information to the credit bureau. However, it may improve your chances of getting the mistake removed quickly. You can call the creditor or send a certified letter informing it of the problem. If you call the creditor, be sure to keep meticulous records of who you spoke with, the day and time, and the solution (if any) that was reached. In addition, inform the creditor you have already written to the credit bureau.

5

Contact the credit bureau by phone. After 30 days or so, contact the credit bureau by phone. Identify the person, or team number of the person, you are speaking with. Provide her with some back information of your problem, in an effort to ensure that all of your needed information has reached the bureau. When you are informed that the false information will be removed, request a copy of the "universal data form," a form verifying the information will be removed. If the credit bureau will not provide you with a universal data form, request that a letter be sent to you stating the information was false.

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How to Freeze Credit

Identity theft in the United States is a major problem that could happen to anyone. One of the reasons credit information is accessible to thieves is because not all credit card companies and merchants sufficiently protect your personal financial information, especially when you purchase items online. A recommended step to prevent identity theft is to issue a security freeze, which will lock access to your credit information. Placing a security freeze does not affect your credit score--it only stops most people from being able to gain access to your credit file. The process of obtaining a freeze varies among states and crediting agencies. In a study conducted by the FTC, Arizona has one of the highest percentages of identity theft. Therefore, this article focuses on Arizona's credit freeze instructions.

Instructions

1

Prepare three envelopes with the addresses for the three major credit-reporting agencies: Equifax, Experian and TransUnion. The address for Equifax is P.O. Box 105788 Atlanta, GA 30348. The address for Experian is P.O. Box 9554 Allen, TX 75013. The address for TransUnion is P.O. Box 6790 Fullerton, CA 92834.

2

Include in the envelope a copy of the police report claiming identity theft. If you are not a victim of identity theft, you will be charged a $5 fee from each credit-reporting agency.

3

Write a letter that includes your full name (middle initial and suffix, if any), any name previously used, current address, Social Security number and date of birth. Make three copies of this letter and send one to each of the credit-reporting agencies.

4

Make three copies of your state identification card. This includes driver's licenses and military identification cards. Include one photocopy in each envelope.

5

Include a check or money order in each envelope in the amount of $5 if you are not a victim of identity theft or cannot provide proof of identity theft. Make the checks payable to each of the credit-reporting agencies.

6

Mail the letters. You should receive a credit freeze confirmation letter from each credit reporting agency in about 10 business days. Included in the letter will be a personal identification number that gives you access to your account in case you want to apply for future credit. The freeze should be in effect until you request it be removed.

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How to Increase or Build Credit

Your credit history is a work in progress from the moment you get your first bank account, loan or credit card. Your financial moves continue to influence it as they show up on your credit reports with Experian, TransUnion and Equifax and affect your credit score. You can build a positive credit history and raise your score in various ways as long as you know which factors have the biggest effect.

Instructions

1

Use all of your credit cards. You don't have to maintain a balance on all of them. Simply make one or two small purchases every three to four months and immediately pay them in full to show some recent activity on all of your accounts. This is especially beneficial on your oldest accounts because it increases the length of your credit history, the credit score company FICO advises.

2

Send your payments early enough to ensure they will be credited to your account by the deadline, or transfer the money electronically a few days ahead of time. FICO states that your payment records account for 35 percent of your credit score. It can climb significantly if you build an on-time payment record on all your accounts.

3

Refrain from running up balances that are close to you total credit limits on your revolving accounts. FICO explains your ratio of available and used credit is considered when calculating your score. It will be pulled down if you have very little available credit because your balances are so high.

4

Maintain a balance between fixed and revolving credit lines. The best way to build credit is to have fixed loans like an auto loan, personal loan or mortgage as well as revolving accounts like credit cards or department store accounts, according to FICO.

5

Open new accounts slowly. FICO warns against opening many accounts all at once, especially if your credit history is relatively new. Your score will take a hit because of all the lender inquiries, and creditors might think you are high risk because you are rapidly adding credit lines.

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External Credit Rating Agencies

An external credit rating agency conducts due diligence on bond issuers on behalf of investors. When a company or government entity wants to issue a bond, it will typically approach one or more of the external credit rating agencies and provide access to its business books, including balance sheets, cash flow statements and projections. The company also will supply information about its overall financial stability and liquidity. The credit rating agency will assign a rating, or grade, to the bond issuer's economic resiliency and its ability to repay its obligations.

A.M. Best

A.M. Best is headquartered in Oldwick, New Jersey. It specializes in rating insurance companies for liquidity and financial strength. Its financial strength ratings range from "A++" (superior) to "F" (in liquidation). Its long-term credit ratings range from "aaa" (exceptional) to "d" (in default).

Standard & Poor's

Standard & Poor's, a subsidiary of McGraw-Hill, rates bonds for a variety of corporations and government entities. Ratings range from AAA (exceptionally strong) to D (in default and expected to remain in default).

Fitch Ratings

Fitch Ratings is a British company. Its ratings range from AAA (best) to D (in default) for long-term credit ratings and from F1+ (best) to D for short-term bonds.

Moody's Investors Service

Moody's Investors Service provides a variety of research services to the financial markets, including external credit ratings. Ratings for long-term credit range from Aaa (superior) to C (substantial outside support required).

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Factors Affecting Your Credit Score

A credit score is a mathematical calculation that helps a lender or other creditor determine whether you will be a safe risk in paying back money that you want to borrow. Yet according to a survey conducted by the Consumer Federation of America, at least 40 percent of Americans do not know their credit scores (see Reference 1). There are several basic factors that affect a person's credit score, thus influencing the ability to qualify for a mortgage loan, auto loan, credit card or any other form of credit.

Current Debt

Creditors look at how much debt you owe compared with how much credit you have available. This accounts for about one-third of your credit score. One way a person can improve his credit score is to pay down any loans or credit card balances. A good rule of thumb to follow when it comes to using credit is not to borrow more than 35 percent to 40 percent of the credit available to you. Maintaining low balances is viewed more favorably than using up your credit limit. It is never wise to overextend your credit.

Payment History

Whether you pay your bills on time is probably the single most important factor affecting your credit score. Payment history generally accounts for 35 percent of a person's credit score. Creditors are more likely to consider you as a safe risk if you never miss making a payment. Having past due bills go to a collection agency or a bankruptcy on your record can significantly affect your credit score. Your credit score will also be adversely affected if you have a history of repeatedly missing payments.

Types of Credit

Creditors look at the types of credit you use. If you use credit from different sources such as a bank loan and credit card, your credit score will actually be higher. Qualifying for a mortgage loan is one of the best types of credit you can have. Stay away from borrowing money from finance companies as this can negatively affect your credit score. The high interest rates charged by these companies often affect an individual's ability to make payments on time.

Length of Credit History

The longer you maintain a good credit history, the higher your credit rating will be. A lengthy credit history shows creditors that you have continued to make payments to your creditors despite any problems you might have had. Not paying late indicates to creditors that you have responsibly managed credit over time.

Number of Credit Applications

It surprises some people to know that how often you apply for credit impacts your total credit score, especially if you are applying for a loan. Submitting multiple credit applications at the same time can send the message to creditors that you need money.

Dispelling Myths

Your age and income cannot affect your credit rating. Employment is listed among the personal information included on a credit report, but it cannot lower your score. Likewise, since income is not factored into the calculation, earning a higher income will not increase your credit score. You can improve your credit score by making your payments on time, not charging huge balances on your credit cards even if you pay them off in full each month, or applying for more credit that you don't need.

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Why Is Credit Scoring Used?

A credit score is a numerical representation of an individual's ability to manage financial credit in a responsible manner. The score also reflects the risk a financial institution may take if it extends additional credit in the form of a loan, a line of credit or a revolving credit account. Credit scores are tabulated based off a proprietary formula that can include total outstanding debt, age of credit accounts, type of accounts, number of late payments, recent credit inquiries and the severity of overdue payments. These credit scores are independently calculated by credit bureaus such as Experian, Equifax and Transunion.

Evaluate Credit Applications

Credit scores provide a quantitative method of denying or approving credit applications for financing products, homes, credit cards or loans. Lenders view the past history of dealing with credit as a good basis for knowing how someone will handle credit in the future. A high score indicates individuals with lower risk, a stronger record of on-time payments and lower credit utilization. Using a numerical score makes judging an application faster and less prone to human bias and errors.

Determination of Risk

Higher risk can translate to greater costs for businesses. Riskier individuals may be prone to not paying bills on time, performing riskier behavior, such as speeding or not being responsible with property. Businesses such as apartment complexes and insurance companies want to ensure they receive payments while minimizing the financial risk of offering coverage and services. These businesses use a credit score to determine whether to approve an individual's application based on the level of risk they are assuming.

Establishment of Rates

Businesses thrive on profit margins. If it costs more to provide services or products to an individual, it is in the best interest of a company to pass on part of the expense in the form of higher rates and prices. Modifying costs based on underlying expenses can help maintain a positive profit margin. Businesses such as insurance companies, lending institutions and even local utilities may use credit scoring to establish deposit requirements, interest rates, security deposits or coverage costs.

Employment

Some employers may use credit histories and credit scoring during the hiring process. Except in locations where prohibited by legal restrictions, companies may use a credit score to help evaluate a job candidate's trustworthiness, ability to handle responsibility and financial accountability. Credit scores may be used as an evaluation metric in some industries, such as finance, more than others.

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How Can I Get My Credit Score Online?

While everyone in America is entitled to a free annual copy of their credit report from each of the three major credit bureaus, it can be more difficult to obtain a free credit score. Your credit score, which can range from 300 to 850, is perhaps the most important factor in determining whether you will be given credit, and what interest rate you will be charged to borrow money. Although there may be a cost associated with obtaining your credit score, there are several methods of obtaining the score for free.

Obtaining Credit Scores from Credit Bureaus

If you want to get a credit score from one of the three official credit bureaus----Equifax, Experian or TransUnion----generally, you need to pay for that score. You can pay for this score while obtaining your free annual credit report, or you can pay for the score individually by visiting the website for the appropriate credit bureau. Each of the three credit bureaus does offer you free access to your score; however, this free access requires you to sign up for a trial of an annual credit/identity monitoring service and provide your credit card number. If you fail to cancel the service within the trial period, you will be automatically subscribed to an annual program that charges a monthly fee. These programs will provide you access to your credit score on a monthly basis, and in most cases alert you to changes to your credit score. If you need to monitor your credit score on a regular basis and don't mind paying a monthly fee to do so, these programs may be a good option for you.

Credit Karma

Credit Karma has a solution for people who want to obtain free credit scores online. Credit Karma is supported by advertisers and provides you with daily access to your credit score at no cost. You do not need to provide credit card information; the only personal information you must provide is the information required for Credit Karma to obtain your credit score from the credit bureau. This information includes your social security number, address and the answers to identifying questions (for example, they may ask you the name of the institution that holds your mortgage loan or what your monthly payments are on a student loan, just to verify your identity). Credit Karma also offers tips and tricks for improving your credit score, and allows you to compare your score to other Credit Karma users.

Quizzle

Quizzle is another free service that provides you with access to both your credit score and your credit report. Like Credit Karma, Quizzle does not require a credit card and is not a subscription service. Again, you will need to provide the personal information required----including your social security number----to obtain your credit report from the credit bureau. While Credit Karma allows you access to your score on a daily basis, Quizzle provides you with free access to your report and score every six months.

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Credit Report Dispute Tips

Inaccurate and negative information can affect the credit score of a consumer in a negative way. Each of the three major bureaus allows consumers to dispute information that is in the report in order to remove entries and raise their score. Knowing how to handle a dispute is important and can result in a higher credit score and a report that is more attractive to lenders.

Look for Inaccurate Information

When determining which information to dispute, consumers should first look for information that is inaccurate. These can be the easiest entries to remove from a report and bring the fastest results in raising a score. Incorrect information can include wrong addresses and phone numbers, an incorrect Social Security Number and a misspelling of the consumer's name on the report. If any of these identifying factors are incorrect, it may be possible to delete all of the accounts and entries associated with them. Also look for incorrect payment history and accounts or inquires that are not yours to have these removed. If there are many inaccurate entries, you may also want to look into the possibility of identity theft.

Know the Reporting Period

Each negative entry on a credit report has a specific amount of time that it can be listed before dropping off the report. For example, a bankruptcy filing can stay on a report for 10 years in a Chapter 7 filing or for seven years in a Chapter 13 case. Negative entries such as collection accounts, foreclosure records and records of late payments will also remain on a credit report for seven years. If you notice that an account is reporting longer than it should, it can be disputed as obsolete and removed from the credit report if the standard period of time has passed. While this can decrease the amount of history on a report, it also decreases the number of negative entries, which will raise a score over time.

Dispute in Writing

While the bureaus will allow consumers to dispute information online, many recommend to do so in writing. When filing a dispute, consumers should include their name, address, phone number and Social Security Number. Also include what information you are disputing as incorrect and why you believe that it should be removed for inaccuracy. Keep a copy of each dispute submitted in order to maintain records and track which disputes have been deleted from your report. In addition, when disputing information always send the dispute via certified mail with a return receipt in order to know that it was received by the bureau.

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Is It True That When You Check Your Credit Score It Goes Down?

Don't be concerned about checking your own credit report and score. While it is true that your credit score can suffer a temporary hit when potential creditors check your report, you can check your own score as often as you like without repercussions.

Credit Reports

A credit report details your history of requesting and using credit. Companies known as credit bureaus or credit reporting agencies compile your report using information provided by creditors or recorded in public records. Your credit report lists the name of your creditors, the amount you owe or owed them, your repayment history, including whether you make your payments on time and whether you have recently applied for credit.

Credit Inquiries

When you, a creditor, employer or landlord requests your credit report, the credit bureaus record the request as an "inquiry." However, there are two types of inquiries: one that becomes a part of your credit report for anyone to see, and one that is only visible to you. The first type of inquiry is known as a hard inquiry, or hard pull, and only happens when you apply for credit. The hard inquiry appears on your credit report and can lower your credit score.

The second type of inquiry is a soft inquiry, or soft pull, and is used by employers to verify your identity, some creditors who want to offer you credit (as opposed to your requesting credit) and your monitoring of your own credit reports. A soft inquiry won't affect your credit score and won't appear to others who look at your report.

Credit Scores

A credit score is a number that summarizes information on your credit report. The more positive the information on your credit report, the better your credit score. Hard inquiries for credit can have a slight negative affect on your score because they reflect your willingness to take on more debt.

Checking Your Own Score

Because checking your own credit reports doesn't affect your score, you should feel free to monitor your credit report as you wish. In fact, checking your credit report frequently can help you keep tabs on your finances and catch errors and identity theft before they spiral out of control.

Free Credit Reports

Federal law gives you the right to request one free credit report from credit bureaus and consumer reporting agencies each year. You can get a free credit report from the three major U.S. credit bureaus every 12 months by visiting AnnualCreditReport.com.

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How to Explain Financial Hardship to Justify a Negative Credit Report

Many people fall into financial hardships that result in late payments on loans and credit cards. Although most hardships are temporary, negative information remains visible on your credit report for seven years, or 10 years for bankruptcy. Derogatory items on your credit report can hinder you from getting additional credit or even employment so you must be able to successfully explain your financial situation when you incurred the negative history and how you have improved since then.

Instructions

1

Give a thorough but short description of the circumstances that lead to your negative credit. Do not include extra information or irrelevant facts, and do not try to get sympathy for your situation.

2

Admit to mistakes you made that contributed to your credit problems. Explain what you learned form those mistakes and the steps you are taking to ensure you do not make those mistakes again.

3

Tell the lender or employer what you did to deal with the situation at the time. Even if your attempts did not stop the credit blemishes, interested parties want to see evidence of you trying to rectify the situation before it got out of hand.

4

Make note of how you are moving forward and the steps you are taking to create positive credit for the future. Mention current on-time bill payments and the plan you are following to get your finances back on track.

5

Give the lender or employer evidence of your income, expenses and the hardship that created your financial troubles. This can include notice of a layoff, medical records, divorce records or a statement from your state unemployment office or Department of Social Services.

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The Best Way to Raise Your Credit Scores After Paying Debts

Your credit score is calculated based on the information on your credit report and is used by lenders to determine how creditworthy you are. Some employers even review potential employees' credit reports before hiring, especially in positions that deal with money transfers and sensitive information. Paying down your debts is a great way to raise your credit score, but there are other steps you can take to continue to raise your credit score.

Leave Accounts Open

Though it may seem like a good idea to close your credit cards accounts after you have paid them off, if you can avoid the temptation to spend your way back into debt you should leave them open for several reasons. First, by leaving the accounts open they will report that you are current on your payments each month, even if you have not charged anything on the account, which improves the 35 percent of your credit score that is based on your payment history. Second, by leaving the accounts open you will decrease the percentage of your available credit that you are using. For example, if you have five credit cards, each with a credit limit of $3,000, your total credit limit would be $15,000. Assuming you owed $12,000 before you paid them off, you would be using 80 percent of your available credit. If you paid off $10,000 and closed four of your credit cards, you would only owe $2,000 but your credit lines would be reduced to $3,000 so you would be using 2/3 of your available credit. However, if you left those credit cards open, you would only be using 13.3 percent of your available credit.

Redistribute Remaining Debt

Your credit score may get another small boost if you redistribute any remaining debt so that you are not using more than 20 or 30 percent of your credit limit on any card. For example, if you have three credit cards with credit limits of $4,000 each, it is better to have $1,000 on each card rather than $3,000 on one of them and $0 on the other two. It is better to pay off your debt rather than shift it around, but until you have the ability to pay off your debt completely, this method can be used.

Limit Applications

Now that you have paid down your debt, limit the number of new credit applications. Each time you apply for a new credit card, personal loan, car loan or mortgage, an inquiry is recorded on your credit report and remains on your report for two years. When you have several inquiries, your credit score goes down and you appear more desperate to creditors. New credit applications make up 10 percent of your credit score.

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Steps to Improve Your FICO Score

Your FICO credit score is highly important when buying a house or financing a car. A low score reveals past issues and will likely result in a higher interest rate or a credit denial. But with a high FICO credit score, you can possibly walk into any mortgage office or auto dealership and qualify for the best interest rates. Lower rates decrease monthly payments and save you money every month. Raise your FICO score by making a few changes in your financial routine.

Pay Down Credit Accounts

Get rid of balances on your credit cards or at least make an effort to significantly bring down balances. Doing so can quickly add points to your FICO credit score. You don't need a zero balance to maintain a good score. As a rule, credit card balances should not exceed 30 percent of your credit limit. A higher utilization or maxing out your cards will hurt your FICO credit score and possibly result in higher interest rates and credit denials. Pay down balances with higher monthly payments and use credit only if you can pay off the balance within the month.

Pay on Time

Start paying bills on time. Timely payments are key to establishing and keeping a good FICO credit score. That's because your payment history makes up 35 percent of your credit score, according to Myfico.com. Techniques to help ensure timely payments include sending payments several days or perhaps a week before they are due, or making payments online.

Apply for Additional Credit

Open new credit accounts to improve your credit score if you've recently filed bankruptcy or if you only have one type of account. After a bankruptcy, improving a bad FICO credit score entails opening new accounts and managing these accounts well. Because the types of credit you maintain account for 10 percent of your credit score, it helps to have more than one type of credit. Types of credit include major credit cards, retail accounts, installment loans or mortgages.

Know Your Credit History

Be aware of your personal credit history. Information on your credit file can unknowingly lower your rating and result in rejected credit applications and higher interest rates. Once a year and before applying for any type of financing, pull your personal credit report from Annual Credit Report to see what creditors are saying about you. Look for areas that need improvement, and write a letter to dispute inaccuracies or outdated information.

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How to Clear Up Credit Scores

Your credit score, also known as your FICO score, is a compilation of your credit history and is the most important piece of financial information about you. If your credit score is low, you can be denied home and car loans, rental leases, and more. Your FICO score measures your payment history, outstanding balances, length of credit history, new credit and types of credit. To improve your credit score, you need to work on each of those areas.

Instructions

1

Do everything you can to keep your credit card debt from going to a collection agency, because it will stay on your credit report for seven years. Work with your credit card companies, and always pay the minimum balance if you can't pay more.

2

Reduce your debt. Pay off your credit cards that are closest to reaching their limits and the ones with highest interest rates. Stop making unnecessary purchases, and put all extra money to paying off your debt.

3

Don't close your credit cards once you've paid the balance, because it's good to have unused credit. However, it's not wise to open new credit cards to have unused credit.

4

Don't apply for numerous credit cards and/or loans. Every time someone seeks your credit report for a credit card or loan, it's noted in your file. If you do this too often, it will lower your credit score. Apply for credit when you need it.

5

Manage your credit cards responsibly. If you don't have any credit cards and haven't applied for loans in a while, get one to prove that you can manage it responsibly. Someone who has never had a credit card is more risky to banks and credit card companies than someone who has had a credit card and always paid it on time.

6

If you are having a difficult time trying to pay your credit cards and loans, call the National Foundation for Credit Counseling at (800) 388-2227 for a legitimate credit counselor.

7

Check and request your credit report at least once a year. You can obtain one credit report per year for free from each of the three credit bureaus. You should be informed regarding your score and make sure that there aren't any mistakes listed.

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How to Safely Check Credit Score

With identify theft a constant threat, you should periodically check your credit score, especially before applying for a loan. You can get free reports from all three of the main credit reporting companies listing your credit history. A credit score is different, however; it is a three-digit number from 300 to 850 that gives lenders an idea of your previous bill-paying history and outstanding debt. The higher your score, the better loan terms you can negotiate.

A credit report is free; a credit score is not, and will cost around $20 to obtain. However, you can order it easily and safely.

Ordering Your Credit Score from Credit Bureau

You will want to contact one of the credit bureaus directly to purchase your credit score data. You can do this by phone, website or mail. Their contact information is:

1) Experian
1-888-322-5583
www.experian.com
P.O. Box 2002
Allen, Texas 75013

2) Transunion
1-800-888-4213
www.transunion.com
P.O. Box 1000
Chester, Pennsylvania 19022

3) Equifax
1-800-685-1111
www.equifax.com
P.O. Box 740241
Atlanta, Georgia 30374-0241

Requesting Credit Score From Mortgage Lender

If you are shopping for a mortgage, you may be able to save money by requesting this information from the mortgage company. If they use your credit score in determining if you are worthy of a loan, they must give you a copy of this information, as well, at your request.

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Instructions on Interperting Equifax Credit Bureau Reports

Your credit report and credit score can help you understand your financial fitness--the information present on a credit report helps determine your eligibility for things like home and car loans. There are three major credit reporting bureaus. One of these is Equifax, which is over 100 years old and based in Atlanta, Georgia. Obtaining your Equifax credit report easily, but understanding the information is what counts when you're studying credit history.

Instructions

1

Check your personal information, located at the very top of your Equifax credit report. If this information is not correct, then you may have received the wrong report. The correct information is a sign that you have located the correct report. You should also have a transaction code listed at the top of your report--this is a receipt that proves you received the requested report.

2

Look at each item under your account summary. The items that negatively affect your credit will be listed before the positive items, and they should be labeled. There should be a creditor listed, along with the date the debt was added to your credit report--both the month and the year should be present. This is called "Date Reported." Some debts will list the month and year the debt actually occurred under the heading "Date Assigned." You should also have a heading titled "Date of First Delinquency" that shows when you missed your first payment, if applicable.

3

Understand your balances owed as reported by Equifax. The report should list both "Original Amount Owed"--the amount you owed when the account was first reported as delinquent--and the "Balance Owed," which is the current amount you have to repay them. They will also list a "Last Payment Date" that shows whether you're currently making payments and a payment status; This will vary. Status "D" means that the debt is unpaid.

4

Review the "Comments" listed after each creditor. If this listing appears on your Equifax report, it should say whether the debt it medical, legal, or miscellaneous. This can help people reading your credit report to understand whether you went into debt over medical bills or by not paying your credit card bills. You should also have a section that details any inquiries into your Equifax report--these are a list of companies or individuals who have ordered a copy of your credit report within a certain amount of time.

5

Determine how each listing on your Equifax report is classified. You may have mortgage accounts--these are secured loans with real estate as collateral. Revolving accounts usually have payment that change every month, depending on what you spend, such as with credit cards. Status R1 means that you are current on your payments. Status R2 means that you've made a payment 30 to 60 days late. Installation accounts--those for car loans, for example--pay a set payment limit every month. For car payments, status I1 means that you're paying as agreed.

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When You Can Legally Remove a Bankruptcy From Your Credit Report

Bankruptcies can stay on your credit report for some time, but you are not stuck with a bankruptcy affecting your credit score forever. Instead the bankruptcy will eventually drop off from the reported items on your credit report. If your bankruptcy is old enough, you can request that the credit reporting agency remove it before it falls off on its own.

Type of Bankruptcy

The two main types of consumer bankruptcy, Chapter 7 and Chapter 13, have different reporting times on your credit report, so know which type you went through. If you are uncertain, a Chapter 7 bankruptcy discharges all of your debt and you do not have to pay it back to the creditors, while a Chapter 13 sets up a payment plan so you can fulfill all or a portion of your debt obligations included in bankruptcy.

Included in Bankruptcy

All debts you included in bankruptcy have a comment in the notes that either says "included in bankruptcy" or "IIB." You do not have any obligation to pay these debts, but they remain on your credit report as negative accounts until seven years past the discharge date.

Reporting Time Line

Chapter 7 bankruptcy stays in the public records section of your credit report for 10 years before it ages off. The waiting time begins 30 to 60 days after the bankruptcy. Chapter 13 bankruptcy, on the other hand, reports for only seven years, starting after the bankruptcy is discharged, which is after you finish your payment plan.

Removal

After a bankruptcy has reached the seven- or 10-year mark, check your credit report for a few months. The bankruptcy should drop off on its own. If it does not, send a letter to each credit reporting agency indicating that the bankruptcy is past the time that it should be reported and request a removal. You may also do this by disputing the bankruptcy through the credit reporting agencies' websites.

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