Fair Credit Reporting Act of 2004

The Fair Credit Reporting Act sets forth protections for consumers from malicious, negligent or unethical credit reporting. The act was passed into law in 1970 and has been amended over the years in reaction to developing consumer issues; as of February 2011, the Fair Credit Reporting Act was last updated in 2004. Credit card companies and other lenders make regular reports on their customers' accounts to credit rating agencies. Creditors use the information aggregated by credit reporting agencies to determine credit limits, interest rates and whether or not to extend credit to individual consumers. The Fair Credit Reporting Act helps to ensure that consumers' credit reports accurately reflect their borrowing history and financial responsibility.

Identity Protection

Identity theft has become a growing concern as the world relies more on electronic communications networks for vital and sensitive functions than ever before. The Fair Credit Reporting Act covers the issue of protection from identity theft early in its text.

The act directs creditors to follow strict procedures when notified of a potential identity-theft issue. When a borrower notifies a creditor of a potential issue, the creditor must place an identity theft flag on the borrower's account, which must be taken into consideration before the creditor takes any action on the account for at least 90 days. The creditor must also include the note on any reports made to credit reporting agencies. Consumer reporting agencies are required to furnish free reports to anyone with an identity theft flag on their credit report as well.

Purposes

The act sets forth specific circumstances in which a credit report can be obtained. Credit reports can be obtained in connection with a new credit application, for preemployment screening or insurance underwriting purposes, and to determine whether to issue someone a license from a government agency.

Other "legitimate business needs" of credit information include reviewing the information in connection with a business transaction initiated by a consumer or to determine whether a consumer meets specific, ongoing requirements to hold a certain type of account.

Disclosure Rules

The Fair Credit Reporting Act contains strict provisions for reporting credit information to individuals, reporting agencies and government authorities. The act deals quickly with government agencies, simply specifying that reporting agencies must furnish information on any consumer to any government authority. The act specifies exactly which information must be furnished upfront for personal or employment-related credit checks, and for reporting agencies furnishing reports to lenders who have received credit applications.

Liability

The act provides civil penalties for accessing someone else's credit information without his consent. The act requires reimbursement for personal damages, up to $1,000, for obtaining a report without permission, in addition to punitive damages left up to individual courts. The act extends these provisions to liability for negligence, in addition to willful noncompliance with the act's regulations.

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How Does Cashing Your IRA Affect Your Credit Score?

Cashing in your IRA has no direct impact on your credit score, because IRAs are not credit accounts, so they are not factored into the credit-scoring model.

The Facts

An Individual Retirement Account (IRA) is a tax-advantaged savings account used to finance retirement. A credit score looks only at how you have managed your debts, not your savings.

Considerations

Even though cashing out your IRA has no direct effect on your credit score, the way you spend the money you take out can affect it.

Benefits

Using the money you take out of your IRA to pay down debts, get current on delinquent accounts or eliminate the need for a new loan can improve or avoid damaging your credit score.

Misconceptions

While the money in an IRA or a savings account has no impact on your credit score, lenders may consider how much money you have in reserve when you apply for a major loan.

Warning

Before cashing out your IRA, find out if there will be tax consequences. The IRS may impose a 10 percent early-withdrawal penalty if you withdraw funds before age 59 1/2.

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Instructions on Interpreting Equifax Credit Bureau Reports

The Federal Trade Commission recommends that you check your credit reports to make sure your credit accounts are reported accurately. The Equifax credit bureau report has several different sections containing your credit accounts, collections, inquiries and public records. If you have never looked at a credit report before, it may be confusing to try to interpret the information on it.

Instructions

1

Open your Equifax paper credit report or go to Equifax's website to access your online credit report (see Resource). On the bottom left of the Web page, click on "Get your free annual credit report."

2

Browse the different sections of the credit report. Your personal information, such as your addresses and employers, is displayed on the main page. The rest of the Equifax report is split between the Accounts, Inquiries and Negative Information sections.

3

Click "Accounts" on the online report or find the Accounts section on your paper report. This section has all open and closed positive trade lines, or credit lines, added to your credit report. The account information includes the balance of the debt, minimum debt payments, the payment history and a truncated account number. The Accounts section is divided into four sections: Mortgages, for your mortgage accounts; Installation, for any installment loans; Revolving, for credit cards; and Other, for accounts that don't fit in these categories.

4

Click "Inquiries" or go to the Inquiries section on your paper credit report. This section is split into two parts: hard and soft inquiries. Hard inquiries are credit report requests pulled by a company when you apply for a credit account. These inquiries can affect your credit score. Soft inquiries do not affect your credit report and cannot be seen by creditors pulling your report. Soft inquiries include account reviews from your creditors, credit report requests you did personally and promotional inquiries.

5

Click or turn to the Negative Information section. This section contains negative accounts, collections and public records. Negative accounts include any accounts you have made a late payment on, as well as charged-off accounts that have not gone to collections. Collection accounts are any accounts sent from a creditor to a collection agency. Public records are judgments, liens, bankruptcies and other court records.

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Does Canceled Debt Show on a Credit Report?

A credit report contains detailed information on a person's credit history, including current and past accounts, loans, bankruptcies and any late or past-due payments. Nationwide, there are three credit reporting agencies that maintain records: TransUnion, Equifax, and Experian. Each credit agency works independently updating credit profiles. The data they collect is often used by creditors, lenders, insurers, landlords and employers for purposes of evaluating a person's financial responsibility.

Personal Information

An individual's name, birth date, address and employment appears at the top of each credit report. There will be a date the information was first reported to the bureau, as well when it was last updated. It is important to make sure all of this information is correct and up to date.

Statement

A short, personal message may appear as requested by the individual who the credit report details. For example, this could be an explanation of a late payment during a specific period of time or a fraud alert.

Summary Information

This section contains a summary of different accounts a person may have, and details information about each accounts. Account types include real estate, including any mortgages; revolving accounts, such as credit cards; installment accounts including car loans; other accounts; and collections, which include past-due accounts that may have been assigned to a collection agency. Detailed information, such as the total number of accounts, balances, payments and delinquencies is provided on each type of account.

Account History

Each account listed in the summary section is then broken out further, with more detailed information provided. This information includes the account number, type of account, the date the account was opened, payment status, the account's balance, any payment terms and if the account is past-due. Each account will display the creditor's name, such as a bank or credit card company. A two-year and seven-year payment history is also detailed, providing a record of any late payments that may have occurred.

Public Information

Any public information affecting your credit will be listed. This includes bankruptcy, tax liens and judgment filings. Additional information, such as type of record, current status, the court or legal agency that has jurisdiction over the record, and the dollar mount of the lien or judgment will also be listed. If the listing is a bankruptcy, information about the liability amount, the monetary amount claimed against you, and the total personal assets used will be listed.

Inquiries

A list of companies who have accessed your credit history will be listed for inquiries that have occurred in the past two years. Details include the creditor's name and when the inquiry was made.

Creditor Contacts

The final section of your credit report contains mailing addresses and phone numbers of your creditors. This section is important when it becomes necessary to contact a creditor.

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Can Canceling a Bank Account Affect Your Credit Score?

A credit score is a number that shows lenders what your past performance using credit has been and how safe or risky a borrower you are. Though there are a variety of factors that influence a credit score, your banking accounts are not typically among them. Closing an account won't lower your credit score automatically, though it might do so if the account influences other credit score factors.

Credit Score Factors

A credit score represents your past history using credit. Potential creditors want to know if you're likely to repay your loans on time or if you're a risky borrower. To calculate your score, credit score companies look at several key factors, including your past history of timely or late payments, the total amount of debts or number of loans you have, the types of loans you have, how long you've had your loans and how many new loans you have.

Bank Account

Your credit score does not take several factors directly into account even though they may affect your ability to use, obtain or pay back credit. Credit reports do not include how much money you have in your bank account, what your income is or what kind of assets you have. Closing a bank account, therefore, does not directly impact your credit score.

Payments

While closing a bank account won't affect your score directly, you can indirectly affect your score if closing the account affects any of the credit score factors. For example, if you've signed up for an automatic bill payment system that takes money directly out of your bank account each month to pay a bill, and you then close the account without making other arrangements for paying, this can lead to a late payment and lower your credit score.

Other Considerations

Closing your account won't of itself affect your credit score, but if you're thinking of applying for a loan, you may want to keep your account open. According to Kimberly Lankford, writing for Kiplinger's Personal Finance, borrowers with little credit history who apply for a new loan may need to provide lenders additional information to secure a loan. The lender may look at your past banking activity in addition to your credit report, and having a bank account that shows you can manage your money well may help you.

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Does Getting Declined Hurt Your Credit Score?

A rejection for credit may intuitively feel like it should hurt your credit rating, but it has no effect on it. However, a rejection probably means your credit history is ailing and you should take immediate action to resolve the problem. In some cases, factors other than your credit rating affect your ability to gain credit.

Identification

A rejection for credit does not hurt your credit score any more than an approval. If a lender pulls your credit history because you requested credit, the resulting inquiry damages your credit rating anywhere from zero to 5 points. Individual inquiries have a barely visible impact on your credit rating, but six or more inquiries within a year mean you are eight times as likely to declare bankruptcy, according to the Fair Isaac Corporation.

Considerations

The status of a credit application has intangible effects on your creditworthiness and financial situation. People who face constant rejections are less likely to try to improve their credit history or fight unreasonable terms, such as excessive fees, than the typical consumer. It usually takes at least two years to rebuild a credit rating after a disaster such as foreclosure, so you must have patience when starting credit repair.

Potential

If you ignore the sign that you have bad credit, and put in more credit applications to lenders in desperate hopes of approval, you may end up causing significant damage. The FICO model counts multiple inquiries in connection to a few types of loans, such as mortgages and student loans, incurred during a 14- to 45-day period as a single inquiry. Most applications, such as those for credit cards and personal loans, always count against you.

Tip

If a lender rejects your credit application because of something in your credit history, request a free credit report from the credit reporting bureau that provided your credit history. You can also get a free report from each major bureau annually via the Annual Credit Report website. Review your credit history and look for items that may concern a lender, such as frequent missed payments or delinquent accounts. If you have several negative items, hold off on applying for credit until you build one or two years of good payment history. Also, ask the lender about its lending requirements. It may have rejected your application for noncredit related reasons, such as an insufficient income or spotty job history.

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How Does Foreclosure Affect Your Credit Rating?

Trying to keep your credit score up is one of the most important things you can do, as it affects your financial life in so many ways. Avoiding disasters like bankruptcy and foreclosure are critical, as they can have devastating effects on your credit rating. When it comes to going through foreclosure, your credit score will be hit and it will be hard to get another mortgage.

Foreclosure Credit Score Damage

When your lender forces you into foreclosure, it will have a large negative affect on your credit score almost immediately. The amount of credit score damage that you take depends on how high your credit score was to begin with. If you had a high score, a foreclosure will cause more damage than if your score was already relatively low. On the low end, you could expect your score to drop 85 points. On the high end, it could drop by as much as 160 points, according to MSN.

Judgments Section

Besides the actual credit score damage, the foreclosure will also show up on your credit report in the judgment section. This means that any time you try to get credit or financing of some kind, the lender will see the foreclosure on your credit report. The foreclosure will remain on your credit report for seven years from the time it goes on your record. This can make it very difficult to obtain financing during that period.

Getting a Mortgage

After you go through foreclosure, the credit damage can make it difficult to get another mortgage. You have to wait a minimum amount of time before you can be eligible for a traditional mortgage again. Fannie Mae helps set the standards for the mortgage lending industry and according to its rules, you have to wait at least five years before you can get another mortgage. The exception to this rule is if you get a mortgage that is insured by the Federal Housing Administration, or FHA. In this case, you only have to wait three years.

Other Considerations

When you go through foreclosure, it can also hurt your credit in other ways. The damage of 85 to 160 points comes from the actual foreclosure itself, but it does not take into account the late payments leading up to the foreclosure. In some cases, you might miss several months of payments before the foreclosure goes into effect. If you are 90 days late on a payment, it can hurt your score by as much as 135 points, according to CNN Money.

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How to Dispute Derogatory Remarks on a Credit Report

Your credit report is incredibly important in your life. Employers may use it to determine whether to hire you. Landlords may choose to offer you a place to live on the strength of it. And banks will use it to decide whether to offer you credit. So it's well worth keeping an eye on your report. If you see something that's derogatory or inaccurate, challenge it.

Instructions

1

Order a free credit report. You have the right to see the full report held about you by each of the three reporting companies once every 12 months. Visit Annualcreditreport.com, and complete the request form, or you can call 877-322-8228 to make the request. The three reporting companies--Equifax, Experian and TransUnion--all subscribe to this service.

2

Write to the consumer reporting company that has made the error, telling them that you believe there is an inaccuracy in your report, and that you would like it removed or corrected. When you write to them, enclose your copy of the report, with the items that you are disputing clearly marked. There is contact information for all of the companies in the Resources section.

3

Enclose supporting documentation. Send copies (not originals) of anything you believe helps your case.

4

Send your letter by certified mail and request a return receipt. Keep copies of all of your correspondence.

5

Complete the same process with the agency that provided the inaccurate information to the credit reporting company. This, for instance, could be your credit card company or bank. Write to them, detailing the error. Enclose a copy of the report with the disputed item clearly marked, and also include copies of documents that support your case. Again, keep copies of all correspondence.

6

Wait for the credit reporting agency to complete its investigation of your complaint, which they must do within 30 days. If they concur with your dispute, and change anything in your report, they will send you a free copy of the amended report. The agency that provided the inaccurate information must also now notify the other two credit reporting companies.

7

Request that the amended copy of your report be sent to anyone who has accessed it within the last six months. This will be done free of charge.

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How to Report Claims to Equifax

The Fair Trade Commission advises consumers to dispute inaccurate or incomplete information found in their credit records. Under the provisions of the Fair Credit Reporting Act, any inaccuracies must be corrected by the credit bureau that is reporting the information. Equifax is one of the major credit bureaus in the United States. Equifax has a formal process for consumers to report claims of inaccuracy or incompleteness in their credit files.

Instructions

1

Order a copy of your credit report. Equifax is compelled by law to provide one free copy of a consumer's credit report every 12 months in accordance with the Fair and Accurate Transaction Act. The credit report can be requested online (annualcreditreport.com), by telephone (877-322-8228) or by mail (Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281).

2

Compose a list of the exact information that you want to report or claim as inaccurate to Equifax, using exact descriptions found in the credit report. Check the credit report for inaccurate or incomplete information regarding credit card or other credit accounts, bankruptcies, collections, liens, judgments, inquiries about credit history, and personal identity. Keep this list as a reference when contacting Equifax to report your claim.

3




Equifax accepts claims regarding inaccurate credit files online, by phone, or by mail.

Contact Equifax and specify each of the inaccurate items you have placed on your list. Equifax provides three ways to report and dispute the inaccuracies in your credit report. Consumers may file complaints online (Equifax.com), by phone at the telephone number provided in the credit report, or by mail (Equifax Information Services, LLC, P.O. Box 740256, Atlanta,GA 30374).

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Tips That Will Help You to Choose Your First Credit Card

Financial advisers sometimes advise against credit cards because many individuals get caught up in a cycle of debt due to irresponsible management of their card accounts. However, a consumer may choose to open a first credit card as a way to establish a credit history. If you're trying to get your first credit card, keep a few tips in mind to ensure that you get the best deal possible.

Use Online Services

While you may receive attractive credit card offers in the mail, you can also use credit card websites, like CreditCardGuide and CreditorWeb, to find the right first card for your needs. These websites compile current lists of offers from the major credit card companies and allow you to compare them based on a number of factors. Sort the card offers by annual percentage rate as well as by accounts that offer cash back and gas and airline benefits. You can choose your credit rating level (poor to excellent) when searching for your first card online.

Examine Introductory Rates

Check for special introductory rates when looking for your first credit card. Some credit card companies offer low or zero percent interest offers on purchases or balance transfers for the first few months that the account is open. In some cases, creditors will continue the low rate as long as you abide by certain rules of the account.

Look at the Fine Print

Before you agree to open the credit card account, read the fine print in the card agreement. It will list all of the applicable costs associated with the account, including late and over the limit fees. It will explain what actions the creditor will take in case of a default on the account. The credit card agreement also may contain information about fees you may not expect, such as annual or inactivity fees.

Warnings

While a credit card offers certain benefits, you shouldn't feel pressured to get a credit card unless you're absolutely sure you can properly manage this type of account. Use the account to your benefit by keeping the balance low or at zero to help boost your credit score. Pay off any balance you've accumulated for the month before the end of the billing period, to avoid finance charges. Also, remember that while introductory offers are attractive at first, they are often traps to lure you into spending and building up a large balance over time.

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What Impacts My FICO Score?

FICO credit scores (called such because the method for finding them was developed by Fair Isaac and Company) are the most widely used credit scores, which help lenders determine whether you'd be a credit risk. FICO credit scores help provide a fair, objective standard that doesn't consider things such as race, nationality and gender. As you build your credit history, you should be aware of the factors that affect your FICO credit score.

Payment History

Payment history is the most important aspect in calculating your FICO credit score. Different elements considered include your number of late payments, how late they were, how many different accounts had late payments and whether an account ever went to collections. Some problems are more serious than others, and so will have a greater impact on your credit score: for example, one or two late payments won't make a big difference if your overall credit history is good, but bankruptcy can leave a black mark on your credit score for seven to 10 years.

Amounts Owed

The second-most important aspect in calculating your FICO credit score is the amount of money you owe. Your amount of available credit is as important as the actual amount of money you owe: for example, carrying a $500 balance on a credit card with a $1,500 limit is better than carrying a $300 balance on a credit card with a $300 limit. In addition, the amount you still owe for a loan in comparison to the total amount borrowed affects your FICO credit score.

Length of Credit History

In general, a longer credit history translates to a better FICO score, since more data is available about how good you are at making payments and using your credit responsibly. When considering the length of your credit history, the FICO credit score takes three things into account: the age of your oldest account, the age of your newest account and the average age of all the accounts. In addition, the length of time since you've last used certain accounts can affect your FICO credit score.

New Credit

Opening new accounts and making inquiries about new accounts affect your FICO credit score. This is because people who open many accounts in a short time tend to be a higher credit risk. However, your FICO credit score distinguishes between rate shopping---making inquiries to find the best interest rates---and risky behavior with new accounts.

Types of Credit Used

Your FICO credit score considers how experienced you are with different types of credit---for example, loans, credit cards and retail accounts. Demonstrated responsibility with a good mix of credit types will help raise your FICO score. If you have too many accounts of one type (the exact number depends on other factors in your credit history), it can negatively impact your FICO score.

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Quick Ways to Fix Your Credit

Credit repair is not instantaneous. Your credit score updates regularly as the data on your Experian, TransUnion and Equifax credit reports changes, but MSN Money columnist Liz Pulliam Weston explains that it still takes at least 30 days for noticeable improvement. You can make a difference in a month by using specific credit-fixing methods.

Dispute Credit Report Mistakes

Your credit reports are likely to have disputable mistakes, since MSNBC writer Bob Sullivan reports that up to one-quarter of consumer credit files have negative errors. The credit bureaus only get a month to handle disputes and are required by law to erase any data they cannot validate within that period. Your credit report is improved within 30 days if any of your disputes are successful. Check your reports through AnnualCreditReport.com, the federally mandated site that gives you no-cost copies every year. The Federal Trade Commission recommends mailing your complaints in writing to each credit bureau and getting delivery receipts from the post office, as the investigation period begins when the bureaus get your correspondence.

Dispute Outdated Information

Experian, TransUnion and Equifax are supposed to remove most negative information from your reports within certain time frames. For example, late payments, written-off accounts, court judgments for bad debt, home foreclosures and car repossessions should be erased in seven years, while bankruptcies should be eliminated from your records in 10 years, according to the FTC. Use the dispute process to complain to the credit bureaus about old information. The bureaus must eliminate it within 30 days of your complaint.

Pay Down Credit Cards

You quickly improve your credit by paying a lump sum on your highest balance credit credits, according to Pulliam Weston. Your credit looks bad if you owe more than 30 percent of your total credit card limits, so you quickly improve things if you bring your debt below that level. Your credit rating improves within 30 days of a significant balance reduction. Pay more than your monthly minimum payment requirements if you cannot afford to make large payments. This method also fixes your credit, but more slowly.

Settle Old Bills

Banks write off credit card bills within about six months if you stop paying, according to Pulliam Weston, but you still owe the money and the charge-off haunts your credit reports for seven years. You get a collection agency entry on your reports, too, if the card issuer sells your account to a debt collector. Approach the bank or agency and negotiate a settlement that includes complete removal of the credit report entry, not just a change to "paid" status. Removal of major negatives like charge-offs and collections quickly improves your rating.

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What Does Co-Signing for an Apartment Rental Do to My Credit?

Apartment complexes often require tenants to undergo a credit check before approving their rental applications. If a tenant does not meet the necessary credit requirements, he can still rent an apartment provided he has a co-signer with good credit. Give co-signing an apartment rental serious consideration before signing on the dotted line. If the tenant isnt responsible, acting as a co-signer on his housing application could place your good credit rating in jeopardy.

Credit Impact

Provided the tenant pays her rent on time and does not damage the apartment, your credit should remain unaffected by acting as a co-signer. This is because most apartment complexes do not report rent payments to the credit bureaus. The benefit of unreported rent is that, if the tenant misses a months rent but later catches up, your credit wont suffer from his mistake. The downside is that the tenants regular rent payments wont help build his credit history or boost yours.

Financial Risk

Your liability as a co-signer rests on the tenants behavior rather than your own. Thus, you remain at risk from the day you co-sign the rental application until the day the landlord returns the tenants security deposit after she moves out. If the tenant damages the apartment beyond what her security deposit will cover, incurs fines for violating the complexs rules or stops paying rent altogether, the apartment complex will hold you just as liable for payment as the wayward tenant.

Credit Damage

When you are left holding the bill for the tenants bad behavior, it isnt just your wallet that suffers your credit scores could suffer as well. While apartment complexes do not typically report rent and other expenses tenants incur to the credit bureaus, they will turn the tenants debt over to a collection agency if it remains unpaid.

Because you co-signed for the apartment and are equally responsible for paying any outstanding debt associated with that account, the collection agency reports the derogatory debt on your credit report as well as the tenants. A collection account is a serious derogatory entry on your credit record and will lower your credit score.

Considerations

If you sustain credit damage as a result of co-signing a rental application for a friend or family member, you can repair the damage over time with good behavior. Recent credit information factors more significantly into your score than older data. The result is that, as the collection account ages, it has less of a negative impact on your scores. After seven years, the collection account will vanish from your credit history altogether.

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How to Improve My Poor Credit Score

While it can take many months or years to develop a good credit score, you can damage it fairly easily. If your credit score is poor, you are going to have to put in time and effort to repair it. The Fair Isaac Corp., developers of the well-known FICO score, uses five categories to compute credit scores. To improve your rating, you must work on your payment history, the amount you owe, the length of your credit history, the types of credit you use and the amount of your new credit.

Instructions

1

Make all payments on time. Payment history is the largest portion of your credit score, at 35 percent, and the single best way to improve your score. Making payments on time does not immediately boost your score, but consistent on-time payments will gradually improve the number.

2

Wait for delinquent accounts or negative public records, such as bankruptcy, to age out of your credit history. This can take between seven and 10 years. While the negative effect of these items diminishes over time, as long as they are on your credit report they can hurt your score.

3

Pay down your debt. The second-largest factor of your FICO score, worth 30 percent, is the amount of your debt. The lower you can get the total amount of your debt, the more it will help your credit score. Part of this equation is your credit utilization, or the percentage of your available credit in use at any given point. Lowering your credit utilization percentage can also give your credit score a boost.

4

Keep your older accounts open. The length of your credit history makes up 15 percent of your FICO score. The longer you can keep your accounts open, the more they stand to benefit your credit score. While closed accounts can remain on your report for several years, once they drop off, the age and payment history no longer influence your score. Closing accounts can also hurt your score by increasing your credit utilization percentage.

5

Avoid applying for new credit. Every time you apply for new credit, your credit report reflects this inquiry for two years. New credit comprises 10 percent of your FICO score, so avoiding new inquiries can help your poor credit score.

6

Open various types of accounts if you need new credit. The types of credit you use make up 10 percent of your FICO score. Having a diverse collection of account types can help raise your score. For example, if you have only credit cards on your credit report, adding a personal loan or an installment loan, such as a car loan, could benefit your score.

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How to Check a Credit Reference

If you extend credit to an individual or business entity, you must check the credit history of the person or entity that you are lending to in order to reasonably insure yourself that you will be repaid. Furthermore, if you hire a person to work for you or rent property from you, you must perform a credit check in order to determine the reliability and integrity of the party via his credit history. Credit history can be obtained through credit bureaus in accordance with the provisions of the Federal Credit Reporting Act, or through credit references provided by the applicant.

Instructions

How to Check Credit References

1




Credit reports

Ask your applicant to provide credit references that can be checked via official credit reports. Obtain a credit report from the credit bureaus of choice, as long as you have a permissible reason for requesting the report, such as a credit, lease or employment application. Insure that any employment credit requests are authorized in writing by the prospective employee, and that the credit report obtained is of the credit header variety that does not list names of each creditor. Notify any applicant turned down due to negative information contained within the credit report via an adverse action report.

2




Credit references

Prepare a detailed credit reference form for your prospective business contact. Insure that the form does not only include direct references provided by the applicant. It should include names, addresses, business volumes, payment records, addresses, telephone numbers, fax numbers and locations of the four largest suppliers and vendors of the applicant that can be verified over the prior period of three to five years. Obtain bank references from your prospective client that reflect continuity, stability and loan activity with business relationships, including high and low credit balances during the past 12 months.

3




Other credit references

Review the financial statement of your credit customer in order to determine his financial well being. Check his current ratio, which is the relationship of his current short-term assets to current short-term liabilities, which should be as close to 2:1 as possible in order to rate the potential client as a good credit risk. Review the personal credit report and references for foreign-based customers through foreign reputable credit agencies. Review the personal credit reports and references for the owners of new companies that do not yet have meaningful track records.

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Can I Start Over With a New Credit Score?

Illegitimate credit repair companies often claim that a consumer can get a new credit profile or start over with a new credit score. Beware of these scams, the Federal Trade Commission warns. You can start over your credit history, but this takes many years. Adding new, positive information is a far quicker and legal way to get a new credit score.

Misconception

If you have terrible credit, you must rebuild your credit history not your credit score. Credit scores come from data in your credit file. You can have dozens of different scores, but only three credit histories -- one from each of the three major bureaus, TransUnion, Equifax and Experian, which are used almost exclusively by lenders for credit reporting. While most lenders only use the Fair Isaac risk model, Experian estimates that as many as 1,000 different models are in use, such as formulas derived from a lender's own research.

Warning

You cannot hit a restart button on your credit history regardless of the claim of a credit repair company. Once a creditor reports negative data to the credit reporting bureaus, they list it as long as federal law legally allows. Starting a new credit history is a felony, called "file segregation," according to the Federal Trade Commission. One frequent file segregation tactic is to use a taxpayer ID instead of a Social Security number. Creditors will likely catch on to the fraud eventually and may report the case to your state's attorney general.

Starting a New Credit History

You can start a new credit history legally by waiting out any negative data on your report. The length of time the credit bureaus can report negative data ranges from two years for credit inquiries to 10 years with bankruptcy. Only in the case of unpaid tax liens can the credit agencies report data indefinitely and Experian only reports unpaid tax liens for 15 years.

Tip

Rather than trying to game the system or wait for a fresh start, start using credit responsibly. You can recover from just about any negative data within two to four years, because new positive data is more important than older negatives and it mitigates some of the lost points. Get new positive data by opening a secured credit card account and always paying on time. A new account that has never been late will add points to your score while you wait for the bureaus to stop reporting the old, bad data.

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How to Fix Your Credit After Filing Bankruptcy

Because a bankruptcy can destroy your credit rating, it's best to avoid a filing if possible. However, due to debt and other credit problems, bankruptcy sometimes can be the only alternative. You can expect a significant drop in your credit score following a filing. But the effects of a bankruptcy do not last forever. The bankruptcy will stay on your credit report for 10 years, but you still can improve a low score.

Instructions

1

Continue to make vehicle loan payments to your lender. You don't have to include your automobile in the bankruptcy. If you decide to keep the vehicle, make on-time payments for the duration of your loan term to add positive history to your credit report.

2

Make other loan payments as required. Federal student loans are not included in bankruptcy filings, and like auto loans, you can continue to live in your property and pay the mortgage. Maintain a good history and account standing with your mortgage company and student loan lender. Each on-time payment helps improve a low credit score after bankruptcy.

3

Open a new line of credit. Getting credit after bankruptcy is challenging, but doable. Check with your bank or credit union and ask about bad credit or secured credit cards. These require a one-time payment of a security deposit, usually between $300 and $500.

4

Improve your credit with a new auto loan. If you don't have a vehicle, consider an auto loan with a bad credit or subprime auto lender. These vehicle loans have higher interest rates, so it's best to shop around and make comparisons. Make your monthly payment on time each month to add points to your personal score.

5

Examine your credit report after the discharge. Once a debt's been included in a bankruptcy and discharged, credit reports should reveal that these accounts were included in the bankruptcy. Check your report to make sure your creditors have updated your account. If not, your report may show overdue or past due accounts, which can cause further damage to your score.

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The Best Credit Report Repair Information

A credit report tells lenders about your creditworthiness when you need to borrow money. It is a record of your money borrowing and repayment transactions, which takes into account the amount of time you have had credit and delinquent payments. A good credit report can help you be eligible for higher lines of credit, lower interest rates and loans. While it takes time to repair a credit report, it is never too late to get the ball rolling.

Knowing Your Credit Score

Before you attempt to repair your credit report, you need to know what is in need of repair. The best way to do this is to order the free credit report your are entitled to annually from Experian, Equifax and TransUnion. The Federal Trade Commission (FTC) states that you can order all three reports from the consumer reporting companies' central website, annualcreditreport.com. The FTC states you should not contact each of the reporting companies individually because you end up paying a fee for a report that is free of charge. If you wish to order an additional credit report within a 12-month period, you could pay a fee of up to $10.50, according to the FTC. The benefit of ordering your credit report is that you can see if your credit score is poor because of your spending and repayment habits, or if errors caused the report to be inaccurate. Errors you should look for include late payments that were not late, statements that you went over your credit limit and lines of credit you never opened.

Fixing Errors Found on Credit Reports

Any derogatory information on a credit report can lower your credit score. If you find inaccurate information in your credit report, make a list of the accounts in order of age, with the oldest account first. With this information, write a letter to each credit agency that reported inaccurate information about your credit history. Bear in mind that a lender may only report to one consumer reporting company, so it may not be necessary to write a letter to all three. Your letter should state that you believe you found inaccurate information in your credit report. List each error you are disputing, any applicable date and the reason for the dispute. Ask the reporting agency to correct or remove the information in question. In addition to your complete name, write your address in the letter. Enclose a copy of any documents that support your claims, along with a copy of the credit report. The FTC recommends you highlight the information you are disputing the credit report. Keep a copy of the dispute letter for yourself, send the original via certified mail and request a return receipt so you know the company received the documents. It can take up to 30 days for a credit bureau to investigate your claim.

Creating a Budget

If your credit report does not contain errors, your negative score may be the result of poor spending habits. In this instance, the FTC states you should create a budget that helps you pay off your debts without incurring new ones. When you create a budget, you set aside specific amounts of your income to pay your bills, debts, basic needs and non-essential items, such as entertainment. A budget will help you manage your money. If you do not know how to create a budget, a credit counseling organization can help.

Paying Cash

A good way to repair your credit report is to stop spending money you do not have. Lock your credit cards away and pay for all your bills and purchases with cash, checks or your debit card, which uses the money you have in a checking account. When you pay cash for your purchases, your debts will begin to decrease.

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How to Build Your Credit Score If You Have No History

Having a good credit score is essential to be able to borrow money for large purchases, such as college, a car and a home. Building your credit score when you have no credit history can be difficult, however, because getting loans often depends on having some record of responsible spending. If you're unable to get a credit card or loan right away, there are some things you can do to help you establish a pattern of good spending habits that will build a good credit history.

Instructions

1

Get a preloaded credit card. These credit cards are essentially debit cards that are treated like credit cards by the credit bureaus. You load a certain amount of money on them and use them like a debit card. These cards can help to build your credit without you owing anything to anyone.

2

Utilize first-time buyer programs. As long as you have no outstanding debt, you may be eligible for first-time buyer programs through lenders. You can be approved for a large purchase, such as a car, usually at the price of a higher rate of interest. As long as you can afford the payments, these loan programs will help you build credit quickly.

3

Get a cosigner. If you need to make a large purchase, ask someone who has good credit -- a trusted family member, for example -- to cosign the loan application. This cosigner will be responsible for any mistakes that you make, so ensure that you keep up the payments.

4

Ask a family member to add you as an authorized user on his credit card account. Your credit purchases will help you establish a history, and making payments on time will reflect well on your credit score. Be careful to choose someone who has a good history, because his mistakes could reflect poorly on you and your score.

5

Apply for gas cards or department store cards. These cards are usually fairly easy to get and will help you establish credit history. Try to get one from a store or business you patronize frequently, and make sure you always pay your bills when due.

6

Expand into different areas of credit as you gain credit experience. Once you have a small amount of good credit established, you could get a contract cell phone or buy a cheap vehicle. So long as you keep up your payments, your credit score will continue to rise as you make different purchases and commitments.

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Tips on Getting a Good Rent-to-Own Deal

Renting to own is a common decision for a person with some credit issues who is seeking a permanent place to live. A standard rental lease is a short-term arrangement that a landlord can terminate at any time, so having the option to buy offers a bit more security to the renter. While a rent-to-own deal is often most beneficial for a landlord, the renter can still take advantage of the opportunity by negotiating to get the best deal possible.

Summary

A rent-to-own (also called "lease-to-own") deal is a real estate transaction between a renter and a home or property owner that provides the renter with a place to live that could eventually turn into his own personal property. The renter must pay a pre-determined monthly rent --- each payment usually includes a portion toward the home purchase price called the homebuyer credit. The sales price is decided and locked in at lease signing. The renter must also pay a down payment besides the security deposit to secure the option to buy at a point in the future.

Get Appraisal

The landlord can propose any selling price he wishes for the rent-to-own agreement, but that doesn't mean that the house value matches his desired price. The proposed renters should ask for a professional appraisal of the home or arrange one himself from a certified appraiser before agreeing on a selling price. The proposed renter can also benefit from a thorough house inspection to determine if the home has any issues that the landlord needs to resolve before commencing with the agreement.

Fee Refunds

The money the renter puts toward rental payments (including the homebuyer credit) and the option deposit is not usually refundable. This is a major reason why a rent-to-own agreement is usually most beneficial for the landlord. Whether the renter stays or leaves, the property owner benefits. So when negotiating a fair rent-to-own deal, the renter should ask for some type of refund in certain cases. For instance, if the lender will not fund the home sale at the price agreed due to a sharp drop in the house's value, that is a cause for receiving at least a portion of the option fee back.

Care of the Home

When developing the rent-to-own deal, the renter can also try to negotiate credits or special terms if she agrees to take on duties that the landlord usually takes care of during the lease period. For instance, the landlord may agree to credit the buyer a certain amount if she acts as caretaker and repairman for the property.

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Effects Debt Management Places Have on Your Credit Score

Some people may be concerned that the effects debt management companies have on your credit score could be just as bad as filing for bankruptcy. While using a debt management company may not be the best option, there are different ways that a debt management company will affect your credit score. These are both good and bad, so it is up to each individual to decide what is right for him and his personal credit score.

Function

The function of a debt management company is to negotiate with your creditors. They negotiate the interest rate as well as the amount that you actually owe. These debts are put into a lump sum so that you may pay a smaller amount monthly rather than struggling to pay minimum amounts on each debt every month.

Effects

According to My Fico (myfico.custhelp.com), your Fico credit score is not going to be significantly affected by using the services of a debt management company. If you are seeking the help of a debt management company, your credit is likely to be affected already. A debt management company may affect your credit score negatively but that affect will be minimal. This will occur because rather than paying the full amount owed to your creditors, you have instead settled for a lower payment, which can have a negative effective on your credit. However, in the long-term, the positives of managing your debt far outweigh the negative.

Benefits

A debt management company is going to help you to pay off your debts faster because the payments will be less, the money owed will be less, and the interest rates will be lowered. This means that eventually your credit score will improve.

Time Frame

The time frame is up to you and the debt management company you choose to work with. However, just like a bankruptcy, debt management can have an affect on your credit for several years. This is due to the fact that your creditors will be reporting your activity with them as long as you are doing business with their company. Once your business is done, this activity will stay on your credit report for seven to 10 years.

Warning

A debt management company can negatively impact your credit score if you fail to follow through with making your designated payments. While the debt management company makes payments to your creditors, you must provide payments to the debt management company. The debt management company has no affect on what your creditors report to the credit bureaus.

Potential

There is a lot of potential in debt management companies in helping you improve your credit score. It is up to you to work with the debt management company to improve your own score; they cannot do all of the work for you. If you do it right, then you will eventually see an improvement in your credit score.

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What Can You Do to Fix a Credit Score?

A strong credit score can mean the difference between getting a home or auto loan at a great rate and not getting a loan at all. Most often, a poor credit score means that loan options are still available, but at much higher rates of interest. The cost of higher interest over the life of a loan can add up to hundreds or thousands of dollars that would be saved by waiting until credit scores improve to apply for credit.

Request Free Copies of your Credit Reports

Log on to a site such as annualcreditreport.com and request credit reports from all three reporting agencies (see link in Resources). Check each report for accuracies and errors. Make corrections as needed.

Pay Down Debt

Your credit score is an objective number based on several factors, including your debt-to-credit limit ratio. Maintain your credit card balances at 30 percent (or less) than your credit card limits.

Pay Bills On Time

Paying bills late has a negative impact on your credit score. If you have paid late previously, paying by the due date from this point forward will improve your credit score with time.

Manage Different Types of Credit Well

Credit scores are improved with a mix of credit accounts. Managing a combination of credit types, such as revolving (credit cards) and installment (auto or mortgage), improves credit scores.

Get Back in the Saddle

Past credit problems, such as bankruptcy, can make for reluctant borrowers. To rebuild credit scores, you must manage credit. Start with a secured credit card.

Avoid Quick Credit Fix Promises

Don't fall for promises to fix credit scores. If the information on your report is inaccurate, you can have it removed yourself for free. If it is accurate, it will not be removed for 7 to 10 years from the date of last activity.

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How to Appeal an Unnamed Negative Report on Your Credit History

By law, consumers have the right to dispute or appeal negative items on their credit report. Consumers also have the right to know the details of their debt, including the company claiming the debt. This was all made possible due to amendments in the FCRA (Fair Credit Reporting Act). Learn to appeal inaccuracies and negative items on your credit report.

Instructions

1

Pull your credit report from all three major credit reporting agencies: Experian, Equifax and Transunion. You need to determine each credit reporting agency that has received the inaccurate information. Your credit report will vary between the agencies; some items may not be included on all three reports, including negative items.

2

Contact the credit reporting agency by certified mail. Make a copy of everything you send. Send them a letter explaining your situation and the inaccurate item on your credit report. Let them know the company that submitted the item was unnamed. It may be best to use a sample letter provided by the Federal Trade Commission, with your information substituted.

3

Wait up to 30 days for a response from each agency you have contacted. Once the credit reporting agency receives the claim, they will investigate the situation by contacting the company and asking for proof of the negative item. If the company cannot be reached or does not provide proper proof of the negative item, it will be removed from your credit history.

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How Far Back Do Credit Checks Go?

Credit checks are your ticket to everything from a new credit card account to a loan for furniture, a car or even a new house. The Federal Reserve Bank of San Francisco's website explains that the credit bureaus gather your financial data and compile reports for lenders. They cover your credit-related activities for several years to give a long-term picture of your credit worthiness.

Reporting Time

Lenders check your credit by reviewing your credit reports from the Experian, TransUnion and Equifax credit bureaus. Their review goes back as far as the dates of the information on those reports. Reporting time frames vary, depending on the specific type of information. The Federal Trade Commission (FTC) explains that a bankruptcy stays in your records for 10 years, while most other negative information, like late payments, car repossessions and foreclosed homes, remain for seven years. Closed accounts that were in good standing show up for 10 years, according to the Experian website.

Credit Scores

Credit scores are calculated based on your credit bureau files, so they consider information going back seven to 10 years. FICO, the largest scoring company, explains on its website that it considers things like promptness of payments, current and previous account balances and credit limits, length of time you have used credit and how long you have had particular loans and credit cards. Your score continually changes, according to the MyFICO site, so it goes up when old delinquencies or other negative data gets erased.

Considerations

Everything in your credit reports is visible to lenders who view them while processing your applications, but they do not weigh everything equally. Lita Epstein explains that they look most closely at your recent activity, focusing on the past three to five years. You have a good chance of getting approved for a credit card or loan if you have built up several years of on-time payments, even if you have collection agency accounts or even a bankruptcy in your past.

Warning

Negative credit report items do not always get erased when the reporting period ends. You are allowed to get free credit report copies to check their status. The FTC explains that you must get the reports from the official website, annualcreditreport.com. Search for old items, and file a dispute with Experian, TransUnion and Equifax is you find any outdated data. The bureaus let you do this electronically on their websites, and the law gives them 30 days to handle your complaint. Then they are required by the Fair Credit Reporting Act to send you corrected credit report copies so you can be certain the old items are gone.

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FICO Scorecard Characteristics

Whenever you apply for credit, your FICO score serves as the historical record and monitoring tool for the measurement of your credit worthiness and predictive credit behavior. The scoring system was established in 1956 by the Fair Isaac Corporation. The three major credit bureaus, Experian, Equifax and TransUnion, use this rating system which focuses upon repayment history, balances owed, credit history length, recent or new credit and types of credit.

Overall Ratings

Good credit ratings result in credit acceptance, lower interest rates and higher loan amounts.

Each of the three major credit bureaus conduct an independent rating of your credit worthiness, which affects your ability to obtain credit under the terms offered by creditors. The numeric codes range from 300indicating a very low scoreto 800, which is the highest possible score. A score below 620 is viewed as being low and will result in difficulties when applying for loans, while a score of 720 is considered excellent with low credit risk and a high probability of credit approval. The higher the credit score, the lower the interest rate.

Repayment History

Repayment history represents a large portion of your FICO score.

The repayment history portion of the FICO score counts for 35 percent of your overall rating. Therefore, it's important that you pay all obligations on time including medical bills, parking tickets and fines since your history serves as a focal point for the future.

Balances Owed

The debt to equity ratio of your loans should decrease or remain stable.

The balances owed section of the FICO score counts for 30 percent of the total. As the number and amount of balances owed for credit cards and revolving lines of credit increase, your FICO score will decrease. When your credit card balances increase relative to the amount of credit available, your score is negatively impacted because your debt to equity ratio is increasing.

Length of Credit History

Credit history that withstands the test of time helps your FICO score.

The length of your credit history counts for 15 percent of your total FICO. If you have used only a few credit cards over a longer period of time and have repaid auto loans within the proper time frames, your FICO score will be positive because it indicates that you are a responsible borrower who is likely to repay their debts.

Recent or New Credit

A rash of new credit cards obtained and inquiries lowers your credit score.

Recent or new credit accounts opened as compared to the total number of existing accounts shown on your credit reports could hurt your FICO score because it might signal financial trouble. Also, a sudden increase in the number of new inquiries by credit card companies for your credit history could create warning signs and lower your score. However, short term shopping for mortgage or auto loan rates should not hurt your rating as long as the inquiry period is short term. This section counts for 10 percent of the total score.

Types of Credit

Your FICO score is helped by having installment credit as well as revolving credit.

Diversification of credit helps your FICO score by demonstrating the level of commitment you have toward paying down various types of obligations such as mortgages, auto loans and credit cards.

Fair and Accurate Credit Transactions Act (FACTA)

FACTA is a consumer law that allows you to have access to your credit information.

FACTA was passed into law during 2003 in order to provide consumers with access to their credit reports. FACTA allows you to obtain a free credit report from all three credit bureaus once a year. It also allows you to report errors to the credit bureaus for purposes of having them removed.

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How to Fix Credit Problems With Personal Loans

Fixing your credit and raising your score requires developing better credit habits. Although it's not easy to obtain personal loans with credit problems, acquiring a loan and paying off the balance will increase your credit score and put you on the path towards good credit. If looking for a way to improve your credit, consider applying for a small loan with your bank or credit union.

Instructions

1

Use a co-signer. You probably will not be able to obtain a personal loan on your own. Ask a family member -- such as spouse or parent -- to co-sign your personal loan.

2

Secure your personal loan with collateral. Use a personal piece of property such as a vehicle title as collateral for your loan. If unable to repay your loan, the lender can take possession of your property.

3

Borrow a small amount of money. Opt for a small personal loan, which is easier to pay off.

4

Compare loan rates. Request loan quotes from at least two lenders to compare personal loan rates.

5

Complete an application and close on your loan. Submit an application for a personal loan and wait for an approval notification. Once approved, schedule a date to close on your loan and receive funds.

6

Make timely payments. Mail monthly payments several days before the due date to avoid a late payment and fix your credit score. Timely payments add points to your credit score.

7

Pay off the personal loan. Satisfying or paying off debt improves your credit rating. Aim to pay off the personal loan within a few months to fix your credit.

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Does a Car Loan Raise a Credit Score?

Car loans and other credit accounts are part of your financial history. They get added to your credit reports by TransUnion, Equifax and Experian. These three credit bureaus provide the information to lenders who evaluate your future applications, and it is also used to calculate your credit score. Vehicle loans can raise the score if you handle them appropriately.

Definition

Your credit score is a three-digit number calculated by FICO, which is the original scoring firm, and the credit bureaus. The score is based on many factors. FICO explains that it considers things like your current loans, including the original balances, amounts owed and whether you make your payments on time. Paid-off accounts have an influence, too, although past car loans do not have as much impact as recent ones. A high FICO score helps you get approved for credit more easily and qualifies you for better interest rates.

Effects

A car loan raises your credit score when you make your payments on time. FICO advises that your overall payment history on all your accounts, along with any related charge-offs, collection actions and court judgments, makes up more than a third of your score. You help your score even more if you do not open other unnecessary accounts while paying off your vehicle. FICO penalizes you if your debt load is too high.

Considerations

Vehicle loans are especially beneficial to borrowers who are establishing a credit history for the first time. Lenders are leery about extending credit when you do not have much of a history. You can get a secured credit card if you give the bank a deposit for collateral, but MSN Money financial writer Liz Pulliam Weston explains that you need a mixture of account types to properly establish yourself. Credit cards are revolving accounts, while car loans are installment accounts, so your score goes higher when you have both and manage them properly.

Challenges

You will have trouble getting a car loan if your credit score is bad or you have other challenges like low income or a short employment history. You can qualify if you find a co-signer who has a high score and use the account to build up your own credit records. The co-signer is equally responsible for repayment, according to Pat Curry of the Bankrate money management website, so you damage that person's credit score along with your own if you stop paying for the car.

Warning

Car loan contracts usually allow the lender to seize the auto if you skip even one payment. This hurts your credit score, and the repossession stays on your credit reports for seven years. Even if your car is not repossessed, a string of delinquent payments destroys any progress you made previously in raising your credit score with the loan.

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How Can I Go About Establishing Credit?

When you want to borrow money, you have to have an acceptable credit score in the eyes of the lender. Before you can get a decent credit score, you have to start the process of establishing your credit history. When you start out your adult life, you most likely have no credit history, and the proper steps must be taken to get the process started.

Open Bank Accounts

One of the easiest steps that you can take is to open bank accounts in your name. You should consider opening both a checking account and a savings account with a local bank. As long as you are over the age of 16 in most areas, you should be eligible to open a checking account. When you get your accounts open, you can start using the checking account to pay for things that you need. A good payment history will start to help you build credit.

Credit Cards

One of the most effective ways to build credit is to open a credit card account. Most credit card companies are willing to open a credit card with a small limit for you. Once you open a credit card, you can use it to make some small purchases. As soon as you make a purchase with your credit card and receive a statement, you should pay the bill off immediately. This helps your payment history and makes it look like you are responsible with money.

Be Responsible

If you want to establish good credit, you have to be responsible with your money. This means that when you use your bank account, you need to always have the money to cover the payments in your account. You have to keep track of how much money you have in your account at all times. When you use your credit card to make a purchase, you have to make your payment on time the following month. If you make late payments, it hurts your credit.

Store Accounts

If you have trouble getting approved for a regular credit card, you may look at opening some store accounts. For example, you could open an account with a retail department store and make some small purchases. Another option is to apply for a gas card with a gas station. These items are usually easier to get approved for than a regular credit card, and they also report to the credit bureaus on your actions.

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How to Contact Equifax Credit Reporting

There are two main reasons why you might want to contact the Equifax credit reporting bureau. You may suspect that someone is committing fraud and opening accounts in your name, or you may simply want to monitor your credit report. There is an appropriate way to contact with Equifax for each of these purposes. Using the right contact information will help your issue get resolved more quickly.

Instructions

Credit Monitoring

1

Visit the official website that provides free annual copies of your credit report (see Resources). It will allow you to choose a report from individual credit bureaus, including Equifax, or to order a report from all three major credit bureaus.

2

Select Equifax to contact its website and fill out the required information. You will have to enter identifying information about yourself and answer questions about your credit accounts to prove who you are. When this is verified, you will have access to your credit report.

3

Review your Equifax credit report and make a note of any incorrect information. If Equifax cannot verify negative information on your credit report, it must be removed. Contact Equifax through its dispute form to challenge any questionable items.

Fraud

4

Get a copy of your credit report by contacting Equifax through its website and review it for fraudulent accounts (see Resources). You are entitled to a free copy of your credit report at any time if you suspect fraudulent activity. Make a note of any accounts that were not opened by you and any other incorrect information.

5

Contact Equifax at 1 (888) 766-0008 to put a fraud alert on your credit report, or fill out its online fraud reporting form. This will alert lenders and creditors who make queries that your information has been used fraudulently so they can contact you before opening any new accounts.

6

Contact Equifax through its online dispute form to challenge any incorrect information. Equifax will investigate the disputes and remove them if they are due to fraudulent activity.

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When Do New Inquiries Post to My Credit Report?

When you apply for a loan, the creditor requests a copy of your credit report. This action, known as an inquiry, can negatively affect your credit score depending on how and with whom you shop for a loan.

What Makes Up Your Credit Score

Your credit score is a number between 300 and 850 that credit report agencies calculate based on various aspects of your financial history, primarily your tendency to make timely payments. The agencies account for the types of credit you have, how much of it is new, how much money you owe creditors and how long you've had credit. New credit accounts make up 10 percent of your credit score, which is why inquiries into your credit history matter.

Types of Inquiries

When you apply for a job, your employer may request a copy of your credit history. Businesses you don't know may also do this for their own reasons. These types of inquiries don't affect your credit score, while inquiries that result from you shopping for new credit do count. New credit includes credit cards, auto loans and mortgages. A single inquiry of this type can lower your credit score, typically by fewer than five points according to MyFICO, the consumer branch of FICO, the company responsible for the credit scoring system.

Time Restrictions

There are two ways a credit reporting agency may report inquiries, and a creditor can choose which to regard when evaluating you as a borrower. Both methods disregard credit inquiries that occur within the 30 days before you obtain a loan. The older of the two methods counts all credit inquiries within 14 days before this 30-day period as a single inquiry while the newer method does so for inquiries that occur within 45 days before the 30-day period.

Minimizing the Damage

To keep your credit score as high as possible, pay all bills on time, as your payment history makes up 35 percent of your score. You can find out your current score through a website such as FreeCreditReport.com, FreeCreditScore.com or FreeScore.com, all of which (despite their names) charge you a membership fee of usually $14.95 per month to view your credit score. Gather as much loan information from creditors' websites and brochures as you can before you apply for loans to minimize the number of inquiries on your credit history. Keep your application period within the 30-day limit to minimize the effects of inquiries on your credit score.

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What Is Consumer Credit?

Consumer credit is prevalent throughout today's economy, and consumers regularly use consumer credit as part of their daily purchasing habits. But what exactly is consumer credit, and what are its advantages and disadvantages for the consumer?

Consumer Credit Definition

Consumer credit is loosely defined as goods, services, privileges or money given to an individual instead of direct payment. Typically consumer credit is extended to an individual with additional interest owed beyond the borrowed or deferred payment amount.

Consumer Credit Types

Several common types of consumer credit include credit cards, retail store cards, motorized vehicle financing, personal installment loans and some retail installment or rent-to-own loans. Home mortgages are not typically considered to be strictly consumer credit because of the specific nature and regulation of the mortgage lending industry.

Function of Consumer Credit

Consumer credit functions to allow consumers to defer payment for purchases and repay with interest at a consistent and sometimes fixed rate. Many consumers use consumer credit to purchase higher priced goods and services like vehicles, home appliances, and home or auto repairs. Because consumers may not be able to readily access the cash required to buy these items outright, consumer credit allows the convenience of deferred payment. It is also common for many retail and impulse purchases.

Consumer Credit Advantages

Consumer credit enables consumers to use products and services while they are still paying for them without waiting until they've saved enough money for an outright purchase. Consumer credit types like credit cards and retail cards allow consumers to make purchases easily online. Successfully paying back consumer credit can build a favorable credit record, allowing consumers to take advantage of other investment or borrowing opportunities.

Consumer Credit Disadvantages

One disadvantage of utilizing consumer credit is that it reduces the tendency for saving money, which can leave families vulnerable if financial emergencies arise. In addition, because consumer credit options like credit cards are easy to use but involve relatively high interest rates, it is easy for consumer credit levels to get out of the consumer's control. A damaged credit rating from unpaid consumer credit can adversely affect a consumer's ability to obtain other personal or business financing.

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Companies That Provide Free Credit Report Information

The Fair Credit Reporting Act allows consumers to access their credit reports from the three nationwide reporting agencies for free once a year, according to the Federal Trade Commission. Beware of competing companies claiming to offer free credit reports -- they often force consumers into buying services or paying fees for the reports. Order your report from each of the three agencies or through the AnnualCreditReport.com website, which is endorsed by the FTC to give you the three free reports.

Experian

Experian is one of the three credit-reporting agencies authorized by the FTC to provide an annual free credit report to consumers. The company gives consumers online access to their credit reports for 30 days. Consumers can dispute incorrect credit information they find on their report online. Experian offers customer support over the phone seven days a week. Experian uses a 501 to 990 scale for its credit scores.

Experian

475 Anton Blvd.

Costa Mesa, CA 92626

714-830-7000

experian.com

TransUnion

TransUnion gives consumers a free credit report once a year. The company also offers "24/7 credit monitoring," meaning it will alert consumers if any suspicious activity takes place. If it does, consumers can submit a dispute online and monitor the dispute's status through TransUnion's website. The company also offers a personalized credit analysis of a credit report, allowing consumers to identify ways to improve their credit score. TransUnion credit scores run on a scoring model from 501 to 990.

TransUnion

2 Baldwin Place

P.O. Box 1000

Chester, PA 19022

1-800-888-4213

transunion.com

Equifax

Equifax gives consumers access to their credit report at no charge once a year. If consumers find an error on their credit report, they can dispute it using Equifax's online dispute website, which expedites the dispute process. Unlike Experian and TransUnion, Equifax uses a credit score range of 280 to 850.

Equifax

P.O. Box 740241

Atlanta, GA 30374

1-800-685-1111

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How Fast Can You Fix Your Credit?

Your credit rating is dynamic, changing as you use your credit cards, get loans and make or neglect payments on your accounts. Your rating gets bad rapidly if you spend too much of your credit limit or stop paying your bills responsibly. It takes longer to repair damage because creditors want to see lengthy good records, but positive actions are quickly reflected on your credit reports. You can often make significant progress within a month.

Revolving Account Balances

High revolving account balances give you a quick fix opportunity because your credit score goes up if you pay down a big amount. You should never spend more than 10 to 30 percent of your credit card limits if you want an optimal score, according to MSN Money columnist Liz Pulliam Weston. Your Experian, Equifax and TransUnion credit reports will reflect big payoffs within 30 days, quickly improving your appeal to creditors.

Credit Report Mistakes

Your credit reports may be among the 80 percent that have mistaken information, according to Bankrate.com. Errors in negative information can be fixed within 30 days under the Fair Credit Reporting Act. Get free reports from AnnualCreditReport.com, which hands out yearly copies to consumers on request. Find mistakes, submit online complaints through the credit bureau websites and wait for the results. The bureaus get a month to confirm or remove the data, and they alert you to the results and provide amended report copies at the end of their investigations. Look beyond obvious errors like current accounts reported as delinquent to things like under-reported credit limits, which hurt you by throwing off the difference between your balances and available credit.

Payment Dates

Your payment dates are vitally important to your credit score because they make up 35 percent of that number, according to the MyFICO credit-scoring company. You cannot immediately undo the damage from late payments, but catching up all your accounts is a good start. Their current status is reflected within 30 days and updated monthly as you continue to make on-time payments. Creditors see the old past-due information, but they also see a growing string of positive activity.

Warning

Ignore ads promising to fix your credit immediately, as the Federal Trade Commission warns that they are fraudulent. Credit repairers have no secret methods to erase bad credit bureau records. They can only file disputes using the same process you can do on your own. While they may help your credit within a month by getting rid of mistakes, they charge high fees to do what you can accomplish yourself at no cost. Some demand payment up front, which is illegal, then do nothing at all. Fix your credit on your own through disputes and building up positive records.

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How to Dispute a Negative Item in a Credit Report Letter

Credit reporting agencies (CRAs) such as Transunion, Experian and Equifax must strive to provide the most accurate information on their credit reports. When you find a problem with a negative account, you can dispute the information with the CRAs. Each credit reporting agency has an online dispute system that allows you to submit disputes. Once a dispute is submitted, the CRAs contact the creditor or collection agency responsible for the account data.

Instructions

Transunion

1

Navigate to the dispute center on Transunion's website.

2

Click "First Time? Click Here" if you have never used Transunion's online services before. Register for an account and go back to that page. Log in to your Transunion account on this page.

3

Click "Credit Report" from the navigational list at the top of the user control panel.

4

Click "Report Inaccuracy" underneath the main navigation options. Choose "Submit Dispute" to start the dispute process. You'll be presented with a list of your accounts. Scroll through this list until you find the account listing that matches your negative account on the paper credit report. Choose "Request Investigation." Use the provided reasons to dispute the account, checking the applicable reasons, or write your own. Click "Submit."

Equifax

5

Open your Internet browser and go to Equifax's online dispute Web page.

6

Find your credit report number on your paper Equifax credit report. Input this report number in the first field on the form. Provide the requested personal information in the other fields. Click "Submit." You will be presented with a list of questions regarding previous addresses, debt payments and credit accounts. Answer these questions to verify your identity and click "Submit."

7

Choose the "Start a new dispute" link. Use the sidebar navigation to get to the negative account section. Click "Dispute this item" next to the negative account from your paper credit report. Check each applicable dispute reason or present your own. Click "Add Dispute."

Experian

8

Navigate to Experian's dispute website.

9

Choose "Yes, I have a report number." Enter the number from your paper report in the provided field, and type in the rest of your personal information. Click "Submit."

10

Choose the negative accounts link running along the top of the credit report page. Click the name of the account to enter the account details page. Click "Dispute this item." Select the proper dispute reason or enter your own. Click "Submit your dispute."

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The Best Way to Help Clean Credit

Bad credit can keep you from owning a house, car or sending your children to college. There is good news: You don't have to have it forever. "Cleaning" your credit report is the process of improving your credit report by taking certain actions. One of the best ways to help clean your credit is to have bad accounts or notations removed from your credit report. These accounts include charge offs, collections and, to a lesser degree, late payments.

File an Online Dispute

If you have recently received your credit report, you have the option of filing an online dispute with the credit bureau. The bureau will ask the lender or collector to verify the account. If they do not do so with 30 to 45 days---depending on how you obtained your credit report, according to Equifax---the credit bureau will automatically delete the account under the Fair Credit Reporting Act. If you have an older, paid collection account or charge off, the lender or collector may not bother to respond to the dispute or may no longer have the information necessary to verify the account.

Ask Nicely

Although late payment notations don't hurt your credit as badly as a charge off or collection account, they still damage your credit score. The more recent the late payments were, the more they will hurt your score. If you have a good relationship with the company by which the late payments have been reported, then it may be worth your while to call the company's customer service number or write a letter and very politely ask to have the notations removed. You may want to mention your long payment history with the company or the years of on-time payments you have had since your late payment notations, if one of these applies to your situation.

Let it 'Fall Off'

All collection, charge offs and late payment notations should automatically "fall off" after seven years under the Fair Credit Reporting Act. For charge offs and collection accounts, the clock starts ticking 180 days after the date of the first delinquency; in other words, 180 days after the first missed payment. So, if you have a credit account that you last paid on in July 2004, it should "fall off" in February of 2012. This remains the same no matter how many collection agencies buy it during that time. The date of the first delinquency remains the same as does the date that the debt should "fall off" of your credit report, according to the Federal Trade Commission. Collection agencies may try to move this date forward, a process known as negative re-aging, but it is illegal and you should dispute this with the credit bureaus, according to Credit.com.

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