July 2012 ~ Personal Finance and Money Management

Tuesday, July 31, 2012

Will My Credit Score Rise If I Pay Off My Collection Accounts?

8:43 PM No comments

Whether you're in debt to a lender or to a collection agency, it will hurt your credit score. Paying down that debt or clearing it completely will raise your credit score. However, the record of the collection will stay on your credit report for years after you've settled the account. Depending on your credit situation, you may be able to get the collection removed from your report by negotiating with the agency.

Each of the three credit bureaus -- Experian, TransUnion and Equifax -- uses a slightly different formula to calculate your credit score. As a result, you don't have a single credit score, you have at least three. The information that goes into calculating the score is largely the same, though it's weighed differently. Approximately 35 percent of the score is based on your repayment history. About 30 percent of the score factors in your total debt as a percentage of your credit line. Fifteen percent of the score is based on the length of your credit history and10 percent is based new credit applications. The remaining 10 percent is made up of various factors, including the types of debt you have.

Paying down or paying off your debt will improve your debt-to-credit ratio, as long as you don't cancel all the accounts as soon as you settle. It will also have a positive effect on your overall total debt. However, it will not erase a record of that debt. A collection can stay on your credit report for up to seven years, even if you've paid it off. Collection agencies are under no obligation to remove that information from your credit report. It's not in their interest to do so. They use your dropping credit score as an incentive for you to pay up.

It is possible to negotiate with a collection agency to get the agency to remove the collection from your credit report. The agency bought your debt from a lender. It now has to get that money back from you. If you don't pay, the agency loses money. If you can pay off the debt, use that to negotiate with the agency. Tell the agency that you will pay everything you owe, but in return, you want the collection account removed from your credit report. Get this in writing before you pay. A settled collection account is not the same as an erased one. Insist on the latter.

The collection agency does not have to agree to your request. The agency can get the money in other ways. You are offering the agency an easier way. Despite this, the collection agency may turn you down. In that case, it's still better for you to pay off the debt than not to pay it. A settled collection account hurts your score less than if you still owe money.

There are other ways to raise your credit score over time. Keep up with your monthly repayments because a missed payment, or even a late one, can seriously hurt your score. Two years of regular monthly payments will make a settled collection account count for less than if you get yourself into more debt. Diversifying your debt and avoiding multiple credit applications in a single month will also help your score.

How to Fix Your Credit in 30 Days

8:41 PM No comments

Over 30 million Americans are living with massive amounts of credit debt and poor credit scores under 620, according to MSN Money. Poor credit scores below 600 limit your ability to apply for additional credit. Potential employers often check applicants' credit scores to learn about their fiscal responsibility. Following a few easy steps will improve your credit score.

Instructions

Obtain a copy of your credit report. Many private companies advertise their credit-reporting services for consumers for a monthly fee. Your bank is also a reliable source of credit monitoring, without worrying about identity theft.

Make sure credit-card limits shown on the credit report are accurate. Credit-card companies and banks may not adjust the credit limits they report to credit bureaus. If they indicate that you're spending more than half of your credit limit, your credit score will lower over time.

Keep bill-payment receipts and compare them to records on your credit report to ensure accuracy. If your records show complete and on-time bill payment while a credit report does not, notify the company reporting the inaccuracy and it will be corrected.

Dispute old negative impacts on the credit report. When health-insurance companies bill patients remainders of large bills that they fail to pay, the bill is put in collection status. Credit Info Center reports victims of these charges can be removed by claiming that the charges are not theirs, and the collection account would be difficult for credit bureaus to locate. Smaller collection amounts are easier to get removed from credit reports.

Use any saved or extra cash to pay down or eliminate the balance on your credit cards. The three major credit-reporting bureaus weigh credit-card balances most heavily out of all criteria used to determine a credit score.

Pay off any missed payments on large loans, including student loans or mortgages. Missing one payment can be resolved quickly, but excessive nonpayment will take longer.

Continue to pay bills as scheduled. When paying off an entire credit-card bill is not possible, simply making minimum payments as demanded by creditors will not hurt your credit score as much as completely missing a payment. Most creditors do not consider a payment late until 10 days past due.

How to Fix My Credit Score for Free

4:08 PM No comments

Your credit score may be the single most important number in your life. Ranging from 350 to 850, your credit score is a measure of how dependable you are at managing your debts. Your credit report will be pulled whenever you apply for new debt and occasionally when you apply for rental property or a new job. Because of this, a low credit score can result in you being turned down for credit, loans, housing and even employment. Fortunately, you do not have to spend hundreds, or even thousands, of dollars to hire a credit repair company to fix your credit score. You can improve your bad credit for free on your own.

Instructions

Pull each credit bureau's copy of your credit report. Because different companies may report to different credit bureaus, it is vital that you review your credit reports from all three credit bureaus: Experian, Equifax and TransUnion. The Fair Credit Reporting Act (FCRA) gives you the right to request one free copy of each credit report every year.

Look for any accounts on your credit report that you do not recognize. If a lender reports incorrect information to the credit bureaus, that information can result in a debt ending up within the wrong credit file. If someone else's accounts appear on your credit report, they may be negatively affecting your score.

Look for any accounts that are obsolete. Negative information such as late payments on debts, collection accounts, foreclosures, repossessions and charge-offs can only appear on your credit report for seven years. If the dates on these accounts are incorrect or unavailable, this can result in the negative information appearing on your credit record for much longer than the FCRA allows.

Send a letter to each credit bureau whose report reflects obsolete or incorrect information. State in your letter that you are disputing the validity of the information and why. Include a copy of your credit report with the information underlined. When the credit bureaus receive your letters, they will conduct an investigation, correct any data deemed to be incorrect and mail you a new copy of your credit report that reflects the changes.

Check your credit report for any late payment information. Send each creditor whose report reflects late payment information a "goodwill letter." Goodwill letters explain why the payment was late and request that the creditor remove the late payment information from your credit report because you are a good customer. It is important to have late payment information removed, if possible, because late payments have a significant impact on your credit score.

Pay down your revolving debts, such as your credit card accounts. The amount you owe to your creditors accounts for 30 percent of your total score. By paying down your revolving debt, you increase the ratio of the amount you owe to the amount you are allowed to charge. This boosts your credit score.

Make all of your payments to your creditors on time. After you have had as much negative information removed from your credit report as possible, making timely payments to your creditors will ensure that your credit score stays positive and continues to improve over time.

The Effects of Bankruptcy on Credit Ratings

5:34 AM No comments

Bankruptcy is not a simple way out of debt or an easy ride to a fresh start. It is intrusive and draining, though sometimes absolutely necessary. Before filing for bankruptcy, it is important to understand the short- and long-term effects of bankruptcy on your credit score.

According to Bankrate.com, bankruptcy can lower your credit score by hundreds of points. Also, creditors that are being paid or discharged through your bankruptcy may continue to update the credit bureaus, making it seem like account delinquency is current instead of negotiated or paid. Bankrate.com recommends checking your credit report after filing for bankruptcy to confirm the accuracy of information and address unnecessary reporting from creditors.

Bankruptcy can only stay on your credit history for a maximum of seven or 10 years, depending on the chapter of bankruptcy you filed. While this will definitely affect your credit score, it does not necessarily destroy it. Both Bankrate.com and MSN Money's Liz Pulliam Weston agree that if different types of credit are applied for and used responsibly after bankruptcy, your credit score could return to a "fair" or even "good" rating within a few years. However, if credit is not used or used irresponsibly, your credit score will continue to rate at "poor" or even get worse.

With a low credit score comes higher interest rates for any line of credit and even limited credit options. If your score is low enough, only secured lines of credit will be available to you. Secured lines of credit are loans or credit cards secured by a funded bank account or item of value, like a car. Even these lines of credit will have high interest rates that will put a dent in your wallet if you do not pay in full each month.

How to Calculate Credit Rating

5:40 PM No comments

Your credit rating or credit score is a number that summarizes the credit risk you present to a lender based on your credit history. The FICO credit rating ranges from 300 to a perfect score of 850 and is the standard used by major credit bureaus and most lenders. Unfortunately, it's not possible to calculate credit rating precisely because the firm that created the system, Fair, Isaac & Co., keeps the algorithm secret. But the main components and factors making up the credit-rating system are public knowledge. By using them, you can learn to manage your use of credit so you build a top-notch credit rating, even if you can't calculate it exactly.

Instructions

Order the free copies of your credit history that you are entitled to each year. The Federal Trade Commission authorizes only one provider for these free reports. You can order online by linking through the FTC website or by calling (877) 322-8228. Use your credit history as a guide to evaluate your credit standing and to alert you to any errors that need correction.

Evaluate your payment history (this counts for 35 percent of a FICO score). Ideally, every bill should be paid on time. An occasional slow payment of just a few days has little or no impact because most lenders don't bother to report a good customer for a rare lapse. What will hurt a credit rating is even one payment that is more than 30 days late. This can take up to 100 points off your credit score.

Total your debt obligations. Your debt, compared with your income, is the second-most important part of a credit rating (30 percent of FICO). What's most important is the size of your payments. A mortgage has a relatively small payment for the size of the debt, so the amount is weighted much less heavily than credit cards or other borrowing that requires you to pay a bigger part of the debt each month.

Look at the type of debt you have (10 percent of FICO). Secured debt is any mortgage, car loan or any debt for which you put something of value up as collateral. If this is mostly the type of debt you have, that's a point in your favor. If your obligations are mostly unsecured debt such as credit cards, that's a minus.

Take time factors into account. Add up how many applications you've made and accounts you've closed in the past year. One or two are normal, but if you constantly open or close credit accounts, it lowers your credit rating (10 percent of the FICO score). The other time factor is just that: time. The longer you use credit wisely, the better, and this makes up the final 15 percent of the FICO score.

Consider other factors that might lower your credit rating. A bankruptcy or foreclosure has a strong negative effect on a credit score. In some ways, some other problems are even worse. A tax lien will stay on your record for 10 years or more, and a default on a student loan is there for life. Defaults on other debts or court judgments against you brought to collect a debt also hurt.

FICO Score Facts

9:15 AM No comments

Knowledge is power, and in times of economic turmoil, this sentiment becomes truer than ever. Knowing how future lenders view you is important. Even more important is determining the formula that can gain you the highest FICO score. The higher your FICO score, the better for you when you want to take out a loan, apply for a credit card, a mortgage, an apartment or even a job. Once you understand some facts about FICO, you have taken the first step in gaining some power and possibly raising your score.

The Fair Isaac Corp. developed the FICO scoring system for the credit-reporting agencies to rank consumers. Your FICO score is a three-digit number that provides a quick and easy way to determine whether you'd be a good risk to lend money to. If you have a high FICO score, you'll have credit available to you at a low interest rate. If you have a low FICO score, you may not be able to obtain a loan at all, or if you can, you'll pay a high rate of interest. Being assigned a number may rub some people the wrong way, but having a FICO score is actually better for you than having no scoring system at all. Prior to FICO, lenders could make judgment calls that were oftentimes unfair. FICO is objective.

Financial setbacks, such as a repossession or late payments, can lower your FICO score in a hurry. You can improve your score, but raising your score typically takes more time than lowering it does. FICO scores range from 300 to 850. No magic cutoff exists to determine whether you get a loan or the best interest rate, but there are guidelines many lenders follow. For example, if your score is higher than 660, lenders are likely to view you as having an acceptable credit reputation, according to Bankrate. If your score is lower than 620, you are considered a high risk. Typically, if you reach 760 or more, you can expect to receive the best rates on loans.

Five factors determine your FICO credit score, and they are weighted differently. The single most important factor in your FICO score is your payment history -- whether you pay back the money you borrow on time. This makes up 35 percent of your score and is the first thing a lender wants to know. Payment history refers to credit cards, installment loans (such as car loans) and mortgage loans. If you have a bankruptcy or a collection item on your report, that is also in this category. How much you owe accounts for 30 percent of your score. Even if you pay all your bills on time, if you are maxed out on your credit, that lowers your score. It's better to keep your credit usage at 20 percent to 30 percent, recommends David Chung, a Maryland credit expert, on Bankrate. How long you've had a credit history makes up 15 percent of your score. Generally, the longer you've had credit, the better it looks to lenders. Therefore, it's best not to close your old credit card you don't use anymore. Keep it open and use it every couple of years, even if you just charge $10, and pay it off right away. New credit makes up 10 percent of your score. So, if you intend to apply for a big loan, such as a mortgage, it's better not to apply for a lot of new credit just prior to the mortgage application. The final 10 percent of your score are the types of credit you have. Lenders like to see a healthy mix of credit--credit cards and installment loans--to see whether you have experience with different types of loans.

You can get a free copy of your credit report once every 12 months from each of the three major credit-reporting agencies--Equifax, Experian and TransUnion--by contacting AnnualCreditReport.com. It's important to do this because credit reports can contain mistakes that could lower your credit score. If you find a mistake, write to the credit-reporting agency with proof of the error and request the mistake be fixed. You won't be able to see your actual FICO score for free; you have to pay extra for that, usually $15 as of 2011.

How to Design a Credit Scoring System

5:18 AM No comments

When customers apply for credit through your business, it's up to you as a business owner to decide how you rate them as borrowers. You can even design your own credit scoring system, making it as similar or dissimilar to the FICO credit scoring system as you wish. The key requirement is that your system assesses the likelihood that the applicant will repay the loan. You might consider the amount or type of debt the applicant owes, his tendency to make payments on debts, his income or a combination of these.

Instructions

Choose the criteria on which to assess credit applicants. The major credit reporting agencies (Equifax, TransUnion and Experian) use, in order of importance, payment history, amount of debt relative to credit, length of credit history, amount of new credit and types of credit. You could consider other criteria, such as an applicant's debt-to-income ratio.

Develop a number scale ranging from "high-risk borrower" to "low-risk borrower." Credit reporting agencies usually give consumers a number between 300 and 850, but your scale could range from 1 to 5, or from 0 to 100, for example. Set a point on the scale which applicants must rank for your business to approve them for credit; for example, 75 on a 100-point scale.

Assign a weight to each criteria from Step 1. For example, if you chose to assess payment history and debt-to-income ratio, you might consider the former more important than the latter and make an applicant's payment history count for 60 percent of his credit score and his debt-to-income ratio count for 40 percent.

Develop a point system for each criteria, so that you add or subtract points from a customer's score based on his credit history. For example, you might subtract one point for every late payment a customer makes to a creditor and two points for every payment he never makes; you might give him one point for every two percentage points his credit exceeds his debt in his debt-to-income ratio. Do not let the total for any criteria exceed the percentage you set for it in Step 3. Using the example from Step 3 and a scale ranging from 0 to 60, an applicant's payment history points can't exceed 60 and his debt-to-income ratio points can't exceed 40.

Make an inquiry for a customer's credit report when she applies for credit through your business. Apply your scoring system to the items in her history and approve or deny her on this basis. Explain your business's scoring system to prevent confusion.

Credit Repair Assistance

4:10 AM No comments

Credit repair isn't instant. It can take months or longer to repair damage caused by years of poor credit habits. While the process isn't easy, repairing your credit and building a better credit score helps you get loans and credit cards at a low interest rate. Fortunately, there are several ways to get assistance to clear your bad credit.

Some people can manage their debt and maintain a high credit score without professional help. But if you find it difficult to repair credit on your own, perhaps now is the time to contact a credit counseling agency for assistance. Non-profit agencies offer free help and provide plenty of resources and tools to help fix your credit problems. They'll educate you on how to budget and identify credit mistakes and work with your creditors to get your payments reduced and erase errors from your credit report.

Paying off debt helps repair your credit score because high credit card balances take points off your FICO credit rating. Creditors can help because they have the power to reduce your interest rate on credit cards. Lower interest rates bring down your minimum payment. Voluntarily making higher monthly payments after receiving a rate reduction helps pay down your principal balance quicker, thus increasing your credit score.

After a bankruptcy, repairing credit involves opening a new credit account and managing this account well. Because it's harder to acquire credit after a recent bankruptcy, you may seek assistance from a relative to help you get a credit account. Have someone include your name on their credit card, wherein you become an authorized user, or ask someone to co-sign a small personal loan for you.

Ultimately, repairing a poor credit history depends largely on whether you decide to modify certain habits and use credit wisely. Credit counselors can help, and creditors may decide to reduce your interest rate. But if you continue to pay bills late and accumulate large debts, credit problems will continue and possibly stop you from buying a home or automobile.

Why Do Credit Bureaus & Credit Cards Rule a Credit Rating?

8:41 AM No comments

Though it may seem as if credit bureaus and credit cards rule a credit rating, the truth is that consumers are ultimately in charge of their own credit status. Credit bureaus are information clearinghouses and credit cards are only one aspect of a credit rating. A credit rating is a three-digit number that lenders, insurance companies and some employers use to determine if a consumer is a good credit risk.

Credit bureaus compile and maintain information from creditors. The three main credit bureaus, Experian, TransUnion and Equifax, calculate credit ratings based on the information, but consumers' actions originate the report through their payments to the creditors. Credit cards are one type of credit that elicits a report to the credit bureaus. Mortgages, car loans and student loans are other types of credit that affect a rating, along with public information such as bankruptcies, foreclosures and court judgments.

Each credit bureau uses a different calculation model to determine the three digit credit rating, but the underlying factors are the same. Timely bill payment, outstanding debt, credit types, new credit and credit history are the five main considerations used to calculate a credit rating.

The two main types of credit that impact a consumer's credit rating are revolving loans and installment loans. Mortgages and car payments are installment loans. Consumers borrow a finite amount of money at the outset of the loan, and then repay it on a set schedule. Credit cards are revolving loans in which available credit is tapped as needed and principal payments replenish the available credit.

While credit cards do not rule a credit rating, the credit-to-debt ratio is a large factor in calculating outstanding debt. If consumers charge their credit cards to the limit, the credit-to-debt ratio is high. Maintaining low to no balance on credit card accounts can help lower the credit to debt ratio, and help improve a credit rating.

Credit bureaus maintain information on consumers, but the consumers dictate the information in the report. For example, making credit card and other loan payments on time and as agreed will positively impact a credit rating, while not paying the loans will negatively impact the rating. Consumers can monitor the information on their credit report to check for inaccuracies; each consumer has a right to dispute inaccurate or outdated information.

How to Review Your Credit

4:48 AM No comments

When you charge a purchase, apply for a loan, move or obtain insurance, your transaction information is recorded. Consumer reporting agencies track this record in a credit file, which is used to determine your creditworthiness. Good credit makes it easy for you to get a mortgage, rent a car or sign up for public utilities, among other tasks. Bad credit can put these common transactions out of reach. You can easily review your credit for accuracy.

Instructions

Request your free annual credit report through the link listed in resources. This is the only government-authorized link for obtaining free credit reports. By law, you can request this report once every 12 months for free from each agency.

Print the summary of the report or write down the report number, so you can access your report again in the future. You can review different sections of your credit by clicking such links as "Accounts in Good Standing" or "Requests for Your Credit History." If you'd rather see all your information at once, click "Print Your Report" on the upper left to display the report. Then click the "Print Report" button to print your report. Note that this example uses the Experian report. Actual section titles and commands differ by reporting agency.

Check to ensure that your personal information is current and up-to-date. If you are unfamiliar with your rights regarding credit, read the "Know Your Rights" section. Be sure and click the link related to your state as well, so you'll be familiar with any credit laws specific to your location.

Concentrate your review under "Accounts in Good Standing." Make sure that all the accounts listed are actually ones you are familiar with. If you notice company names that you are unfamiliar with, someone may have opened accounts under your name. If an active account of yours is missing from the list, then the consumer reporting agency may have accidentally deleted that account. It's also possible that a company may have closed your account because it received negative information about you or it made a clerical error. Closed accounts can negatively affect your credit rating.

Look under each account to verify that the balances, scheduled payment amounts and actual amounts paid match your records.

If the amounts listed are higher than what is listed in your paper records, then someone may have stolen your account numbers and used them for their purposes. If the amounts are lower than what is listed in your payment records, then company with your account may have a computer or clerical error.

Make sure that payments are not reported as late, if you have paid them on time. Late payments can negatively affect your credit rating.

Check the "Requests for Your Credit History" for the finance companies that have asked about your credit. They do so to send you offers for credit cards, bank accounts and loans. These inquiries do not affect your credit rating and are generally nothing to worry about. However, if you feel that these requests are excessive, or you do not want these offers, you can opt out of them by informing all the credit reporting agencies at 1-888-567-8688.

Report any discrepancies immediately. Contact the agency directly. Its phone number and address is usually listed on the first page of the report. If you suspect that someone is illegally using your name or account numbers, you can put a "fraud alert" on your file. The initial alert stays in your file for at least 90 days. An extended alert remains for at least seven years.

Contact the credit card, bank or other financial company that issued your account. You must inform them as soon as possible to limit any liability for fraudulent activity. It may put a hold on your account as it investigates. In many cases, it may change your account numbers to avoid further illegal activity.

How Long Does a Bankruptcy Stay on a Credit File?

6:15 PM No comments

Bankruptcy is a last resort for people buried in bills, according to the Federal Trade Commission (FTC). While it allows you to get rid of most or all of your loan debt, it also damages your credit and makes it difficult to open new accounts. You can't hide your bankruptcy as it will appear on credit reports from Equifax, TransUnion and Experian that lenders review when deciding whether to extend credit. Bankruptcies are considered both in your credit scores and during the credit application evaluation.

Consumers usually file either Chapter 7 or Chapter 13 bankruptcy, the FTC explains. A Chapter 7 bankruptcy gets rid of most debt and liquidates the bulk of a person's assets by selling them, although furnishings, cars and certain other items may be exempt. Chapter 13 lets a person repay debts over three to five years through a court-approved plan and keep certain property like homes and vehicles.

Bankruptcy appears on a consumer's credit reports for ten years, according to the FTC. The records list the filing and discharge dates. Anyone who reviews the reports during that time frame sees this information. You can file another Chapter 13 bankruptcy after two years, but you must wait eight years after discharge to file another Chapter 7 bankruptcy.

Bankruptcy hurts a person's ability to open new credit accounts and finance major purposes like homes and cars. The FTC warns that it is also more difficult to find employment or get insurance. New credit is necessary to overcome the negative effects. According to myFICO, rebuilding an on-time payment history on new accounts is very helpful because creditors give more weight to recent information. The bankruptcy loses its impact as time passes if recent accounts are in good standing. Don Taylor, a certified financial planner and Bankrate columinst, advises starting out with a secured credit card. Everyone qualifies because it requires a security deposit to cover the credit line.

Consumers have several options before they decide on bankruptcy, according to the FTC. They can often negotiate with creditors for better payment plans. myFICO advises working with legitimate credit counseling firms if negotiating help is needed. Some people are able to use debt management plans to pay off their bills within 48 months. Late payments made during the negotiation process remain on credit reports for seven years, which is three years less than bankruptcy.

Bankruptcies do not always drop off consumer credit reports automatically. The FTC explains that everyone is entitled to free annual report copies through annualcreditreport.com. People whose bankruptcies should have dropped off their reports should order copies to confirm this. They can file disputes with the Equifax, Experian and TransUnion credit bureaus to get the bankruptcies removed if they still appear after the allowable time frame.

What Do the Codes Mean on My Credit Report?

8:08 AM No comments

Your credit reports contain a host of information about your financial history, such as what kind of credit accounts you have open, and your past behavior with those accounts. Each company that collects the data for these reports typically uses codes or abbreviations to represent data, and knowing what these mean is important if you want to understand your report.

Each credit report details an individual consumer's past history of using credit As such, each report contains specific identifying information unique to each person. These codes are fairly obvious, such as "SSN" for your social security number, and "DOB" for your date of birth. Other information found on your report includes your phone number ("PH"), driver's license number ("DL") and whether you are a homeowner or a renter ("HM").

A trade item, often called a trade, is the main part of your credit report. Each loan or credit item you have is found under its own trade item listing on your report. These trade items have a lot of coded information in them that details your history with each item. For example, an Experian credit report trade item identifies each different lender with its own subcode, or "SUB." This is often followed by the borrower's account number, which is sometimes partially hidden by asterisks.

Each lender is also identified by a "kind of business" code, or "KOB," which identifies what kind of business the lender is in. For example, a government lender is identified with a "V," while an automotive lender is identified with an "A." Credit reports contain credit history from anyone with whom you've interacted, and there are a wide variety of other KOB codes, including those for Banks ("B"), collection services ("Y") and uncategorized miscellaneous businesses ("Z").

Apart from the lender, your credit report also contains coded information about the loan. For example, an "AUT" loan is an auto loan, while an "REV" loan is a revolving account, like a credit card or bank line of credit. Each trade item also details your monthly payment history. For example, each month's payment in an Experian score is listed by a letter or number. A "C" means you paid the bill on time; an "N" means the account has a zero balance; a "1" means you were 30 days late on a payment; and a "9" means the loan was charged off by the lender.

My Credit Score Is Now 592, How Can I Increase It?

6:26 AM No comments

Credit scores can get low for a number of reasons, such as a poor debt-to-income ratio, late payments, or exceeding a limit. As the saying goes, if you're in a hole the first thing you do is stop digging. The key to repairing a low credit score is learning what factors are bringing it down, and take all the steps necessary to turn those around. Once you do that, you have to start managing your credit responsibly so it doesn't go back down.

Instructions

Request a free credit report from Equifax, Experian, and Transunion, which are the three major credit reporting bureaus. There is no way to fix a problem with your credit report if you have no idea what it is, and the only way to know is to have copies of your credit report from all the major sources.

Examine your credit report in detail to see what factors are hurting your score. Each bureau uses a different mathematical formula to calculate your score, so the scores may vary depending on which category is rated poor. Look for any errors in their data. If a payment was reported late, check your records to see if it's accurate. If there are any balances that are reported higher than they really are, that needs to be corrected. There may even be whole line of credit that is counted when it doesn't exist, or a good line of credit you have open that isn't taken into consideration.

Submit an official dispute of any errors on your credit report with the bureau, and report the allegedly false information. Include any details and documentation that you can. The bureau should acknowledge receipt of the information, and send you a new credit report that reflects the changes.

Increase your income with a different job, an additional part-time job, or a side business. Not only will this give you some much needed breathing room between your income and expenses, it will improve your debt-to-income ratio. The added income will help you pay all your bills on time, and maybe even pay them down faster than before. Reducing the amount of credit you're using will also improve your score.

Lower your expenses by living a less expensive lifestyle. Downsize your home to lower housing costs, get a cheaper car to lower your monthly transportation costs. Eliminate any unnecessary monthly expenses. Remember that it is only a temporary lifestyle change while you reduce your debt and repair your score.

Create a monthly payment reminder through your online banking program or through software on your computer. This will help ensure that you will make timely payments in the future.

How to Find Total Credit Score on Credit Reports

7:00 PM No comments

Your credit report and score is managed by three main recognized companies: Equifax, TransUnion and Experian. Each of them has created its own statistical method for analyzing your credit and assigning you a score, which is why you have three credit scores. If you are considering applying for a loan and want to assess your credit worthiness, it is best to obtain your credit report and credit score from each of the bureaus.

Instructions

Select a product for purchase that includes a combined credit report for all three bureaus (sometimes called a "3 in 1") and also your credit score from each bureau. Be careful with your selection. Many of the products offered include a credit report from only one bureau. A credit score is rarely included with a standard credit report. A credit score is usually a separate option and a larger fee. Because lenders often take the middle credit score or an average of the three, it is necessary for you to obtain all three scores to do a proper assessment of your credit worthiness.

Place your order for the product and pay online with a credit card. Within minutes, you will receive an email and be able to access your credit report complete with credit score.

Does Opening Many Bank Accounts Hurt My Credit Score?

12:45 PM No comments

Consumers often fret about the seemingly mysterious calculations involved with determining a credit score. Facts, myths and misconceptions frequently occur when it comes to theories about how credit scores are calculated. It's key to understand what actions hurt your credit score so you can continue working toward a higher score. Some people may find that they have accumulated numerous bank accounts over the years, and it is important to understand the impacts of many bank accounts on credit scores.

In general, your credit score reflects several factors comprising your credit history. About 35 percent of your credit score comes from your payment history, according to myFICO.com. About 30 percent of your credit score comes from the amount owed; if your income-to-debt ratio is skewed because you owe lots of money compared to money earned, this will lead to a lower credit score. The length of your credit history makes up 15 percent of your credit score; if you have long-term relationships with lenders, this is seen as a good sign. New credit, on the other hand, makes up 10 percent of your credit history and reflects the length of time since you've last opened an account. And 10 percent includes the types of credit used; home mortgages and student loan debt is preferred over credit card debt.

Although credit applications frequently ask whether or not you have a checking or savings account, the fact of having one or seven bank accounts does not affect your credit score. Checking and savings accounts don't show up on your credit report, so there's little to no chance that opening many bank accounts over the years will hurt your credit score.

This doesn't mean that it's impossible for bank accounts to hurt your credit score, however. There are several ways a bank account can ding your credit score. For example, if you bounce a check and don't repay the bank, the money owed could be transferred to a collections agency, which can report the delinquency and hurt your credit score. Unpaid bounced checks can remain on the banking version of a credit check (called Chex Systems) resulting in banks denying you the option of opening a new account.

If you've applied for a bank account offering overdraft protection (which acts as a mini-loan fronted by the bank to cover purchases exceeding your account balance) then banks may check your credit history before approving your account application. "Soft" inquiries don't affect your credit score, but multiple "hard" inquiries into your credit history in a short amount of time make it appear that you're hard up for new credit---a red flag to lenders that can hurt your credit score. You're better off not opening numerous bank accounts at the same time, or inquiring whether they'll be completing soft or hard checks into your credit history.

How Long Does a Satisfaction of Judgment Take to Clear?

10:46 PM No comments

A debt that is the result of losing a court case is called a judgment. Judgments appear on your credit report and can adversely affect your credit rating. A "satisfaction of judgment" is a legal document that serves as a court record indicating that you have paid your debt. Credit reporting agencies regularly update credit reports based on court records, and they might update the status of your judgment, but you might need to be proactive to ensure this.

Judgments are public records, and as such they don't "clear." Section 605 of the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, mandates that accounts in collection will appear on your credit report for seven years. Even a satisfied judgment will still show on your credit report for this seven years. It's important to note that judgments on your credit report also show their status and outstanding balance. However, credit reporting agencies will mark a paid and properly documented judgment as "satisfied."

The party to whom you owe the judgment debt is called the judgment creditor. After your final payment, he must file a satisfaction of judgment form with the court. The filed satisfaction of judgment is legal proof that you have satisfied the judgment, and it can be used to notify credit reporting agencies. Keep in mind that there is no definitive timetable or process for a positive update such as this to be reported to them.

Check your credit report to see the status of your judgment record. There are three major credit reporting agencies: Experian, TransUnion and Equifax. An amendment to the Fair Credit Reporting Act requires them to furnish you with a free copy of your credit report yearly if you request it. Your credit report will include instructions for disputing items that you believe are incorrect.

By law, these agencies must investigate and verify any requested entries within 30 days. Send a written request to all three agencies. The agencies will either amend the satisfied judgment to properly reflect its status, or they will indicate that they are still investigating it. If they do not reply within 30 days of your notice, they must remove the entry entirely.

You may ask your judgment creditor to file a satisfaction of judgment form. The length of time gives to the creditor to file the form varies from state to state, but it is usually between 14 and 30 days after your request. In many jurisdictions, if the creditor fails to file it within the allotted time, she can be held liable for fines and damages you incur.

Definition of Credit Repair Companies

6:09 PM 1 comment

Credit repair companies blast consumers with salivating advertisements that claim the company can wipe out bad credit instantly or possess the secret to boosting a score. While these companies might offer legitimate services, most consumers can do without one, because credit repair may best be done alone. This type of company may be useful in helping people too busy to deal with some of the administrative tasks of credit repair.

Sometimes called "credit repair clinics," credit repair companies offer customers help rebuilding their credit profile. Every consumer has a file with all three national credit reporting firms in the U.S. Negative events, such as missing a payment, may stay with a credit report for seven years or more. Credit repair companies purport to lend strategic advice to mitigate the damage from negative items. The claims of these companies can vary from helping dispute a mistake on a credit file, which can take weeks in complex cases, to illegal tactics, such as breaking into credit bureau computers. A repair company can also help guide the customer through the rebuilding process, such as suggesting a good credit card.

The Federal Trade Commission warns consumers that credit repair consumers mostly regurgitate information from the credit bureaus themselves or information that is widely known and easy to obtain. Fair Isaac, creator of the popular FICO scoring model, for example, lists the factors that go into its secret scoring formula. Looking at just the FICO formula, a customer immediately sees that paying bills on time and debt are the most important variable. The FTC also has a plethora of information on credit repair, such as the proper way to dispute a mistake. Credit repair scams are a major complaint to the FTC. Some shady credit repair companies take fees upfront and either never perform the services promised or disappear.

Legitimate repair companies do exist, but that does not mean they are still worth the money to most consumers. The customer that would benefit the most from a credit repair clinic is one without enough time or the wherewithal to deal with credit bureaus and creditors. A customer who has several errors especially difficult ones, such as when the bureaus mix up files, might need outside help. Even minor problems usually take at least four hours to correct, according to Bankrate.com. Some clinics might be able to negotiate debt settlements with creditors.

If you still decide to explore credit repair companies, never deal with one that requires upfront fees or does not list the services it will perform -- these are federal requirements, according to the FTC. Also, be careful of fraudulent claims, such as guarantees to remove a bankruptcy, because nobody can remove a legally filed bankruptcy. An alternative to a repair company is a nonprofit credit counselor. The U.S. Department of Justice has authorized counselors for bankrupt individuals, which might offer the same services as a credit repair company, but for far less money.

How to Restore My Credit for Free

6:35 AM No comments

When you are turned down for a loan or credit card, the first thing to do is ask that company for a copy of your credit report. By law, they must provide you a free copy, if requested within 60 days of the denial. You can also obtain a free report from Equifax, Experian and TransUnion once every 12 months. There is no quick fix to repair your credit. According to the Federal Trade Commission (FTC), "... it takes time, a conscious effort and sticking to a personal debt repayment plan."

Instructions

Request a credit report. If you have been denied for a loan or credit card, you have 60 days to ask that company for a copy of your credit report. Also, according to the federal government, you are entitled to one free copy annually. You can request it from all three nationwide consumer reporting companies--Equifax, Experian and TransUnion--via one website: annualcreditreport.org.

Review your report for incorrect information or negative comments. This could be an incorrect credit limit or balance or perhaps a late payment you actually paid timely.

Write a letter, if you find inaccurate information. Specify exactly why the items are incorrect. Be sure to include copies of documentation.

Request an investigation of the disputed information. By law, according to the Federal Trade Commission, you are allowed to ask for this investigation, which must be completed within 30 days. This is done at no charge. It is the responsibility of the consumer reporting company and the business reporting the inaccurate information to correct your report once an inaccuracy is identified. The removal of this information from your report will increase your credit score.

Develop a workable budget to pay off the accurate debts. If you are unable to do so, contact the creditor and discuss the possibility of a repayment plan.

Fast, Easy and Free Ways to Improve Your Credit Score

8:19 AM No comments

Your credit score goes up and down based on the ways in which you use credit. Scoring companies such as FICO and the the three main credit bureaus pull data from your credit reports, plug it into their formulas and come up with a three-digit indicator of your credit worthiness. You often can improve your score within about two months through disputes, settlements and other simple, free methods.

Review your Experian, Equifax and TransUnion credit reports to get an idea of how much free credit score improvement you can accomplish. The Federal Trade Commission (FTC) website advises that annualcreditreport.com is the official free credit report source under the Fair Credit Reporting Act (FCRA). The three bureaus are not allowed to charge for reports ordered through that site, and you can obtain a credit report once each year from each credit reporting bureau. Find mistakes, which are disputable at no cost, and charge-offs and collection accounts that can possibly be settled at a discount.

The most common credit report mistakes involve payment delinquencies, according to Motley Fool writer Dayana Yochim. Inaccurate reports of late payments hurt your score significantly, as do balances reported higher than they are, incorrectly listed credit limits and unpaid accounts that do not belong to you. Fill out the dispute forms on the Experian, Equifax and TransUnion websites for every error you find. The FTC reports that the FCRA only allows 30 days for the bureaus to process your claims and verify their records. The negative data is wiped out and no longer affects your score if the bureaus cannot verify its accuracy within the allotted time.

Either creditors that write off accounts you stopped paying or collection agencies that bought your debts may accept discounted settlements. Liz Pulliam Weston, an MSN Money columnist, explains that many lenders charge off debts within six months of default, which gets reported to the credit bureaus and lowers your score. Collection agencies buy some of these debts, which adds another negative credit report entry. Call the creditor or collector and offer an affordable lump sum payment in return for removal of the credit report information. Negotiating costs you nothing, and you may get a discount on the bill and an improved credit score just for asking.

Payment history weighs heavily in credit score calculation, according to the MyFICO scoring company website, accounting for 35 percent of your score. Your bank may let you set up automatic deductions for free to guarantee your payments are received by your creditors on time, which raises the score. Otherwise, make your own strict mailing schedule that allows for possible postal delays because every payment received after the due date reduces your score.

The Best Time to Check a Credit Report After Paying Off Bills

12:21 PM No comments

You have had the satisfaction of paying off bills and now want to see the improvement on your credit report. You are entitled to one free credit report from each of the major credit bureaus each year. The three credit bureaus are Equifax, Experian and TransUnion. It is best to check all three.

Large financial institutions, including finance companies and banks, usually update the status of their accounts monthly. Credit unions and small banks may update once every quarter.

While large retail establishments generally update your information with the credit bureau monthly, smaller stores may not update it at all. Some small stores only report to the credit bureau when a person's account is delinquent but not when they pay on time or pay off the bill. If this is the case, you can request that the store report your payoff to the credit agencies, but they are not required to do so.

Other creditors, such as medical centers or a previous landlord, may not update your paid account unless you specifically request that they do so. Additionally, any court judgments against you will stay on your credit report for 7.5 years even after you have paid the debt.

You may have a different credit report with each of the three agencies. This is because some retailers only report your payments to one or two of the credit bureaus while others, such as mortgage companies, report to all three.

Several months may elapse before your credit report reflects your paid accounts. There is a way you can speed up the process if you need to increase your credit score quickly. You can order the credit report after your payments have processed with the lenders and with your bank. Dispute the information on the credit report and send along copies of your payments. Your creditors have 30 days to respond or the credit bureau will remove the account from their records. This can be helpful if the accounts were delinquent and you need to show them as paid in full.

What Items Do I Send to the Credit Bureau When Someone Dies?

10:30 PM No comments

While a death in the family can be emotionally destabilizing, you should act swiftly to notify the major credit bureaus and stop thieves from trying to use the deceased's financial data. Scam artists often use a deceased's private information for credit fraud. You should send the bureaus documents identifying the deceased and proof that the person is dead.

Write a letter stating that the person in question is deceased and request a "deceased alert," according to Jim Wang of Bargaineering. A deceased alert notifies creditors not to approve a loan or line of credit unless it is a relative. In the letter, include the deceased's full legal name, most recent known address, date of birth and date of death. Most importantly, to prove death you must include a copy of the death certificate.

For the fastest response and highest guarantee of safeguarding the deceased's financial information, you should send the letter and documents to the headquarters of all three national credit bureaus -- Experian, Trans Union and Equifax. You can contact these bureaus by phone or online for the proper mailing address or fax number. Always check with the credit bureau first before mailing your documents to ensure receipt of your items. You should opt to send the documents via certified mail if appropriate.

The credit bureaus will find out about the death eventually because they share a database with the Social Security Administration, but it can take several months before the SSA updates its database to reflect the death of a citizen. If you wait and someone finds out about the death, she could use the deceased's social security number to apply for credit and cause complications in the deceased's estate.

In addition to contacting the credit bureaus, add the deceased's name to the Direct Marketing Association's, or DMA, Deceased Do Not Contact list to stop pre-approved credit card offers from arriving in the mail. If a thief intercepts a pre-approved offer, he could take out a new line of credit should the deceased's credit history qualify for the account. Furnish the DMA with the name, address, phone number and email address of the deceased -- the DMA charges a $1 fee for this service, as of the date of publication.

How to Run a Credit Report for Customers

5:17 AM No comments

It is wise to run a credit check on any customer to whom you extend credit or allow to delay payment for a service, particularly if you have a large volume of customers. The simplest method is to subscribe to the business services offered by the three major credit bureaus (Transunion, Equifax, and Experian). Most debts from major companies will be reported accurately to all three of them, but others may only report to one or two. You also have the alternative of working with a third-party credit checking service, which has its own subscriptions with the credit bureaus.

Instructions

Determine your credit checking needs. If you need to run dozens of credit reports or more every week, you will probably save money by opening accounts with all three major credit bureaus. If you only need to request credit reports a few times a month at most, you may be better off ordering individual credit reports from third party companies.

Visit the website of at least one of the major credit bureaus. Go the section for businesses. Select the subscription level appropriate for the level of detail you require in your credit reports and the volume that you expect to have to order. If you require hard copies of the credit reports, expect to pay slightly more for the service. Subscribe to the level of service that you require.

Review the credit reports of the customers that you're curious about. A few late payments or other issues on the credit report doesn't necessarily mean that you can't extend them some sort of credit. It behooves you, however, to bring up the credit report with the customer and take special precautions to ensure that you protect your assets. If a customer has excellent credit, it may be beneficial to your business to offer them some kind of deal to keep their business.

Consider working with a third-party credit checking company if you don't plan to order a high volume of credit reports for your customers. Many of these companies will offer you a limited number of credit reports for a lower fee than you would need to pay if you worked with the credit bureaus directly. Read any agreements with such companies carefully to ensure that you're not signing up for a more expensive subscription service than your business needs.

Avoid doing business with companies that don't offer you a full credit report from one of the three major bureaus. If they provide you with simply a summary of the credit report, it's likely not informing you of everything that you may need to know when extending credit to a customer. Only the three major credit bureaus (Transunion, Equifax and Experian) are authorized to provide accurate credit reporting information. You can get accurate copies of reports from the bureaus through third parties, but don't accept summaries.

How to Report Tenants to Credit Agencies

5:07 PM No comments

When a landlord rents a unit to a credit-worthy tenant, the landlord does not typically foresee that the tenant will later skip payments and violate the lease. When this occurs, landlords often have trouble tracking down tenants to recover the money they are owed, but they still desire some form of recourse. If this has happened to you, you can report tenants to credit agencies to both warn potential future landlords of the tenants history, and for the satisfaction of knowing the tenant must face a consequence for his actions.

Instructions

Join one of the credit reporting bureaus in the U.S. There are currently three major credit agencies that collect and report information on individual debtors: Experian, Equifax, and TransUnion. You can also opt to join a lesser-known credit bureau that also offers credit-reporting services to the three major bureaus for small businesses. There will be a fee for joining; contact each bureau to learn more about membership options and fees.

Obtain the tenants personal information, including their full legal name, Social Security number, date of birth, and last-known address. If you do not have all of this information, utilize an online background checking service to obtain it using the tenants full name and the address of the unit he rented from you. Prepare a document containing the tenants personal information.

Prepare and file a report for the tenant. Include the full amount of past-due rent, the date it was originally owed, and how delinquent (30, 60, 90, or 180+ days) the tenant is. Attach a copy of the original signed lease agreement to the report and the document containing the tenants personal information to the back of the report.

Submit the report to the credit bureau of which you are a member. There will be a fee for submitting the report. If you would like the account to be reported to all three major credit bureaus, you will need to join each bureau and submit a copy of the full report to each one.

Obtain and organize the original lease agreement, copies of any previous demands for rent payments you sent the tenant, and any other documents relevant to the matter that demonstrate the tenant owes you rent. Make a copy of these documents, and retain the originals for your records.

Draft and file a complaint for the amount of back rent the tenant owes. (For your state's rules and guidelines governing how complaints should be drafted, review your state Rules of Civil Procedure.) Also prepare a proposed order for payment of the back-owed rent. Attach copies of the documents you prepared to the back of the complaint and order. File the complaint and proposed order with the clerk of the civil court in your county and pay the filing fee.

Make notice of filing by sending a copy of the filed complaint and order to the tenant via certified mail. If you are unsure of the tenants current address, utilize a background checking service to locate it, or make service by proxy instead. Retain a copy of the certified mail receipt as proof of service.

Attend your court date and request the judge approve your proposed order. Bring along additional copies of the documents you attached to the complaint. Be aware that the tenant may also appear in court and object to such an order being entered. If the judge signs your proposed order, a judgment will be entered against the tenant for the amount of the back rent owed. The court will then report this judgment to credit agencies, and it will automatically become a part of the tenants credit history.

How to Correct a Credit History

7:46 AM No comments

Your credit score is more than just a number. Lenders use this number to evaluate your credit history. Without this number, they can't assess whether you're a good candidate for a loan or credit card. A horrible payment history or a bankruptcy can result in a negative rating. But regardless of your past mistakes, you can correct your credit history and acquire a higher score.

Instructions

Organize documents. Be aware of your payment due dates and know the location of your credit card and bill statements. Create a file specifically for bills, and jot down your due dates on a calender.

Create extra income. Think of ways to boost your present income if lack of money impedes your efforts to pay your bills. Talk to your employer about a raise, or put your interests and talents to good use and start a business.

Eliminate credit card debt. Erase your outstanding debts completely to raise your credit score. Rather than pay only the minimum due, get into a habit of paying off balances each month or doubling your payments.

Stop spending. Only purchase items if you can afford to use cash. Maxing out credit cards or keeping card balances near your limit lowers your credit score. Curtail credit card use to help maintain a lower balance and a higher credit rating.

Change payment habits. Promptly pay your credit card and loan bills to maintain a satisfactory credit score.

Don't apply for new accounts. Each inquiry reported to the credit bureaus decreases your credit score. Postpone applying for new lines of credit until your credit score improves. And from then on, only apply for credit when necessary.

Building Good Credit Scores

3:58 AM No comments

Building good credit scores can open the door to several opportunities in the finance world. Banks and lenders are more apt to approve your application, and once approved for credit, these lenders are more likely to assign a favorable interest rate to your account. Lower rates equate to cheaper loan payments.

Getting behind on payments with credit card companies, mortgage and auto loan lenders can play a key role in destroying your credit rating and can result in credit rejections. Building a good credit score is indicative of a steady payment history and timely bill payments. Late or skipped payments can reduce your credit score, and once you've suffered the damage, it can take time to rebuild a lower score. Paying bills early helps avoid late arrivals, and using online payments systems can also help to ensure that lenders' payments are paid by the due date.

Getting rid of debt on credit cards and paying off loans is another key way you can build a better credit score. Debt makes up 30 percent of your FICO credit score and improving a low or average credit rating requires repayment of debt. Keeping balances low can help fix a bad rating; limiting the amount of loans also aids in a good credit score. MSN Money recommends carrying a balance of no more than 10 to 30 percent of the card's credit limit.

Whether you're establishing first-time credit or rebuilding after a bankruptcy, becoming an authorized user on someone's credit card can help build a good credit score, says Bankrate.com. There are tips to ensure that this method works. For starters, choose someone with a history of good credit or someone who uses credit responsibly. After adding your name to this person's credit card, the credit account will show on your credit report. The way the person manages this account will affect your credit score. In other words, if they make timely bills payments and keep the balance low, your credit score will improve; but if they miss a payment, your credit score will drop.

Letting payment problems linger can result in a bad credit rating. Speak with your creditors and lenders if you experience financial hardship. Missing a payment and ignoring phone calls doesn't help the situation. Communication is key to salvaging your credit score and receiving assistance if you can't make a payment. Collection accounts and judgments stay on credit reports for up to seven years. Avoid these negative notations and work with creditors to adjust your due dates and payments.

Do I Earn Credit With a Debit Card or a Savings Account?

9:50 AM No comments

Paying credit accounts on time and developing a solid credit history over many years can help you earn points on your credit score. But you may also wonder if owning and responsibly managing a debit card or a savings account can help you earn points on your credit score since these are two common consumer assets.

Five factors affect points earned or deducted on a credit score. The most significant element that FICO looks at when determining the score is the payment history (payments on time and in full). The agency also looks at total balances owed on credit accounts. Next is payment history, which is the length of time credit accounts have been open. After that comes newly opened accounts. Finally, FICO also considers the mix of various credit accounts. Note that all of these elements relate to accounts with creditors.

In truth, a debit card is only similar to a credit card in that it is made of plastic and has 16 digits. Otherwise, it is very different from a credit card. When you use a credit card, the money comes from a creditor, who can report information about the card's use to credit agencies. When you use a debit card, the money comes from your own bank account, even when you use it like a credit transaction. The bank does not usually report information about debit card use to credit agencies.

A savings account is a basic account where you can store funds for the future. Like a debit card, it is not linked to a creditor who would report positive account information to a credit bureau. A savings account draws interest over a period of time and counts as an asset toward an individual's net worth.

Since maintaining a debit card or a basic savings account does not have a direct link to credit reporting agencies, it is unlikely that it will help you earn credit when it comes to your credit score. However, in some cases, having a debit card could actually lead to a lower credit score. If a debit card holder charges over his bank account balance and fails to resolve the deficit, the bank may then report negative information about the debt to a credit bureau, which could lower the individual's credit rating.

3 Tips for Updating Your Credit History

2:56 AM No comments

Your credit report contains information on your borrowing and repayment history. Each item on the report, known as a trade line, includes the name of the creditor, the amount of money borrowed and your repayment history. If you discover a mistake on your credit report, you should take the steps necessary to update the report with the correct information.

Creditors purchase your credit report when you apply for a mortgage, credit card, auto loan or other types of credit. If you have inaccurate information on your report, it could cause lenders to deny your application for credit. If you do receive credit approval, you may have to pay higher interest rates due to the incorrect items on your report. When you update your credit history, you have the opportunity to dispute inaccuracies and have them corrected or removed from your report completely.

Disputing inaccuracies on your credit report prompts the credit bureaus to investigate the errors and correct them, if necessary. You should write one letter to each of the three largest credit bureaus -- TransUnion, Equifax and Experian. Your letter should contain your contact information, a list of disputed items, reasons why you want to dispute each item and copies of documents backing up your claims, if available. Each credit bureau has 30 days from the time it receives your dispute letter to investigate your claims and respond. Each bureau may verify the information and let it stand, update inaccurate information or remove a mistake from your report.

In some cases, the credit bureaus will delay their investigation until you provide them with proof of your identity. If you want to apply for credit in the near future and do not want to delay the investigation of any errors on your report, provide information about your identity when you send your dispute letters. Include a copy of your driver's license or state photo identification card, your full birth date and at least the last four digits of your Social Security number. In each of your dispute letters, indicate that you have enclosed information to assist in the verification of your identity.

Some people make the mistake of closing unused credit accounts in an attempt to update their credit histories and improve their credit scores. This action may actually hurt you, as the age of your accounts and the amount of credit available to you affect your credit score. If you close a 10-year-old account with an available limit of $5,000, you lose an aged account and reduce your total available credit by $5,000. Your credit score also takes your credit utilization ratio into account. This represents how much debt you have compared to your credit limits. If you have two credit accounts that each have a $5,000 credit limit, you have $10,000 in available credit. If you owe a total of $2,000 on these accounts, your credit utilization ratio is 20 percent. If you close one of the accounts, you reduce your available credit to $5,000 and your credit utilization ratio increases to 40 percent.

If a credit bureau removes a negative item from your report, it could increase your credit score and qualify you for lower interest rates or more credit approvals. If a credit bureau simply updates a negative item with a different date or balance amount, it may not increase your score substantially, but it could affect your score in the future. Because negative items only remain on a credit report for seven years, correcting an incorrect date on one of your accounts could help the account "fall off" of your report sooner than it would have with the incorrect date.

How Is a Student Loan Payment History Reported?

1:15 AM No comments

Federal and private student loans help millions to pay for post-secondary training needed in today's job market. Although loan payments can strain graduate budgets, they can also establish a good credit record that pays off in low rates on loans for major purchases. In 2008, 67 percent of graduates left school with a student loan, averaging $23,200 per student.

Monthly payment history for subsidized and unsubsidized federal student loans is reported on your individual credit reports with Equifax, Experian and Transunion, the three major credit reporting bureaus. Federal student loan borrowers may receive deferment or forbearance periods under certain circumstances and these are also noted on credit reports. Each student loan received will be reported separately unless you apply to have them consolidated with Federal Direct Loan servicing or another loan service provider.

Private loan repayment history is also reported to the three credit bureaus. If you had a cosigner for the loans then your payment history will show on their credit reports as well. Good payment history is a plus for you and your cosigner but keep in mind that spotty payment history will reflect negatively on your cosigner's credit reports as well.

Multiple loans of any kind in your credit reports can make you look like you're over-extended. A consolidated student loan looks better on your credit reports and has the added benefit of lowering the amount that you have to pay out each month. Most federal subsidized and unsubsidized student loans can be consolidated into one direct consolidation loan. As a result of the U.S. banking crisis, private consolidation loans are harder to find in 2010, but like federal consolidation loans, private loans also bundle multiple loans into one to make them more manageable for borrowers.

Do Unpaid Medical Bills Affect My Credit?

8:23 PM No comments

One way to quickly get over your head in debt is to get seriously ill. The cost of doctors, medications, treatments, therapies and hospital stays can quickly add up even if you have insurance. Meanwhile, at the same time you've been sick, your ability to earn a living has been hampered. Either one of those things could easily put you behind in your payments -- and both together can be crippling. Unpaid medical bills can't be ignored, though, because they do affect your credit.

When doctor and hospital bills go overdue, someone will contact the patient and try to arrange for some sort of payment to be made or to put the patient on a payment plan. When it's not the patient at fault but the insurance company, someone will be in touch with the insurer trying to get payment. Even if it is a problem on the side of the insurer, it will be the patient's credit score that is affected. Once the bills are 90 days overdue, then doctors and hospitals begin to send them to collection agencies. This is when the overdue bill affects your credit score and can indicate that you are a high risk.

Although you may have unpaid medical bills on your credit record, they may not affect you. A lot depends on how the lender you are seeking credit with considers the overdue bills. In some cases, mortgage lenders will require that the borrower pays off high medical bills as a condition for loan approval. Regardless of how the lender views it, overdue medical bills will lower your credit score.

Once your overdue bills have gone to a collection agency and been reported to the credit agencies, then the negative mark on your record will remain there for seven years. After that time, you can ask for it to be removed if it doesn't happen automatically. In order for it to be removed earlier than that, you need to show that there was a factual error that led to it appearing on your credit report in the first place.

If you have unpaid medical bills showing on your credit report, you can do one of four things to address the situation. You can pay the bill off, dispute it as factually incorrect, explain the bill with a statement that credit agencies will attach to your credit report or ignore it or wait for the seven years to pass.

Can a Cell Phone Build Credit?

5:40 PM No comments

Cell phones are an irony in the world of credit: it takes good credit to get one, but paying your bill every month does nothing to build credit under the traditional model. As a response to the needs of many who pay bills on time, alternative credit-scoring companies allow people to self-report common utilities, like cell phone bills. Very few lenders, however, accept alternative credit scores.

As of 2010, the FICO scoring model used by the major credit reporting bureaus does not factor in cell phone payments, because most states have privacy laws preventing utility companies from sharing customer information. Also, monthly bills, such as for cell phones and rent, are not a true line of credit and the utility providers do not have a reliable way of reporting payment data.

The alternative credit reporting agency PRBC, formerly known as Pay Rent, Build Credit, allows customers to sign up for the service and self-report cell phone payments. The PRBC score may not help the creditworthiness of borrowers much, because only 800 lenders accepted this score as of 2010, according to Payments Source. Also, the FICO Expansion model factors in nontraditional payments and recurring bills. The Expansion score was released in 2007, but it may take some time before lenders consider it a good risk analysis model.

The major credit bureaus will probably eventually collect cell phone bill payments and other nontraditional information and incorporate it into the standard FICO model. In 2010, for example, Experian acquired RentBureau, the largest reporter of rental history in the U.S., and started listing that information on credit reports. The credit industry as a whole recognizes the profits to be had on the 50 million people who have no credit history but may pay bills like their cell phone on time, according to the Payments Source website.

People who do not qualify for a credit often use a secured card to build credit. Secured cards have a limit equal to the amount of money you put down on it and are very easy to acquire. Issuers of secured cards report to credit bureaus and might approve you for an unsecured line after a year or so of good payment history. You could build credit history by paying your cell phone bill with a secured line.

Definition of Credit Scoring Brackets

6:59 AM No comments

A few points can cost you thousands of dollars over the lifetime of a loan, because lenders set interest rates depending on which credit scoring bracket you fall into. Credit scoring brackets or tiers are not always the same across all industries or even within them. Finding out typical scoring brackets gives you a goal to aim for when improving your credit.

Credit scoring brackets are charts lenders reference when setting the interest rate on your loan. A lender, for instance, might consider all scores above 770 the top tier and give anyone in this range the lowest rate. The next bracket would be 769 to 740 and receive the second highest rate.

While lenders set their own credit scoring brackets, lenders usually consider anything above 720 to 760 the top tier because getting higher than this is nearly impossible, according to MSN MoneyCentral. Anything less than 620 typically falls into the worst bracket of scores -- known as "subprime."

You will reap benefits even if your rate improves by a minuscule amount. On average, for example, raising a score in the range of 700 to 719 to 720 and above saves about $20 per month on a $250,000 loan. This, however, equates to a savings of $7,200 over the life of a 30-year loan, according to Kiplinger.

Edmunds recommends asking your loan officer about their credit scoring bracket and how it correlates to their interest rates in writing. Having a visual representation of credit score matrices can make comparison shopping easier for you.

Does Having a Revolving Card That Is Unused Help My Credit?

12:06 AM No comments

If you have a credit card that you are not using at all, closing that credit card account is likely to hurt your credit score. Therefore, try to keep these unused cards to maintain your good credit score, as long as you can avoid the temptation to use them to overspend.

The major way in which an unused revolving account, such as a credit card, affects your credit score is through your utilization ratio. This number is the amount of credit you are currently using divided by the amount of total credit available to you through your credit lines. For example, if you have an unused credit card with a limit of $4,000 and a credit card you use that has a limit of $3,000 and a balance of $1,500, your utilization ratio is $1,500/$7,000, or about 21 percent. Your utilization ratio should be no more than 30 to 35 percent to avoid hurting your credit score, according to the website Bankrate.

If you were to cancel the unused credit card, this would affect your utilization ratio because you would lose the available credit on the card. For example, if you canceled your unused card with a $4,000 credit limit and were left with just your card with a $3,000 limit and $1,500 balance, your new utilization ratio would be 50 percent. This would hurt your credit, so in a way, keeping the unused card is helping your credit score from taking this hit.

Credit card companies sometimes close inactive credit card accounts. Therefore, if you are depending on your unused revolving account to keep your credit score high, you should use it every few months to make a small purchase and pay it off immediately. This reduces the chance that the lender will close your account. If, on the other hand, you only have a $200 balance on your card with a $3,000 limit, canceling the unused card would only increase your utilization ratio from about 3 percent to about 6 percent. In this case, the unused card is probably not helping your credit.

Although having an unused card can help your credit score, opening the card can hurt your credit score initially. Therefore, opening a few revolving cards in an attempt to boost your credit score quickly is actually likely to backfire and lower your credit score instead. This is because each new credit score generates an inquiry on your credit report, which slightly lowers your credit score. In addition, the new credit card account lowers your average account age and reduces your credit score slightly.

A Negative Bank Account Balance's Effect on Credit

12:38 PM No comments

Banks have a reporting system for accounts called ChexSystems. When they implement this system it does not affect your consumer credit rating, but a negative account balance can appear on your credit history in a few circumstances. Therefore, you should not risk your credit rating by assuming that your banking history cannot affect your ability to obtain credit.

The major credit bureaus do not track banking history or account balances, so a negative balance does not have an immediate effect on your credit rating. However, the bank can send the debt to a collection agency, sue you, or charge off the debt and report it to credit bureaus. If the balance appears on your credit history, it indicates a seriously negative account and can lower your score by dozens of points.

While banking history does not directly affect credit, a negative balance can reduce the number of credit offers you receive from your bank. Banks often send credit offers to customers that have a long, positive history with the institution, so overdrawing could put a stop to those offers. This could be especially harmful if you have a short credit history, or none, and hoped to use your relationship with your bank to leverage a first credit card.

Ideally, you should keep an eye on your account balance so that you never withdraw more money than you have. However, banks usually offer overdraft protection services with a small line of credit to buffer an overdraft. You can also link accounts at the same banking institution for a smaller fee, suggests the Federal Deposit Insurance Corporation.

Banks often check your credit history if you request overdraft protection because they consider it a small loan. A credit inquiry incurs between zero and five points of damage to your credit score. This may not seem like much, but more than six inquiries within a year is a red flag to lenders. The bank may also perform a credit check if you need to open a new account.

Is a Cell Phone Plan a New Line of Credit?

1:00 AM No comments

You cannot get a cell phone contract with most providers unless you have good credit, but this does not mean that credit reporting agencies view cell phones as a line of credit. Cell phones can affect credit, but almost always only for negative reasons. On the plus side, because cell phone plans are not a line of credit, they do not affect your debt load in the eyes of lenders.

The big three credit reporting bureaus in the U.S. do not receive data on cell phone bills from most carriers, nor could they because of state privacy laws regarding sharing information on utilities. Thus cell phone contracts are not considered a new line of credit. Cell phone providers, however, can run a credit check on applicants. This credit check will generate a "hard" pull with the credit bureaus and ding your score a few points like an application for a credit card or mortgage would.

Some companies specialize in reporting information about payments ignored by the major credit bureaus, such as cell phone plans. One of the major alternative reporting agencies is PRBC (Pay Rent, Build Credit). The problem with alternative credit reports is that very few lenders accept them and the agencies usually charge consumers for this service. Thus, cell phones are impractical if you want to use them to diversify your debt holdings or build credit.

Stop paying your bill long enough and the cell phone company could send your account to a collections agency or obtain a judgment in civil court. Any type of public judgment will do major damage to your credit score. Some cell phone companies, such as Verizon, are starting to report payment history to the credit bureaus to help customers build credit and to motivate more customers to pay on time.

If you hope to use a cell phone to build credit, you should ask the cell phone provider if the company reports to any of the credit bureaus. Otherwise, you might benefit from a carrier that does not report to the bureaus in case you miss a few payments. The application for a cell phone, however, entails much of the same process as underwriting in the lending industry. The provider will want to see a stable job history, low balances and no negative information. You could qualify for a cell phone with bad credit, but it may mean you have to pay hundreds of dollars on the security deposit.

Tuesday, July 31, 2012

Calculating Credit Scores

Paying Off Collection Accounts

Negotiating With Collection Agencies

Warning

Raising Your Score

Instructions

Correct Your Credit Report

Pay Off Debt

Instructions

Monday, July 30, 2012

Severe Drop

Long-Term

Limited Availability

Friday, July 27, 2012

Instructions

Thursday, July 26, 2012

Fair Isaac Corp.

Score Range

The Five Factors

Your Credit Report

Instructions

Consumer Credit Counseling

Lowering Interest Rates

Piggybacking and Co-signing

Avoiding Credit Mistakes

Wednesday, July 25, 2012

Definition

Factors

Types

Effects

Conclusion

Tuesday, July 24, 2012

Instructions

Monday, July 23, 2012

Types

Time Frame

Effects

Alternatives

Warning

Friday, July 20, 2012

Biographical Data

Trade Item

KOB Codes

Loan Details

Thursday, July 19, 2012

Instructions

Wednesday, July 18, 2012

Instructions

Tuesday, July 17, 2012

Determination

Bank Accounts

Bouncing Checks

Overdrafts

Monday, July 16, 2012

Appear vs. Clear

The Creditor's Obligation

Being Proactive

Use the Law

Saturday, July 14, 2012

Identification

Considerations

Benefits

Tip

Friday, July 13, 2012

Instructions

Thursday, July 12, 2012

Assessment

Disputes

Settlements

Other Methods

Tuesday, July 10, 2012

Financial Institutions

Retail Stores

Other Creditors

Credit Reports

Length of Time

Saturday, July 7, 2012

Identification

Address