How Much is a Credit Score Affected by Buying a Car?

Whether buying a car affects your credit score or not depends on how you pay for it. If you pay cash, purchasing a car will have no effect on your credit score because your credit score does is not affected by a cash purchase. Alternatively, paying with a credit card may have a short term effect on your score. Though a smaller purchase than a house, many people take out a car loan to help pay the costs at the time of purchase. This loan can affect your credit score in a number of ways.

Auto Loan Inquiries

When taking out a car loan, shop around for the best loan terms. Each time you apply for a loan, the loan company will pull your credit score resulting in an inquiry on your report. However, if you apply within a short period of time, your credit score will count all the lender inquiries as one for the purpose of your credit score.

Payment History

An auto loan is one more opportunity for you to show that you are a creditworthy borrower. Your payment history makes up 35 percent of your credit score, so making timely payments on your car loan will boost profile as someone who pays their debts. However, if you miss payments, your score will suffer.

Amounts Owed

When you take out an auto loan, it will be recorded as an additional debt. The amount of money that you owe makes up 30 percent of your credit score. Depending on how large the loan is, your credit score may drop simply because you owe more money after buying the car than you did before.

Types of Credit Used

At least ten percent of your credit score is based on the different types of credit you have used. If you have not had an auto loan before, as long as you make timely payments, your score can improve because you have diversified the types of credit on your report. Lenders look more favorably on people who have used multiple types of credit, because they view them as more educated borrowers.

Paying With a Credit Card

If you use your credit card to pay for a car, the balance owed will increase. This will increase your balance to credit limit ratio, which can reduce your score because you are using more of your available credit. If you pay your credit card off while paying on the loan, buying the car can improve your credit score because you have showed you can manage credit by making your credit card payment on time. However, if you make late payments or default on your balance, your credit score will suffer.

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How to Improve Delinquent Credit

Delinquent credit not only helps you rack up interest charges on the money you owe, but it also damages your credit score. A lower credit score can limit your future borrowing options, because lenders will charge you an even higher interest rate or deny you credit altogether. To improve your delinquent credit and raise your credit score, you must make an effort to practice better payment management. In some cases, contacting your creditors may help as well.

Instructions

1

Pay off your debts as soon as possible. If you cannot pay your full balance, at least make the minimum payment so that your creditor will report your account as being current to credit agencies. When you don't pay on time, your credit report shows a late payment, which lowers your credit score.

2

Contact your creditors if you are having trouble making the minimum payments. They may be willing to work with you to set up an alternate payment schedule if you contact them early.

3

Limit the amount you owe on each line of credit. MSN Money recommends that you not owe more than 30 percent of your credit limit on your credit cards.

4

Dispute incorrect information on your credit history by writing to the credit bureau and including copies of any proof of your claim. If negative information that is not yours is removed from your credit report, your score may increase and you may be able to get your interest rate lowered, making it easier for you to meet your minimum payments.

5

Make future payments on time. Your payment history accounts for 35 percent of your FICO credit score and more recent payments--either made on time or delinquent--count more heavily than older payments.

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Do Credit Checks Affect Your Credit Rating?

A positive credit history generally leads to increased access to credit. Consumers with good credit scores may receive an abundance of preapproval offers in the mail for credit cards, personal loans or automobiles. However, each time you complete a credit application or return an inquiry, your credit score is pulled, which affects your credit rating.

New Credit

Anytime you open a new credit account, your credit score is pulled. Creditors review your score to determine whether you are a high-risk or low-risk borrower. Low-risk borrowers typically have high credit scores. High-risk borrowers have low credit scores due to mismanagement of past debt. Creditors set interest rates and fees based on the level of risk of each consumer. For example, a customer with a bad credit rating may be required to pay a security deposit whereas a customer with good credit is not.

Responding to Notices

A lender may send you a prequalification or preapproval notice for credit, but your credit must be checked prior to your final approval. Credit scores are updated monthly and can change dramatically within this time frame. Lenders understand this fact and pull your credit following a preapproval application to obtain the most current information available on your credit score. Be selective in the companies you authorize to check your score so you can limit the number of inquiries on your credit.

Inquiries

Each time a creditor checks your score, your credit score decreases. However, the inquiry must be initiated through a voluntary application for credit. Companies that request your credit score to solicit your business do not cause harm to your credit score. "Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time," explains MyFICO.com.

Considerations

If you are unable to avoid applying for new credit, you can offset the drop in your score using the five main areas that affect your credit. Those factors include: your payment history, amount owed, length of credit history, types of credit and new credit. Payment history and the amount of your current debts are two of the largest categories impacting your credit score. When you want to give your credit score a boost, making adjustments in these areas is best.

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Do Debt Relief Settlement Programs Affect Your Credit Score?

Debt settlement can look pretty attractive to a consumer trapped under a mountain of debt. Settlement means you make a deal with your creditors or lenders to pay less than what you actually owe. You'll pay less in a settlement program than if you didn't use this debt-relief method, but not without affecting your credit score.

General Trend

In most cases, debt settlement causes your credit score to drop. Because credit scores involve many different factors, it's impossible to assign a point value to how bad the drop will be, but those with good to excellent credit scores tend to see more of a dramatic decrease than those with bad credit already, according to online resource PayingPaul.

The Payment Problem

When you enter debt settlement, the debt settlement company usually advises you to stop paying your creditors. You pay the debt settlement company until you've met the company's fees and have provided enough funds to cover the agreed settlement amount. This means you can be paying on your debt and your creditors, who aren't seeing the payments, can report you as delinquent or late to the credit bureaus. If you've involved many creditors in the settlement, these notices quickly can add up and trash your credit. What's worse, these negative items can stay on your credit report for up to seven years.

The Status Issue

Creditors assign debtor accounts a status that appears on your credit report. When you use settlement, the creditor uses a negative status such as "settled" or "paid not as agreed." This drops your score because it shows you didn't meet the original terms of your credit contracts. Additionally, when new creditors look at your account statuses and see settlement, they may hesitate to work with you because of the history of not meeting terms. If you can't get new financing, you can't work on opening new credit lines, improving your payment history or extending your credit history, all of which impact your credit score.

Considerations

It is possible to settle with a creditor without a debt settlement program. If you do this, you may be able to pay the creditor directly, so they don't report you for missing payments. You also can ask that the creditor upgrade your status to "paid," as you technically will be paying off the new owed balance. Both of these approaches may keep your credit score from dropping so dramatically.

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Does a Credit Limit Not Being Shown on a Credit Report Hurt the Credit Score?

Your credit score plays a critical role in helping you qualify for new loans and credit cards. In addition, people with good credit scores are typically offered lower interest rates than people with bad credit scores. One of the many elements that goes into calculating your credit score is your credit utilization ratio. When a credit limit is not shown on your credit report, this can negatively affect your utilization ratio and lower your score.

Credit Utilization Ratio

Your credit utilization ratio is defined as the ratio of your actual debt to your potential debt. With credit cards, your potential debt on each card is the credit limit on the card. For example, if you have a card with a $4,000 credit limit and you owe $2,800 on the card, your utilization ratio is 70 percent. If you pay down the balance so you owe $1,000, your ratio drops to 25 percent. A lower utilization ratio leads to a better credit score.

No Credit Limit

Cards with no credit limit reported adversely affect the calculation of the credit utilization ratio. This is because the credit scoring formula typically substitutes your highest balance on the card for your credit limit, according to Bankrate. For example, say you have a card with an unlimited credit line, but the most you have charged on it is $1,000 and you still carry a balance of $800. The credit scoring model will calculate a utilization ratio of 80 percent, which is likely to hurt your credit score. However, this is not an accurate representation of the situation because your credit limit is not actually $1,000.

Significance

According to "The New York Times," some consumers would see their scores increase by 10 points or more if their actual credit limits were reported. In extreme cases with people who do not have much information on their credit report, scores can be 50 points lower without the credit limit reported than they would be with the limit. This can significantly affect whether a person is approved for credit and how much he has to pay in interest.

Strategies for Repair

If your credit limit does not appear on your credit report or is being shown as something lower than your actual limit, call your credit card company and ask for the information to be corrected. However, if your credit card is of the type that does not have a limit, it is not possible for a limit to be reported on the credit file. One strategy to boost your credit score is to run up a very large balance on your credit card one month and pay it off immediately. That way, the large balance will show as your credit limit, your utilization ratio will decrease and your score will increase.

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How to Establish a Credit History in Canada

Your Canadian credit history, and the resulting credit score, is used by various Canadian financial institutions to determine your credit worthiness. A strong credit history in Canada can help you get lower interest rates on credit cards and other loans. It is important for individuals new to the Canadian lending field---such as recent university graduates or new immigrants---to establish a positive credit history. Learn how to establish a credit history in Canada to help build a better financial future for yourself and your family.

Instructions

1

Understand the importance of a strong credit history and how Canadian financial institutions, such as banks, use it. Your credit history is essentially a database of your financial history and how you manage your credit. The three major credit bureaus in Canada record how Canadians borrow money, and use this credit history to assign a credit score to the individual. When you apply for credit, whether its a new bank account or a car loan, the financial institution will review your credit history to determine whether it is a good financial decision to lend you money. Individuals with little to no credit history in Canada will have a difficult time applying for any sort of credit-based account.

2

Open a Canadian bank savings account. While a savings account will not help to improve your credit score by much, it is essential for applying for credit cards and loans. Having your own savings account also helps to establish a start date for your credit history in Canada. All major banks have offices in most provincial cities, and may also be contacted online (see Resources).

3

Apply for a Canadian credit card. This is the quickest and most efficient way to build and establish a credit history in Canada. All of major banks have their own credit cards linked with Visa, MasterCard and American Express. Choose the brand of credit card that you prefer. Once in possession of the card, never use more than 60 percent of your credit balance, and make payments on time. A strong credit history can be established faster if you pay off the entire balance each month.

4

Open a Canadian checking account. Checking accounts, like credit cards, require you to manage your finances and can positively impact your Canadian credit score. Find a checking account that meets your needs. For example, the Royal Bank of Canada offers three levels of personal checking. Choose a checking account plan that allows you to withdraw and write the amount of checks you think you may use in a month.

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How to Gain 40 Points on Your Credit Score

Gaining 40 points on your credit score can mean the difference between a denial and an approval for credit or an exuberant interest rate and a reasonable one. You can usually add 40 points on your score in 30 to 60 days, depending on your situation and how much work you are willing to put into it.

Instructions

1

Remove negative information from your credit report. Check all derogatory information on your report to make sure it is yours. Also check the statute of limitations in your state for collections remaining on your file. Often the time has expired, yet credit bureaus have failed to remove the information. Collections and charge-offs can hurt your credit immensely so by removing them you can be off to a great start at raising your credit score. You can dispute negative information online at each bureau's website or by sending a certified letter.

2

Offer to do a pay for deletion. This is a negotiating tactic you can use with a credit collection company. If step one fails to remove a collection, call the collection agency and offer to pay the debt in full if they agree to remove it completely from your file. It may be worth it to come up with the entire amount to pay it off. Typically a company will agree to this and should be able to fax or mail you an agreement to sign.

3

Increase your available debt-to-credit ratio. This is the ratio of credit used to credit available. For instance, if you have a credit card with a limit of $1000, and your balance is $200, you have a 20% debt-to-credit ratio. You can increase your available credit by paying down existing debt, or even by opening a new card with as high a credit limit as you are able to qualify for.

4

Become an authorized user on a friend's or family member's account. Make sure they have excellent credit or this step is not worth it. Just by adding you to one of their credit card accounts, you can start building off their credit. They do not even have to give you access to the account or give you a card, they can simply add you as a user.

5

Call the credit bureau for rapid rescore. This is where the bureau will recalculate your credit score. All three credit bureaus update their scores on a monthly or bi-monthly basis, but if you want it updated more quickly, you can request it. There may be a fee associated with this service.

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How to Find Out My FICO Score Free--With a Catch

If you've been told you should find out your credit score--of which one type is your FICO score--and you're wondering how to get it free, then you may be wondering, "Just what is a FICO score, anyway?" A FICO score is the main type of credit scoring system used by TransUnion, Equifax, and Experian, the three credit reporting businesses that provide a free credit report annually to consumers upon request. It tells lenders how much of a risk you are to lend to. You will probably not be able to find out your FICO score totally free of charge--there's usually a catch.

Your FICO score is an evaluation tool used by lenders and creditors to help them predict whether you'll pay back the loan in full. If your FICO score is below 620, you are considered a high risk borrower. If your FICO score ranges from 620-660, you're borderline. If your FICO score is from 660-720, you're in good shape to be considered a good credit risk.

FICO scores can be used to benefit you, especially if you have a good or better credit score. With a FICO credit score higher than 720, you may have lenders willing to offer you low interest rates on hard-to-get loans such as a mortgage or on an auto loan or a revolving credit line such as a credit card.

Instructions

1

Get it online. Though it generally costs money to get your FICO score, you may be able to find out your FICO score free--free with purchase, that is--by visiting the websites of Equifax, TransUnion, or Experian.

They may have alluring offers for a free FICO score. Read the fine print for any offers, as you may be asked to sign up for a membership in order to access your "free" FICO credit score--though there is usually a free trial period in which you can cancel. Be sure to do this (unless you want the service after all) in order to get your FICO score without paying for it.

2

Or, pay a nominal fee for your FICO score at the time you place a request for your credit report. The Fair Credit Reporting Act (FCRA) requires each of the consumer reporting companies to furnish a free credit report annually to consumers upon request.

3

Contact http://www.annualcreditreport.com to get the credit report and paid-for FICO score, which is authorized by the government to issue the free credit report, also called a credit file disclosure.

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About Alternative Credit Files

A good credit score is an asset when applying for credit because it guarantees the best interest rate possible. If you have made debt management mistakes in the past, you may be searching for a way to clean your credit report up as quickly as possible to get a fresh start. Alternate credit files, although touted as legal by many credit repair organizations, are nevertheless prohibited by the Federal Trade Commission and may carry serious consequences.

The Facts

An alternate credit file is any credit report that exists in your name other than your standard credit reports. Some credit repair organizations will advertise alternate credit files as an easy way for consumers to wipe clean a long history of adverse credit. This practice is called "file segregation." Do not believe any false promises about new credit histories. The only way to create a positive credit history is to demonstrate responsible debt management skills over time.

Process

Initial credit is established when you apply and are accepted for a loan or line of credit using your Social Security number (SSN). Your personal information and payment history are updated to your credit file by your creditors. In order to create an alternate credit file, unscrupulous credit repair organizations will advise you to apply for credit using an employer identification number (EIN) assigned by the IRS. Like an SSN, an EIN is nine digits long. Because of this, it is taken by creditors to be an SSN. When a creditor is unable to find your identification in the credit system due to not being given accurate information, a new credit file will be opened in your name when credit is granted.

Function

The purpose of file segregation is to provide small business owners with a method of keeping their personal and business credit separate. Alternate credit files were never intended to be used by individuals as a method of credit repair. The Federal Trade Commission formally states that alternate credit files for individuals are a violation of the Truth in Lending Act (TILA). (See References 1) Participating in file segregation is not in itself illegal, but violating the TILA is. In this way the FTC is able to prosecute companies offering the service.

History

The idea of using small business credit regulations to create new credit reports for individuals first appeared in the mid-1990s. Use of alternate credit files became such a rampant problem for the lending industry that the FTC launched a formal investigation titled "Operation New ID-Bad Idea." Ultimately, more than 50 credit repair companies were charged with violations of the TILA. (See References 2)

Consequences

Lying on a mortgage application is considered fraud and can potentially come with jail time. (See References 3) If you put another number in the space on a mortgage application that asks for your SSN, you are committing fraud.

The consequences of alternate credit files go beyond just mortgages. An often unforeseen consequence is that once enough time has passed for derogatory items to be removed from your original credit report, you may find it challenging to switch back. A percentage of your credit score comes from the length of your credit history. If left unattended for long enough, your legitimate credit history may contain no history at all. This will force you to start over.

Any good credit that was built up on the alternate file must be left there unless you are willing to openly admit to committing fraud. Although individuals are not actively prosecuted for file segregation, new laws regulating the credit industry and credit practices are passed frequently. If and when a law is passed concerning alternate credit files for individuals, it may just carry with it a prison term.

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How to Read an Equifax Consumer Report

According to federal law, you are entitled to a free consumer credit report from each of the three credit reporting bureaus: Equifax, TransUnion, and Experian. The credit reports differ based on how each of the bureaus analyzes your credit information. You may order all reports from all three bureaus at once and do a side-by-side comparison of your credit report. A different strategy is to order a credit report from a different bureau every four months, allowing you to monitor your credit score for free three times per year. An Equifax consumer or credit report contains four main sections.

Instructions

1

View your identifying information and verify its accuracy. Your name, address, Social Security number, date of birth and employment information are contained in the first section. This information is updated when you supply this information to lenders.

2

Analyze the trade lines section carefully for inaccuracies. This section lists lenders' reports regarding your credit accounts. Information listed includes type of account (such as loans for auto, loan, mortgage), the date you opened the account, your credit limit and loan balance, and your credit history.

3

Review the inquiry section to see a list of companies that have viewed your credit report in the last two years.

4

Verify the accuracy of the public information section that lists any tax liens, bankruptcies or judgments against you that are recorded as public record. This section might also list account information from professional services that have been turned over to collection agencies.

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How to Start Good Credit

Credit is the ability to acquire goods and services with an agreement to pay at a later date. Credit can make your life easier by providing the immediate benefit of goods and services with easy payment terms. You can use credit for the rest of your life, which is why it is a good idea to start building good credit at an early stage.

Instructions

1

Open a bank account. Bank accounts are not typically part of your credit score, but your account history can be a vital component when lenders consider giving you a credit card or loan for the first time. They can use this information to determine whether you are a good credit risk. Active bank accounts in good standing prove that you can manage money.

2

Open a department store or gas station credit card. For many people, these types of credit cards are the easiest ones to open. Signing up for one can help you start a good credit record. Use the credit card to purchase some items and pay the monthly dues religiously. The purpose of opening the account is to establish a credit history and credit score. Call the department store and make sure that it reports regularly to the credit bureaus so that your credit report can be updated to show the credit history.

3

Sign up for utilities under your name. Having an electric or gas bill, telephone, water service, or cable under your name won't establish a credit score, but it can help first-time borrowers to get approved for credit.

4

Open a secured credit card. This type of credit card requires you to deposit a certain amount in the issuing bank. The amount of your deposit is held as security to cover your credit and also serves as your credit limit. It is a great option for establishing good credit especially when other options are not available. Make sure that the bank reports your credit transactions to credit bureaus in order to establish your credit history.

5

Get a job. Lenders definitely would like to see how much income you are earning and how long you have been working. Your ability to hold a steady job can improve the likelihood of getting approved for credit.

6

Show a stable residence history. Lenders will also check to see how often you move and whether you rent or own. As with employment history, it is better to have a stable residence. Owning a home, even if just jointly, will be counted as well.

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Best Ways to Improve a Credit Score

Having a poor credit score is a situation in which no one wants to find themselves. A low score cannot only result in being denied a loan, it can cause a potential employer to turn you down for a job. Unless the low score is due to inaccurate information on your credit history, there's no "quick fix." However, the best ways to raise a credit score are pretty straightforward once you understand how the scores are determined and what is required to get a good score.

Correct Errors

A credit score is calculated using the information contained in your credit record. If the information is wrong due to errors or someone fraudulently using your identity to get credit, your credit score may suffer. You can get a free copy of your credit report from each of the major credit bureaus once a year. The free report doesn't include your credit score, but that's not important. If you make sure your credit record is accurate, your credit score will be too. The Federal Trade Commission authorizes only one provider for free credit reports, AnnualCreditReports.com. You can order your report online (See link below.) or by phone at (877) 322-8228.

You should check your credit history with each of the major credit bureaus. Each compiles your report based mostly on voluntary lender reports, and they may not all have the same information. If you find a mistake on a report, go to the appropriate credit bureau website (Experian.com, Equifax.com or TransUnion.com). Each provides online tools to initiate a challenge of credit information and contact data if you need talk with them directly.

Manage Credit

A low credit score may be due to past problems managing credit. The best way to raise a credit score in this situation is to understand what factors affect your credit score and develop a plan for eliminating problems. First and foremost is to pay bills on time---this counts far more than anything else in determining a credit score. If you are deeply in debt; however, timely payments may be difficult. What's worse, having too much debt for your income is the second most important determinant of your score.

The best ways to raise your credit score if your monthly expenses are too high are to find ways to cut unnecessary spending and stop using your credit cards. This frees up money to get your bills current and starts you on the road to reducing your total debt. However, the reality is that this may not be enough. If not, consider getting a debt-consolidation loan. Essentially, the lender pays off several of your debts, and you end up with smaller monthly payments to this lender, often at lower interest rates.

Get Help

Coping with a bad financial situation alone may not be realistic. Fortunately, you can get credit counseling and assistance negotiating with your creditors through non-profit agencies and usually at no charge. To find a counselor in your area, call the National Foundation for Credit Counseling (NFCC) at (800) 388-2227 or Consumer Credit Counseling Services (CCCS) at (888) 656-2227. NFCC is a national organization that can refer you to a member nonprofit counseling provider. CCCS is one of those member organizations and provides counseling directly through its local affiliates.

Avoid being ripped off by scam artists who claim for a fee, of course, that they can get you reduced interest rates on your credit cards or remove negative information form your credit report. You can negotiate interest rate reductions yourself or with the help of one of the services mentioned above. Only errors can be taken off a credit report. In most cases, accurate information legally must remain on the report for a specific time period--how long depends on the type of information.

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How Long Can Debt Settlement Ruin Your Credit?

A credit score tells potential lenders how creditworthy you are. If you've settled a part of your debt, you have effectively defaulted on that part of the loan. This makes you a bad risk for other lenders. Your credit score will plummet. However, if you are financially responsible over a period of several years, this will matter less. After seven years, the debt settlement will disappear from your credit report and stop factoring into your credit score.

Debt Settlement

With debt settlement, you pay off a lump sum of your debt in exchange for the lender forgiving the remainder. Lenders do not forgive debt out of the goodness of their hearts. They will only do it if they believe there is no other way to get their money back. Forgiving part of the debt is better than having the debtor file bankruptcy and default on the whole amount. Once the debt is forgiven, you will have to pay income tax on that amount. The IRS considers forgiven debt the same as other forms of income.

Debt Settlement and Credit Scores

The way the lender knows that you cannot pay off the debt is by looking at your income and your credit score. To qualify for debt settlement, you will have to let your credit score drop significantly. It will take several years to rebuild your credit history to the point where you can get a car lease or a mortgage at a reasonable interest rate. The debt settlement will matter less with each subsequent year, but will not disappear from your credit report until seven years have passed.

Bottom Line

If you are thinking about debt settlement, chances are that your credit history is already damaged. Debt settlement is not an option for people who simply don't want to pay back their debts. It's for people who want to but cannot. If you are in that situation, your credit score is probably already low. Debt settlement will drop it further, but it will not matter as much as if your score was in the excellent range.

Alternatives

Bankruptcy is a common alternative for people considering debt consolidation. Bankruptcy will have a greater effect on your credit score. It will also stay on your credit report for three years longer than debt settlement. Another option is to negotiate with the lender not to erase debt, but to come up with a new repayment schedule that you can afford. This option is better for the lender and for your credit history.

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Does It Hurt Your Credit to Put Another Person as a Joint Card Holder?

Adding someone to your credit card account as a joint holder may help her build credit, but it could end up damaging your credit rating. Giving someone joint holder status does not have an immediate impact on your credit but can affect it. Thus, it is safer for your credit score to help a person obtain credit on her own rather than give her access to your account.

Identification

Letting someone co-sign your account does not affect your credit. Instead, it may affect the co-signer, because all of the history on your account transfers to his credit report. Adding a joint account holder may improve your credit rating if the co-signer helps you make on-time payments and pay down the balance on the account, according to Experian.

Risk

At the same time, allowing someone to co-own your credit card is extremely risky for your credit rating, because the other party may misuse the account. For instance, a maxed out credit card can cost you more than 45 points. If the co-signer runs up a high balance and you cannot meet the minimum monthly payment, the default can drag down your score by over 110 points, and the missed payment stays on your credit history for seven years, according to Ellen Cannon of Bankrate.com.

Considerations

You must repay the balance on a co-signed credit card regardless of how the co-borrower uses the account, because you agreed to share liability for the debt when you added the co-signer. The creditor will report late payments on the account, even when a judge orders the co-borrower to pay the bill. A civil judgment and collection account -- common results when you do not repay a debt -- on your record are one of the worst items you can have on a credit report.

Tip

You can help someone acquire credit and reduce the risk to your finances and credit score concurrently. For example, adding someone as an authorized borrower builds his credit history, but he has less authority over the account, such as not receiving the bill or changing account settings. If someone just wants to make electronic purchases, he can purchase a prepaid debit card at most retailers. Credit cards secured by a deposit and department store accounts tend to have the most scant requirements of any type of credit card.

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Credit Reports Vs. Credit Monitoring

Your credit rating plays a large role in determining whether you can purchase a car or home and whether you can obtain credit cards. The three main credit bureaus -- TransUnion, Experian and Equifax -- produce credit reports, and they offer credit monitoring to consumers interested in that service. A credit report is different from credit monitoring.

Credit Report

A credit report is a snapshot of all activity relating to your credit. A report typically shows your personal identifying information, credit inquiries, credit accounts, negative and positive credit marks and your loan and credit balances, among other things. The accuracy of your credit report at a given time depends upon how often a lender updates the credit bureau about your information and how accurately the credit bureau lists that information to your report. The U.S. Public Interest Research Group reports that about 80 percent of credit reports in 2004 contained errors, according to Bankrate. You can obtain a free copy of your credit report once each year by going through the AnnualCreditReport.com website.

Credit Monitoring

Credit monitoring is available for a fee from the three main credit bureaus and some other companies. When your credit report changes, the bureau automatically emails you an alert. Changes in your credit report include things such as credit inquiries, loan or credit payoffs or the acquisition of a new loan or credit card. The primary purpose of credit monitoring's is to detect identity theft. For example, if there is an inquiry on your report for a credit card for which you did not apply, you can contact the credit bureau to notify it of the error, which could signify identity theft. The sooner you address an identity theft issue, the sooner you can resolve it. Enrolling in credit monitoring also may enable you to review your credit report, depending on the bureau and the plan you selected. Credit monitoring requires a recurring fee, usually in monthly payments.

Lenders Who Don't Report

Both credit reports and credit monitoring suffer from one primary problem: Charges to your credit depend upon lenders who report your credit information. While most lenders make timely updates to the credit bureaus, some only update the bureaus if you fall behind on your payments. If lenders don't update your information, your credit score won't change and you may not receive alerts that could indicate identity theft.

Different Information

Lenders that report your information to the credit bureaus don't always update all three bureaus. For example, your bank may notify only TransUnion and Experian that you paid off a loan. Your credit report with Equifax would not include that data, and its credit monitoring might not detect that significant change in your credit status. Most bureaus offer plans that monitor and release credit reports from all three bureaus, but fees for that service may be higher.

What to Choose

Many bureaus offer plans that combine credit reports and credit monitoring, although you'll pay more than if you purchased just one plan. If you're satisfied receiving a credit report from each credit bureau once per year, you don't need to purchase anything, because you can obtain your credit reports through AnnualCreditReport.com. You also can purchase plans to receive credit reports and credit scores from the credit bureaus at any time. If you are concerned about identity theft and are willing to pay a fee to be updated about any changes to your credit report, you should purchase a credit monitoring plan from one of the credit bureaus or one of several other online outlets that offers that service. Be aware of the details of the monitoring service's payment plan to avoid paying for services you don't want or need. Often these services require you to provide a credit card number, and they automatically charge your credit card account monthly.

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How Does Not Paying Utilities Affect Credit?

Many major utility companies regularly report a consumer's payment history to at least one credit reporting agency. Not paying your utilities can affect your credit rating if the utility company chooses to report the delinquency. Contact specific utility companies to learn if they report or plan to report your utility payment status.

Credit Rating

If your utility company reports delinquent payments, it will file the negative entry with one or all three reporting agencies. TransUnion, Equifax and Experian have different calculation models for determining a consumer's credit rating. Each calculation model factors payment history as the primary consideration in the overall rating. A negative entry from not paying your utilities factors into the payment history calculation, which accounts for 35 percent of your total score.

Collection

Even if your utility company does not report payment histories to a credit reporting agency, it may turn delinquent accounts over to a debt collection agency or sell them to a debt buyer. Collection agencies and debt buyers must comply with federal guidelines found in the Fair Debt Collection Practices Act --- FDCPA. Collection attempts include contact through phone calls and letters, filing a lawsuit for a judgment against you for the balance due and reporting the delinquent or defaulted accounts to the three main credit reporting agencies.

Credit Reporting

Credit reporting agencies compile and itemize account information in a consumer's report based on information received from original creditors --- the utility company ---and by third-party collection companies. By not paying utilities, you could have more than one negative listing on your credit report --- one from the utility company and one, or more, from the third-party debt collector. Credit rating account listings may appear different for each item, even though the original debt is the same. Accumulated fees, such as interest and legal fees, may be added each time the debt is transferred or sold. Account designations may change based on whether the account is a collection or a charge-off.

Time Limit

In accordance with FDCPA guidelines, certain negative account listing information must be removed from your credit file after seven years. The seven-year time clock begins on the date of the original delinquency. Your credit rating is negatively affected for the length of the seven-year window, but the listing may have a longer impact if the utility company or third-party debt collector wins a judgment against you. Judgments are part of the public record section of your credit file and remain active for as long as the judgment is valid. In some states, judgments are valid for 20 years.

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Fixing Credit After Bankruptcy

Bankruptcy leaves a seemingly indelible stain on credit histories, making it difficult to land apartments, get jobs, apply for credit cards or obtain a home loan. Setting goals to fix credit after bankruptcy is a good indicator that you're ready to start fresh and avoid financial mistakes from the past. Fixing credit after bankruptcy isn't impossible, but it takes some time and discipline.

Cash Only

Bankruptcy survivors may like the idea of adopting a "cash only" approach to finances because of bad experiences with mismanaged debt. While fiscal conservatism will help you steer clear of excessive debt, paying for everything up front won't do a lot to fix your credit history and score, since it generally takes credit to build credit. Plan to incorporate financial credit management into your budget to start improving the score.

Good Habits

People with good credit scores tend to have habits contributing to regular financial health. Pay bills on time, keep credit balances low and don't apply for too much credit all at once to slowly begin fixing credit. If your busy schedule contributed to frequently late or missed payments, sign up for automatic monthly payments from your checking account; then make sure the account balance is sufficient to cover payments each time. Debtors who missed payments because of lack of money should analyze their budget, striking out luxury or unnecessary items so that there's a small-but-comfortable cushion -- of at least a few hundred dollars -- in the bank that is more than what is required for monthly expenses. Alternately, take on a part-time job or extra work responsibility to nudge up income in order to adequately cover living costs.

Fix Errors

Sometimes credit histories still show accounts as open and overdue when, in fact, accounts have been closed and debts eliminated as part of bankruptcy proceedings. This hurts your credit, since lenders see these as delinquent accounts, according to MSN Money. Contact the credit bureaus -- Equifax, Experian and TransUnion -- and ask that the open accounts be closed and identified as "included in bankruptcy." Wiping these out will help fix your credit after bankruptcy.

Obtain Credit

Take out two kinds of credit to start fixing your credit score: installment loans, such as student loans, car loans or mortgages, and revolving credit, such as a credit card. Using these judiciously and making on-time or in-full payments each month can help repair your credit history. While you may not qualify for an unsecured credit card, secured credit cards may be available to consumers after bankruptcy. Secured credit cards typically have lower balance limits, and you'll have to front the initial available balance at the issuing bank. Make sure that the issuer regularly reports to the credit bureau, or your virtuous on-time monthly payments will go unnoticed.

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Free Information on Quickly Improving Credit Score

A credit score of 700 or higher makes you a good candidate for a loan. But rather than pay someone to help repair your credit history, consider ways to improve your credit rating for free.

Build a Good Payment History

Payment habits have a significant impact on credit scoring, and maintaining a good rating entails paying credit card, auto loans and other types of loans before or on their due dates. Habitual late payments damage your rating and result in late fees.

Keep Debt to a Minimum

Along with your payment record, the amount of debt you carry impacts credit scoring. Paying off credit card balances each month and keeping your overall debt totals low can help improve your credit rating.

Beware Credit Report Errors

Failing to check and analyze your credit report yearly can result in a lower credit rating due to reporting errors. Creditors may report inaccurate information. Getting a free report from Annual Credit Reports and challenging errors can help fix a low rating.

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How to Restore Bad Credit

Good credit opens doors, allowing you to save money on needed loans and to access money for investments and experiences. Bad credit closes those doors, or makes them so expensive to open that it's not a practical option. Credit repair is a long-haul process requiring discipline and attention to detail. It often requires fundamental changes in your spending habits. By following a systematic plan, you can successfully repair your bad credit over time.

Instructions

1

Request reports from all three of the major credit bureaus: TransUnion, Equifax and Experian. You can order them from each bureau directly or use a service. Many services offer a free copy of your credit report as a way to pitch their more expensive services. To receive a totally free credit report from each of the three bureaus once every 12 months, visit AnnualCreditReport.com.

2

Make note of any unresolved negative information on your credit report. Contact those creditors and make a payment plan. Prior to making your first payment, negotiate with each creditor for a written statement saying that you've resolved the problem.

3

Set up automatic payment of all your bills through your bank. Most banks allow you to do this online at any time. If not, try setting it up through each of your creditors. Automatic bill paying forces you to pay on time, without the burden of remembering due dates and writing checks.

4

Aggressively pay down any credit card balance that is at 30 percent or more of that card's credit limit. Staying beneath that line keeps your debt-to-credit ratio where it needs to be.

5

Consider a secured installment loan if you have no credit accounts with which to start rebuilding your credit. A secured loan is one with collateral, something the bank can take away if you default on payments. Installment loans require monthly payments. Getting an auto loan is one of the best and easiest ways to begin restoring bad credit. By making monthly (automated!) payments on time, you are rebuilding your credit score with every month that goes by.

6

Build personal habits of responsible spending and on-time payments. While it's possible to make short-term adjustments to your credit score, only a long-term pattern of responsible spending will fix your credit permanently.

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How Does Applying for a Loan Affect Your Credit Score?

Having a high credit score is vital when you are applying for loans because it shows lenders that you are creditworthy. However, each application for a new loan can bring down your credit score.

Inquiries

Each time you apply for a loan, the lender will pull your credit score, which results in an inquiry being noted on your credit report.

Time Frame

Each inquiry remains on your credit report for two years after the lender pulls you credit report. However, only inquiries from the previous year have a significant effect on your score.

Effects

According to the FICO scoring model, recent applications for new credit account for 10 percent of your credit score. The more credit you have recently applied for, the lower your score will be.

Considerations

The scoring model accounts for the fact that people shop around for auto loans and mortgages. So all inquires for these types of loans within one month of each other will count as one inquiry for scoring purposes. For example, if you submit applications to six lenders for a mortgage within a month of one another, six inquiries will appear on your credit report, but they will be treated as one for scoring purposes.

Purpose

Your credit score decreases with each application for credit because you appear to be a greater default risk when you are applying for many new lines of credit in a short period of time.

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Keys to Rebuild Credit

The criteria for credit decisions vary from institution to institution, but many of them rely on the same factors. If you understand how your credit score is compiled, then you can take clear and definite steps to improve and rebuild your credit. Your payment history, borrowing capacity, length of credit history, new account history are a some areas that go into the calculation for your credit score.

Improve Payment History

The payment history on credit cards, retail accounts and installment loans (such as a home mortgage) determines a portion of your credit score. Multiple past due items, the length of delinquency, or collections activity can reduce your credit score. To improve your credit score, pay these accounts on time and as agreed. Your credit report is just a snapshot of your financial history over the previous seven years. As time passes, negative payment information will fall off and your new, positive history will replace it.

Maintain Balanced Ratios

Another factor that determines your credit score is borrowing capacity, which is the ratio between the amount of debt you owe and your available credit or total loan amounts. Historically, individuals who go bankrupt tend to charge up their cards to the limits before they file. When you have credit that is "maxed out" or nearing your borrowing capacity, this is a red flag to lenders that you are more likely to default.

To avoid this, maintain a healthy balance in two areas. First, reduce the amount of installment balances (like home loans) when compared to original loan amounts. Second, with revolving accounts and credit cards, MyFico.com suggests maintaining low balances.

Maintain a Long Credit History

Even though your credit report is a snapshot in time, reaching back just 7 years, the age of your accounts matter. From a borrowing institutions perspective, someone with a longer credit history is more stable and less risky. A longer credit history with older accounts can increase your credit score. To improve your credit, leave open an older account even if you no longer want or use it. Because of its age, retaining the account can improve your score.

Build New Accounts Steadily

To improve your score, be cautious about opening too many accounts within a short period of time. Rapidly increasing your accounts and borrowing capacity is an indicator that you may not be handling your credit or income well. Instead, add and maintain accounts steadily over time.

Additionally, how often your request credit is included in your credit score calculation. When you request credit, inquiries from potential creditors are tracked and included in your credit report for 24 months. Requesting credit too often can be a sign of risky behavior and will reduce your credit score. Limit these requests and apply for credit judiciously.

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Self-Repair Credit Advice

Why pay a credit repair company money to fix your rating when you can raise your credit score on your own? Credit scores reflect your credit habits, and repairing a bad rating calls for changing the way you manage your bills and debt. Build a good credit score and you're on the road to lower interest rates and easy loan approvals.

Avoid Lateness

One method of credit repair involves avoiding lateness or delinquent accounts. Creditors establish due dates for accounts, and sending in a payment past this date results in late fees and negative information on your credit report. Not only does this lower your credit rating, but frequent lateness can result in credit denials in the future. Increase a low credit score yourself by paying statements on or before the due date. Submit payments online through the company's website, or write and send a check several days before the due date.

Lower Credit Card Balances

Your balances on credit cards are a big factor in determining your credit rating. Repair credit yourself by devising a plan to get rid or at least pay down your high balances. Ideally, credit card utilization should be less than 30 percent of the credit limit. Therefore, if you are given a $1,000 limit, your balance should stay below $300. Owing more than 30 percent of your balance or completely maxing out your cards has a damaging effect on your credit score.

Use Credit Cards in Moderation

While you don't want to max out your cards or accumulate high balances, occasionally using credit cards can help build a good score. Credit scores increase when you use credit and pay off or satisfy the debt. For this reason, it's wise to keep at least one credit card on you and periodically use this card for inexpensive purchases. Paying off the balance in full each month is key to building good credit and keeping your debt to a minimum.

Benefits of New Credit

Don't be afraid to acquire new credit after a bankruptcy. And if you don't have a credit history, applying for an account is key to establishing a good record. It's challenging to get credit with a history of bad credit or no credit history. Banks offer secured credit cards to help people in this predicament. These involve a security deposit that acts as collateral, and banks will approve applications as long as you have steady income. As you make monthly payments and manage the account well, banks and creditors will report the information to the credit bureaus, which helps to repair bad credit history or build a good credit history.

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How to Print a Free Credit Report

With the advent of the internet, consumers are typically besieged with warnings and offers in regard to keeping track of their credit report and scores. If you're worried about what's on your credit report but don't want to pay for a copy, you are allowed by law to view and print your credit report once a year for free. The key is to use the website sponsored by the Federal Trade Commission (FTC) to avoid having your credit information compromised.

Instructions

1

Log on to the official federal credit report website at annualcreditreport.com, taking care to check that the URL has been spelled correctly.

2

Enter your personal information as requested. You will need to give your state of residence, full name, date of birth, current and most recent addresses and your social security number.

3

Add the required security letters and numbers at the bottom of the page and press "Enter."

4

Answer the questions provided that will be used to verify your identity by checking the box next to each correct answer. Although the questions will vary, examples are: the dollar amount financed on your mortgage, a previous address, a current or previous place of employment, and a phone number you have had in the past.

5

Choose the credit reporting company or companies you wish to view and print free a credit report from by checking the box or boxes next to Equifax, Experian, and Trans Union. Press "return" to view your credit report.

6

Notice the place at the top of the screen which offers "Printable View" and check the box.

7

Print your free credit report, using the standard directions for your printer.

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How Do I Get a Copy of My Credit Report If I Don't Have a Credit Card?

Although having a credit card with a low balance and current payments can actually help raise your credit score, you do not have to have a credit card to get a copy of your credit report. The process for receiving your credit report is the same for people with credit cards and for people without. You will just have fewer items reported on your report and typically have less credit history. AnnualCreditReport.com is the only site approved under the government mandated free credit report program.

Instructions

1

Decide how you want to receive your credit report. You may request your report online, by phone or through the mail.

2

Visit AnnualCreditReport.com to see your credit reports immediately. This site was established by the three credit reporting agencies, Equifax, Experian and TransUnion. You can get, view and print out a free copy of your credit report from each agency once every 12 months.

3

Call 1-877-322-8228 and request your credit report by phone. Prepare to provide the system with information such as, your social security number and address to verify your identification. The reports are then mailed to you at the address you provide.

4

Ask for your credit report in writing. Print a request form from the credit report site and mail the request form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. It can typically take up to three weeks for you to receive the reports.

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How to Increase My FICO Score ASAP

A bad or low credit score will impact your chances of getting a car loan, credit card or mortgage. If you are approved, you may end up with a higher interest rate. Before attempting to get a loan, you will want to work to increase your FICO (Fair Isaac Corporation) score, which is used in determining your credit worthiness. You can not modify your score in hours or days, but taking small measures will improve it in both the short and long term.

Instructions

1

Pay down your credit card balances. Carrying a high credit card balance will lower your credit score. Lenders will look to see that your credit card usage is less than 30 percent of your limit. If you have a credit card with a $1,000 limit, carry less than $300 as a balance. Credit card companies report your balance to the bureaus once a month.

2

Use one of your oldest credit cards if it has been dormant. A longer credit history reflects positively on you. If you haven't used a card for awhile, it is possible that the company may not have reported active usage to the bureaus, and as a result, the length of time you've had the card active is not being used as a factor to improve your score.

3

Continue to make your payments on time every month. One or more late payments will cause your credit score to drop significantly.

4

Ask for a higher limit on your open credit card, but don't use the excess. If you have a card with a balance of $250 and limit of $500, you are using 50 percent of its capacity. If you can get this limit increased to $1,000, you will only be using 25 percent of the capacity.

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Normal Debt-to-Income Ratio

You might hear the term "debt-to-income ratio" when applying for a credit card, loan or mortgage. It is most commonly used in the mortgage industry, as most mortgage loan products have specific maximum debt-to-income ratios that need to be met in order to qualify for the mortgage.

Definition

Debt-to-income ratio, also known as DTI, is calculated by dividing the debt payment by your monthly income. In some cases, this ratio is calculated by adding up several debts and then dividing with your monthly income. The percentage that results is called your debt-to-income ratio, and it is a factor that some lenders use in determining whether you qualify for the credit product that you are applying for.

Mortgages

The first time that many people hear about debt-to-income ratios is in relation to a mortgage. Mortgages use two debt-to-income ratios, called front-end and back-end ratios. The front-end ratio is concerned with only your debt to income when it comes to a mortgage. The prospective mortgage amount and any mortgage insurance and property taxes are added up and divided by your gross monthly income to produce the front-end number. The back-end number adds the total mortgage payment plus your other debt obligations, such as credit cards and car payments, and divides it by your monthly income. Both of these numbers are used in calculating whether you qualify for a mortgage.

Common Ratios

The common ratios used by mortgage companies generally depend on the type of mortgage that you are applying for. A conventional mortgage, which is a standard mortgage product offered by a bank, usually has limits of 28 percent front end and 36 percent back end. Special mortgage products, such as those offered by the Federal Housing Administration, allow for a higher 31 percent front-end and 41 percent back-end ratio. Ratios may be higher on a case-by-case basis if other mitigating factors are present, such as a large amount in savings, high credit score or higher down payment.

Rental Homes

When you rent an apartment, the landlord calculates a debt-to-income ratio to see if you can afford the apartment payments. Generally with rentals, the only debt number used is the actual rent payment, and he does not calculate other types of debt into the number. Landlords are usually looking for a rental payment that does not exceed greater than 30 percent of your monthly income.

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FCRA Credit Reporting

The Fair Credit Reporting Act, or FCRA, is a federal law that gives consumers certain rights. It covers the information that can appear in your credit report and how it may be used. Under the FCRA, you can keep your credit reports from being given to certain people or companies, and you also can dispute incorrect items. Knowing the main points of this law will help you protect your credit reporting rights.

Review

The FCRA gives you the right to review your credit reports at no cost. Each year, the three nationwide credit bureaus--Transunion, Experian and Equifax--must give you a free copy upon your request so you can see what they are reporting about you and your accounts. You also may request your credit score from agencies that calculate and sell it, but you must pay for this service.

Disputes

The FCRA gives you the right to dispute credit information you believe is being reported incorrectly. If you find negative items on your report that are erroneous, you can fill out a dispute form, and the credit bureau is required by law to investigate your dispute unless it is blatantly frivolous. If the bureau cannot verify the item, it must be removed from your report within 30 days.

Access

The FCRA gives you some control over who can access your credit report. It limits access to people and companies who have a specific, legitimate purpose for reviewing this information. Typically, this includes creditors, landlords, insurance companies and employers. You must give written permission for an employer or potential employer to access your report.

Credit bureaus sometimes sell consumer information to creditors or insurers who are pre-screening people for certain offers. If you don't want your information to be sold, call 888-567-8688 or visit the Opt Out Prescreen website to opt out of this reporting (see Resources).

Decisions

You have the right to know when information your credit report has been used to make a negative decision. The FCRA says that when a company uses your credit report to deny a loan or other credit, employment or insurance, it must give you the name, address and telephone number of the agency from which it obtained the information. You may then request a free copy of your report from the agency to review it for any incorrect items that could have influenced the decision.

Time Frame

The FCRA spells out how long negative information can stay on your report. Most negative items can be reported for seven years, but bankruptcies can be reported for up to 10 years. After this period, this information must be removed from your credit report. If it is not, you should contact the bureaus.

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Does a Canceled Debt Affect Credit?

Negotiating a debt settlement may have consequences that are just as troublesome as the debt burden. The credit scoring formula used by most lenders punishes consumers when they force the creditor to cancel debt. Also, canceled debt may not be the final action on your loan, because the Internal Revenue Service usually considers this a taxable event.

Effect

Canceled debt negatively affects credit when the lender reports the account as settled for less than the original balance to the credit reporting bureaus. A settled account can take 125 points or more off of a FICO credit rating of 780, according to Ellen Cannon of Bankrate.com. If your credit is already damage, the impact won't be as much, but any settled account is still a derogatory item on a credit history.

Taxes

The IRS taxes canceled debt because it views a forgiven debt as akin to receiving income. If you could not pay the original balance in full, you may not have the resources to pay the IRS come tax time. Unless you set up an installment agreement, the IRS issues a tax lien against your property when cannot pay your bill. Any IRS lien or levy damages your credit rating---maybe up to 100 points or more.

Considerations

Letting a creditor cancel a debt may become an overall benefit to your credit rating. Frequently missing payments keeps your credit rating low for years to come. In addition, you free up more monthly income that can go to paying your other debt obligations and help you avoid a more serious derogatory item on your credit history, like bankruptcy.

Tip

You can ask the lender to report the account as paid in full in debt settlement negotiations, but lenders are unlikely to concede this provision unless you pay the balance in full. If you worry about the effect of canceled debt on your credit rating, talk to the lender about ways to avoid default, such as repaying the loan in installments or lowering the interest rate.

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