Why a Credit Score Is a Good Thing

Having a credit score allows creditors to assess your financial stability and determine how much credit to give you. Therefore, it is important that consumers build credit to establish a strong credit score.

Lower Payments

A consumer with a good credit score will have to make lower monthly payments to creditors, according to the Federal Trade Commission. Without a credit history, credit card companies will expect consumers to make high payments every month because they pose a risk.

More Credit

Having a credit score opens you up to more opportunities to build credit. If you want to buy a house or a car, the mortgage lender or car company can assess your credit score to determine how much of a loan to give. Without credit, the company might turn you down.

Responsibility

Building good credit shows that you are a responsible consumer. If you're applying for a job, the company might check your credit score. Having a record of credit illustrates responsibility to the company, which can help you land the job. A lack of credit can be a warning sign for a company considering you for a position.

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How to Fix My Credit With a Credit Repair Company

The Fair Credit Reporting Act protects consumers from credit bureau mistakes by letting them dispute inaccurate information, according to the Federal Trade Commission. This law is often used to fix bad credit because it covers virtually any mistake. Even a misspelled name gives grounds to challenge an entry. There is no cost to fix your own credit because disputes are free, but credit repair firms will do the clean-up for you if you would rather pay than do the work yourself.

Instructions

1

Ask friends, family members and co-workers for a referral to a good credit repair company. The FTC warns that many fraudulent credit repair firms advertise in spam emails, postal mailers, pop-up ads and phone calls, making extravagant claims that they will not fulfill. They may even offer fake testimonials. Find companies that performed successfully for people you personally know.

2

Contact potential credit repair companies and ask how much they charge and when they expect to receive their fee. Drop a company from consideration immediately if it states that it wants advance payment. The FTC explains that credit repair firms are forbidden by the Credit Repair Organizations Act from collecting payment until they perform their services.

3

Ask potential companies how they will fix their credit. The FTC advises that legitimate companies do the same things you could do on your own, and they should explain this to you. They should pull your credit reports, scrutinize them for small errors in negative items that make them disputable and file disputes with the credit bureaus. Any company that advocates disputing every bad entry, even if there is no mistake, or establishing a new credit identity, is unscrupulous and can get you into legal trouble.

4

Sign a clear agreement with the credit repair firm of your choice. It should spell out exactly what the company will do, when it expects to complete the process and how much you will pay when the services are completed. Credit bureaus are obligated to investigate disputes within 30 days, according to the FTC, so the repairs should be completed shortly thereafter.

5

Study your initial credit reports before the credit repair company starts its process and compared them to updated copies when it is done. The credit bureaus send post-dispute reports and explanations of any changes. Make sure the repair firm did its job before tendering payment.

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Accounts to Build Credit

Lenders do not like to loan money to people who do not have an established credit history. People with no credit have to deal with the conundrum that you cannot qualify for credit unless you have had credit in the past. However, there are certain kinds of accounts that people with little or no credit history can establish. If you manage these accounts correctly then before long you can qualify for harder to obtain forms of credit.

Secured Credit Card

Generally, credit cards have no collateral which means banks assume a high degree of risk when issuing the cards and only allow people with an established credit history to open credit card accounts. However, you can qualify for a secured credit card if you have a low credit score or even no credit history at all because you secure your card with a cash deposit. The bank keeps your deposit in a savings account that you cannot access and provides you with a card with a balance equal to the amount you deposit. Secured cards often have high interest rates and annual fees but despite being expensive these cards enable you to build a credit history relatively quickly.

Cash-Secured Loans

You can establish credit by taking out a cash secured loan at your local bank or credit union. You deposit funds into a certificate of deposit and the bank freezes that account for the duration of your loan term. If you default on the loan, the bank simply liquidates the CD and uses the proceeds to settle the debt. Businesses often use cash-secured loans to establish a credit history in the name of the business so that the owners no longer have to rely on personal loans to fund the business.

Co-Signers

Some people establish credit by applying for loans jointly with co-signers who have good credit. You cannot do this to qualify for a mortgage since lenders require both borrowers to have good credit scores. However, you can obtain a car loan or a credit card if you apply with a co-signer because lenders offset your low score with your co-applicant's high score. You and the co-signer are equally responsible for paying the debt so you must find someone willing to share the debt burden with you.

Other Considerations

Retail credit cards and gas credit cards usually have low line amounts and high interest rates. However, underwriting guidelines for these products are less strict than on regular credit cards so you may qualify even if you have a low credit score.

You cannot improve you credit by establishing deposit accounts but you can harm your score if you overdraw your account and fail to settle the debt. Some lenders approve credit cards based on unconventional credit reports that look at your track record for paying your utility bills and rent payments. If you qualify for a card from one of these lenders it will improve your actual credit score and help you obtain cards from traditional lenders.

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Fast Credit Repair Information

Living with a bad credit score likely results in higher interest rates on auto loans and credit cards, and some mortgage lenders will not approve you for a loan with a low score. Fortunately, credit repair can help you get the credit that you deserve. Several techniques can help you build a better score.

Remove Blemishes From Credit File

Blemishes or mistakes on your credit file do hurt your credit rating, and removing these mistakes is one way to quickly repair your credit and qualify for loans. Credit report mistakes can range from outdated information, unknown credit accounts and unknown delinquencies. These errors can stay on your report unnoticed for years and lower your credit score. Checking your report annually and disputing erroneous blemishes help you maintain a good score.

Reestablish Credit After Bankruptcy

Acquiring and improving credit after a bankruptcy is the only way to prove creditworthiness and qualify for prime loan deals in the future. A bankruptcy erases your previous debts and gives you a fresh start. Regrettably, a fresh start comes with a hefty price; bankruptcies can completely destroy your credit rating. Getting a secured credit card from your bank or applying for a bad credit auto loan gives you the opportunity to reestablish credit and rebuild your history and score.

Diversify Credit

One type of credit account isn't enough to build a good credit history. Credit scores improve quicker when you acquire different types of credit. For example, you may have a couple of credit cards and then choose to add an auto loan or personal bank loan.

Reduce Debts

Paying off your credit cards is a quick way to add points to your personal rating. Low credit card balances do not negatively impact your credit score. Quite the opposite, carrying large balances from month to month or maxing out your credit cards reduces your credit score, which can lower your chances of getting financing.

Quick Updates

Creditors update credit reports at different times. However, if you are in need of a quick update to repair your credit fast, creditors may offer a service termed rapid rescoring, where they agree to update your credit file within 72 hours of your request. This fee-based service ($50) benefits you if you recently paid off an account or noticed an error on your credit file and need this information corrected quickly in order to qualify for a loan.

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How to Reestablish Credit History

Your credit history is important. There may be times when money is short. Bills get missed. Credit cards payments are late or limits exceeded. All get recorded on your credit history. Within a short while, the good credit rating that you had for years is gone. Now you can reestablish your credit history by following a few guidelines so that it will improve over time.

Instructions

1

Apply online to get your credit history reports. They detail the organizations who reported your late or skipped payments. The reports are free once a year from AnnualCreditReport.com. The website is sponsored by the three credit reporting bureaus: Experian, Equifax and TransUnion.

2

Log on to AnnualCreidtReport.com and select the state that you live in from the drop-down box on the home page. Click "Request Report" and a new page opens. Enter your personal details accurately in the application form. Retype the security code at the bottom of the form into the box. Click "Continue." Your identity will be verified. Follow the simple online instructions to complete your request. View your reports online instantly. Now you have the information that you need to start to reestablish your credit history.

3

Check the reports for errors. Report any to the lender and the credit reporting agency that issued the history. Both have to respond in a timely fashion. Having errors corrected is the quickest method to reestablish you credit history.

4

Closely examine your reports to work out areas that need attention. Check payment histories. Late or missed payments negatively impact your credit history. Pay any late or missed payments to make your accounts up to date. Ensure future payments are made on time. Doing this regularly and not slipping again will eventually reestablish your credit.

5

Ensure that you pay your utility bills on time. Don't ignore the electricity, gas, water and telephone bills, as these companies also report to the credit bureaus. Timely payments establish a good credit history.

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Credit Rating Criteria

Knowing the criteria for determining your credit rating can help you maintain a good credit score. Credit ratings are important for various reasons. Ratings decide approvals for mortgages and other loans, and your credit score range determines the rate you receive on such loans. Learn the factors that influence your score and make wise credit choices.

Payments to Your Creditors

A good credit score entails improvement in various credit areas, and making timely payments every month to creditors, lenders and other bill collectors can help you raise a low score an maintain a good credit rating. Thirty-five percent of your credit score is based on your payment record. Paying on time each month often results in a higher score, whereas delinquencies and lateness reduce your rating. Budgeting and organization help with timely payments. Keep a mental note of due dates, and pay early.

Outstanding Debts

Don't let too many debts ruin your credit rating and make you ineligible for loans. Credit reports not only list the names of your creditors, but also the amounts owed to each company. The amounts owed is another criteria in determining credit ratings, and maxing out your credit cards or owing excessive debts can have a 30 percent negative impact on your personal score.

Long Credit History

A long history of credit plays a 15 percent role in credit ratings. With this said, it's expected for someone who's held credit for 10 years to have a higher score than someone who recently applied for his first line of credit. Maintaining a long credit history involves keeping older credit card accounts open, regardless of whether you use the card. Closing accounts reduce the duration of your credit history and brings down ratings.

Credit Types

Different types of credit affect credit ratings differently, and the mixture of accounts you hold makes up 10 percent of your credit score. For example, a mortgage loan or student loan may have little negative effect on your credit score, whereas multiple credit cards with balances can bring down your score. Acquire a mix of credit, and if you only have one credit account, add a another to diversify and help your score.

Credit Applications and Credit Rating

Inquiries factor into the remaining 10 percent of credit scores. Credit applications and inquiries are inevitable, especially if you need a mortgage or auto loan. However, don't get into a pattern of impulsively applying for credit. Excessive inquiries within a short period will harm your rating.

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How Long Do Negative Credit Scores Affect Your Credit?

Far too often people focus more on their numerical credit score than the root cause of their problems: a bad credit history. As long as you have a bad credit history, you probably will have a poor credit score. Because repairing a bad credit history does not happen over night, you must start the repair process as soon as possible.

Identification

Credit scores are the result of a poor credit history. Because credit scores vary depending on which credit rating scale a credit reporting firm uses, some lenders only look at items on your report, such as missed payments. However, credit scores are important for setting interest rates for many creditors, so it pays to know your range of scores. When you have a score lower than 600 to 620, you will have a much harder time acquiring loans than someone with at least average credit.

Considerations

Over time, credit scores recover on their own. Even if you have a perfect payment history starting today, you probably will not see any appreciable difference in your score for at least 30 to 90 days. Keep adding positive data to your credit history, such as an on-time payment or paying off a loan completely, and your score should eventually improve. At the very least, all negative items will leave your report within 10 years, and seven years for most items.

Getting Credit with a Bad Score

A low credit score and bad credit history does not necessarily stop you from acquiring new accounts. Some lenders have a reputation for having low credit requirements. Secured credit cards -- cards backed by a deposit -- and retail or gas card accounts rarely require anything other than a job and bank account. These accounts also tend to carry high interest rates and fees, so you should only use these types of accounts until you raise your credit score and qualify for a less expensive loan.

Tip

It always pays to try to boost your credit score by paying down debt and sending monthly payments to the creditor on time. You should also pull a personal report free via Annual Credit Report to find out why you might constantly face rejection from creditors. For example, missing payments can lower a score several dozen points and a 90-day late payment is almost as bad as bankruptcy.

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What Is a Credit Rating Scale?

Creditors and lenders tend to focus on the FICO credit score, but there are hundreds of types of credit scores used by lenders to determine creditworthiness, according to Experian. Each of these scores has its own rating scale. While the presence of different score ranges might confuse some consumers, credit rating scales tend to work in the same fashion. They help lenders to quantify the risk of an applicant.

Function

A credit rating scale rates how likely it is that a person will default on their loan. On the FICO credit rating scale, for example, anybody with a score of 780 and above has almost zero chance of defaulting on a loan. Someone with a score of 660 has a 1 in 72 chance of default on a loan.

Common Rating Scales

By far, the most common rating scale was developed by the Fair Isaac Corporation. The FICO model ranges from 300 to 850, which both extremes being difficult to reach. Another scale you might encounter is the VantageScore---an alternative to FICO developed by the major credit bureaus. The VantageScore ranges from 500 to 990.

What is in a Rating Scale?

Credit rating scales factor in information that is pertinent to a borrower's financial profile. The FICO model includes payment history, length of credit history, amount of credit used and negative items, like missed payments or public judgments. Not included are most utilities and rent payments. Alternative scores may use information not entirely related to loan repayment, such as banking records and cell phone bills. Some scales cater to niche markets, like mortgages, so they give more weight to items important to that specialty.

Considerations

Although lenders generally use the same credit rating scale, they may interpret scores differently. Lenders who are most risk adverse might only give approval at the best rates to those at the highest end of the scale, while looser lenders extend their range, but may charge more in interest. As long as you pay bills on time and keep debt to a minimum, you should place high on any scale.

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What Is a Credit Score for a New Car?

When you use credit, the creditor will report your account to the credit bureaus. The bureaus maintain a database of this information and use it to create your credit report. Lenders may view this data when you apply for a new car loan, so it's a good idea to understand what credit score you may need to be approved.

Identification

Your FICO credit score is based on the information found in your credit report. Both positive and negative account information will impact your score. FICO scores have a range of 300 up to 850, and the higher your score the better. According to CNN Money, to qualify for the best interest rates on an auto loan, you will need a FICO score of 720. The minimum FICO credit score for approval for an auto loan is 500.

Significance

A higher FICO credit score means you will receive a lower interest rate on your auto loan. According to Bankrate, the average interest rate for a new 60-month new car loan is 5.61 percent as of March 2011. The average interest rate for a 48-month new car loan is 5.56 percent. The lower your score, however, the higher the interest rate and the more you will pay for the car overall. Scores below 640 can have an interest rate of 12 percent to 30 percent, according to Bankrate.

Consideration

At 35 percent, your payment history is the largest, single factor considered in the calculation of your FICO credit score. The second is your debt load, which is 30 percent. To improve your score, myFICO suggests making all of your payments on time and reducing your amount of debt. Just one late payment can have a detrimental effect on your FICO score, causing it to drop anywhere from 60 to 110 points, according to MSN Money.

Warning

Steer clear of companies that promise to repair your credit or raise your credit score for a fee. These companies make promises that may be a scam, according to the Federal Trade Commission. Credit bureaus are required to remove errors from a report but not accurate, negative information. If you have an error on your credit report, the Fair Credit Reporting Act gives you the right to dispute it with the credit bureaus and have it corrected yourself for free.

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What Is My Credit Score After I File For Bankruptcy?

The Fair Isaac Corporation's FICO score is the primary assessment tool that banks use to determine loan eligibility. Declaring bankruptcy has a strong impact on your FICO score and your ability to borrow in the future. However, borrowing won't be impossible, and your score may even be higher. Understanding your score and how bankruptcy affects it can help you recover.

Understanding Your FICO Credit Score

Your FICO credit score is a three-digit number---ranging from 300 to over 800---that predicts how risky you are as a borrower. Sixty-five percent of the score is comprised of your history of on-time payments and current balances. The remaining 35 percent is a mix of the length of your credit history, the types of credit you have (credit cards, mortgage, car payment), and the amount of new credit you've received.

After Bankruptcy

If you were not paying your bills before you declared bankruptcy, your score was already very low. "Good" credit begins with a rating around 680, but a credit score after bankruptcy could be as low as 500. Your credit report after bankruptcy will show "0" balances on your accounts, and because the old debts that were dissolved during the bankruptcy proceeding were eliminated, they have no future hold on your income. As a result, you become a better loan risk, and your score may improve slightly.

Factors Affecting the Score

The reason for filing is important. If you declared bankruptcy as a result of unpaid medical bills or to escape a bad home loan, you will have an easier time improving your credit. If your filing was because of unpaid credit card bills or chronic overspending, it will be more difficult. Credit cards are the driving factor behind the FICO score, so a large number of accounts with late payments and large balances will drive your rating down.

Effects of Bankruptcy on Future Loans

Your credit score is the primary factor that determines your eligibility for new loans, and it will be low for at least two years after you file. Plan to pay more interest and fees as a result. Credit cards will be difficult to obtain, and you may need a secured credit card---where the entire credit line is deposited in cash as collateral---at the beginning. Lenders like to see a mix of loans, so an installment loan for a car or home is helpful. Make your payments on time and in full, and don't have too much credit.

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How to Remove Questions Related to an Ex-Husband on a Credit Report

Divorce ends a marriage but doesn't always end credit issues with a spouse. Joint credit obligations with your ex-husband will continue to appear on your credit report after your marriage ends. The judge in the divorce court can order your ex-husband to pay certain debts, but legally, the judge cannot end your responsibility for the joint debt -- or the reporting to the credit bureaus. For example, that means that you and your ex-husband both remain liable for a joint automobile loan, even if the court orders him to make the payments. Problems can occur when your ex-husband does not make timely payments on accounts that are his responsibility, because the delinquent payments show up on your credit reports. However, there are steps you can take to remove, or answer questions about, your ex-husband's debt responsibilities.

Instructions

1

Get copies of your credit reports from AnnualCreditReport.com. The site is authorized by the Federal Trade Commission to offer free credit reports under the terms of the Fair Credit Reporting Act. Credit reports are available through the site from major credit bureaus TransUnion, Equifax and Experian. View and print credit reports through the Annual Credit Report website.

2

Read each credit report to identify credit obligations that your ex-husband is responsible for paying as stipulated in your divorce decree. Make note of accounts that are past-due. Prepare a short written statement explaining your ex-husband's responsibility for the debts as stated in the divorce agreement. Keep the statement to just one or two paragraphs. Mention that you and your ex-husband are joint borrowers on the accounts and that he is responsible for making payments. List the names of the accounts.

3

Contact the customer service departments for Experian, Equifax and TransUnion to request placement of the statement on your credit report. Contact the credit bureaus by calling their respective customer service number as listed on the credit reports. The credit bureaus may take a brief statement over the phone and add it to your report, or provide instructions for mailing the statement. The statement will not improve your credit score or remove any information from your credit report. However, it can address questions creditors may have when reviewing your credit as you apply for loans. Creditors will see the statement each time they review your credit report.

4

Demand that the credit bureaus also remove any accounts belonging solely to your ex-husband. Credit bureaus sometimes make mistakes, and there is a chance an account your ex-husband owns may show up on your credit report. Follow instructions on your credit report for disputing and removing this information. Depending on the credit bureau, the disputes process is possible through the mail, online or by phone.

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Are There Any Real Free Credit Reports?

Consumers interested in obtaining free copies of credit reports may feel confused by the wide array of options for accessing this sensitive financial information. Learning the basics about your rights in accessing credit reports, including whether there are any real free credit reports, can help you avoid scams or disclosing private security information to fraudulent sources. Consumers do have the right to free credit reports in some circumstances.

Purpose

Your credit report contains a wealth of information concerning your credit history, including amount owed and types of credit accounts including installment loans such as home mortgages, student loans or auto loans and revolving credit accounts, like credit cards. Credit reports list any late, missed or delinquent payments and state when credit accounts have been referred to collection agencies. Obtaining a copy of your credit report helps make sure that it doesn't contain inaccurate information about missed payments; it can also alert you to accounts that have been fraudulently established by identity thieves. Since your current and previous addresses are listed, you'll be able to view whether criminals have established a fraudulent address under your name to misdirect statements.

Annual Report

Federal law permits consumers to access their credit report for free every 12 months from each of the national credit bureaus: Experian, Equifax and TransUnion. Consumers can request free credit reports by calling the credit bureaus, mailing a written request or completing an online form. Some consumers prefer to order all three credit reports at the same time to compare information listed, since the bureaus may rely on different information sources to compile credit histories. Others may stagger requests in order to review credit reports every four months, allowing for year-round oversight to catch errors or potential identity theft early on.

Additional Situations

Consumers are also eligible to receive credit reports under special circumstances, according to the Federal Trade Commission. For example, victims of identity theft or fraud are entitled to free copies of their credit report to correct inaccurate information. Welfare recipients and job seekers can also access free credit reports. Additionally, credit applicants who have been denied a loan, credit card or other credit tool because of negative credit report information are permitted to access a free copy of the damaging report in order to correct inaccurate information, if necessary.

Concerns

The Federal Trade Commission warns consumers of proxy websites, or fraudulent websites masquerading as authentic web pages for credit bureaus or other enterprises related to credit reports. Rather than arrive at credit report request websites through Internet search engines, visit the Annual Credit Report website first to minimize chances of being misdirected to a potentially dangerous proxy website (see Resources). Also beware that some companies may advertise that they can obtain your free credit report (or credit score) when you sign up for a trial membership for their credit monitoring service or related service. They may promise that you can cancel trial memberships to avoid steep fees; even when this is true, it's cheaper and more time-efficient to go through one of the credit bureaus.

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How to Add Trade Lines to Your Credit Report

Trade lines are credit accounts on your credit report. Each account counts as one trade line, and the trade line's information is used to determine your credit score. You can add new trade lines to your credit report to increase the amount of overall credit you have access to, or add more positive trade lines to rebuild your credit or establish new accounts to diversify your credit accounts.

Instructions

1

Apply for credit cards and store card accounts to add revolving credit to your credit report. Getting a mixture of revolving credit accounts between regular credit cards and store-specific cards gives you a slight point boost due to the diversity of credit accounts. If you have no credit or bad credit, store cards are typically easier to get than most regular credit cards. If you want to open a regular credit card account but you don't have the score to manage it, you can find a bank that offers secured credit card accounts.

2

Fill out a loan application for an installation loan trade line. Student loans, automobile loans and personal loans are all considered installation loans and count as the same loan type. Mortgages are also installation loans but are considered their own loan type when it comes to diversifying your trade lines. Small personal loans through local banks and credit unions are good options if your credit situation is not perfect. Buy here, pay here automobile dealerships can also help bad or no credit situations if you want an installation loan trade line.

3

Request credit accounts at rental stores, such as Rent a Center, if you need to establish a positive trade line without a credit check. The total cost of the item you are renting is typically higher due to an increased interest rate, but the positive account can pave the way to getting better credit accounts.

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What are the Parts of Credit Reports?

A credit report is an important tool that helps you understand your financial options. The information on it can mean a higher or lower interest rate on a mortgage. It can help you get a credit card, and it can stop credit card companies from accepting your application. A simple list can help you examine what the information on your credit report means.

Credit Score

An important piece of information on your credit report is your credit score, which shows whether you are credit worthy. It demonstrates to lenders whether you are a risky person for them to loan money to, based on your credit history. The score can be between 340 and 850. Higher numbers mean that you have better credit. People with high credit scores can get lower interest loans and mortgage rates. A score above 700 is considered very good, while a score under 600 is significantly poor.

Account Histories

The account histories section of your credit report shows when you opened and closed accounts. It shows your account status that can be open, inactive, closed and paid. It also describes what types of loans you have taken out including private and government student loans. Next listed is the credit limit on your accounts and how close you are to reaching it. Issues that do not look favorable in this part include over-the-limit checking accounts and unpaid child support.

Public Records

The public records section has any accounts that you have that are in collections. Financial-related legal issues can stay in this part of your credit report for around seven to ten years. Examples of issues that may be here include judgments, tax liens, and bankruptcies. These issues have a significant negative impact on your credit score and can mean that you receive higher interest rates from lenders.

Personal Information

Your personal information is also included on your credit report. The report shows your current address and all of your past addresses too. It displays your social security number, birth date and drivers license information. Another thing it has is your employment history.

Inquiries

The credit report that you pull shows all inquiries that have been made into your credit report. For instance, an application to a credit card company for a new line of credit means that the company makes a hard inquiry, which can damage your credit score if many are made over a long period of time. Make several applications within one time bracket to avoid damaging your credit with too many inquiries across a long span of time.

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Can You Get Financial Aid With Bankruptcy and Bad Credit?

Although bankruptcy makes it tough to obtain credit, it sometimes has no effect on your financial aid package and sometimes gets you more aid. However, bankruptcy can cause a lender to reject you for student loans. The best way to gauge how bankruptcy and bad credit affect financial aid is to consult your school's financial aid office.

Identification

You can get most financial aid, such as state and federal grants and work-study jobs, with a bankruptcy on file. The only items a bankruptcy affects are private student loans and the federal PLUS loan. Bankruptcy usually brings a person's credit rating to below average, which means you likely cannot get private student loans. If your parents have a bankruptcy on file, they cannot obtain a PLUS loan.

PLUS and Stafford Loans

If your parents cannot take out a PLUS loan on your behalf, you receive an extra $4,000 in unsubsidized Stafford loans during your first two years of college and an extra $5,000 in your last two years. Some students prefer a higher unsubsidized Stafford loan limit, because the Stafford loan usually has a lower interest rate. For instance, in June 2011, PLUS loans had an interest rate of 7.8 percent, while Stafford loans had an interest rate of 6.8 percent.

Federal Student Loans

If you have previous federal student loans that were not included in the bankruptcy and are in default, you cannot receive further financial aid until you become current on the loans. You should talk to your lender about federal student loan repayment. You can set up a repayment plan that gets you on track to paying off the loan on schedule instead of making a lump-sum payment. If you included federal loans under a Chapter 13 bankruptcy repayment plan, which allows a monthly payment based on your income, they are current.

Tip

Talk to your financial aid office about how a past or impending bankruptcy will affect your credit. The Department of Education could allow you to appeal a denial of a PLUS loan because of extenuating circumstances, such as medical bills driving you into bankruptcy. The financial aid office might count a Chapter 13 repayment plan as a debt, which could qualify you for more aid.

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What Is Figured Into Your Credit Scores?

Five different categories of information are taken into consideration when calculating your credit score, according to MyFICO. The bearing of each category on your score will depend on your specific circumstances. While a credit score is based only on information that is contained in your credit report, details such as race, gender, marital status and location are not used in the calculation of a credit score.

Payment History

Your payment history is worth 35 percent of your credit score. Payment history on your credit report details any late payments, including how delinquent the payment was and how long it has been since your last delinquent payment. It also will detail any bankruptcies, judgments, suits, liens or items in collection. If you have negative payment history -- especially recent history -- it can make it difficult for you to obtain new credit. On the positive side, accounts that have been reported by creditors as "paid as agreed" will also be detailed in the payment history.

Amounts Owed

The amounts you currently owe to each of your creditors will be used to calculate your credit score. Amounts owed are worth 30 percent of your credit score. The number of accounts you have, along with the proportion of the credit line you have used will determine part of your credit score. The less available credit you have, the lower your score will likely be because you could be considered a credit risk. If you already owe a substantial amount of money, it may be difficult for you to obtain more.

Credit History Length

The length of your credit history is important enough to warrant 15 percent of your overall score. The length of time each account you have has been open, along with the length of time that has elapsed since you last used a credit card account will be factored into the overall score. This area doesn't count as much as payment history and amounts owed because many creditworthy individuals may not have a substantial credit history.

New Credit

The amount of new credit you have received is calculated as 10 percent of your credit score. If you have recently acquired two new credit card accounts, your report will show that. If you try to obtain too much new credit at once, it can reflect poorly on you. This category can also work in your favor if you have recently opened a couple of accounts in an attempt to re-establish your credit history after a bad bout of credit problems. Again, this portion of your credit score is much less than the heavily weighted categories of payment history or amounts owed.

Types of Credit

The types of credit that you use in relation to how much of each type and the information related to each are also taken into account when figuring a credit score. Whether you use retail accounts, installment loans, credit cards, mortgages or consumer finance accounts will show up on your credit report. This category counts as 10 percent of your score.

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Will a Mortgage Payoff Negatively Affect a Credit Rating?

Many homeowners dream of the day they pay off their mortgages and become the sole owner of their homes. Like any loan, paying your mortgage affects your credit score, and paying off the mortgage may actually end up lowering your score. However, any negative impact you incur against your credit score will likely be minimal.

Credit Scores

Your credit score is a three-digit number that tells lenders if you represent a risky or sage prospect for a loan. Every time you pay your bills, apply for a new loan or pay down your debt, your credit score may change. People with higher credit scores are considered responsible borrowers, while those with low scores are considered more risky. When companies calculate your credit score, they take all the information on you credit report and use that as the basis for the calculation.

Mortgages

How much each item on your credit report matters differs between companies. In general, there are five key factors that are considered to make up your score: your payment history, how much available credit you use, how many new loans you have, what kind of loans you have and the average length of your loans. A mortgage affects several of these factors, including the variety of loans you have, your payment history and the length of your loans.

Lower Score

When you pay off your mortgage, you finish payments of the installment loan and are no longer responsible for making monthly payments. This transaction gets listed on your credit report and taken into account by the companies that determine credit scores. If your home loan is the only type of installment loan you have, paying off the mortgage may actually lower your score. However, Kiplinger's reports that any negative effect it has will be small and will not seriously impact your score.

Impact

If paying off your mortgage lowers your score, you can easily raise it again. One key credit score, the FICO score tabulated by the Fair Isaacs Corp., counts the variety of loans you have as 10 percent of your score. If by paying off your mortgage you eliminate the only installment loan you have, you can increase your loan variety by taking out a new installment loan, such as a car loan. However, the slight negative impact you may experience by paying off the mortgage is not normally enough in itself to justify taking out a new loan just to raise your score.

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Clean Credit Information

Cleaning your credit not only helps when qualifying for financing, but maintaining a clean credit history can help you find the best auto insurance rates and affect employment options. Improving credit is no easy task, and credit score increases occur gradually with good habits. Learn what it takes to clean up your credit, and then take steps to prove that you're creditworthy.

Avoid Late Payments

Credit scores are largely determined by how well you repay your debts each month. One missed payment may not ruin your score, but if you never submit a payment on time, or if you are known for late payments with creditors and lenders, you can anticipate a huge drop in your score. Fortunately, bad credit resulting from a bad payment history is reversible with smarter choices. Begin cleaning your credit by assessing your payment record. Do you submit payments past the due date? Do you skip payments? Start fresh and from this point forward, always send payments before or on due dates. Creditors and lenders will start reporting timely payments, and your score will start to improve.

Control Debt

Don't view credit card debt as another monthly payment. Carrying excess debts -- balances more than 30 percent of the credit limit -- will harm your personal score and hinder efforts to clean up your history. Credit cards provide short-term solutions to money issues. But if you use credit for every purchase and only pay the minimum due, you increase your chances of accumulating huge balances. Control debt by stopping unnecessary spending. Use credit sporadically, and only if you can afford to pay off a charge in full by the next statement.

Free Credit Report

The Annual Credit Report website is the place to check your personal credit reports for free. If you have a credit account and a credit history, you're eligible for one free report each year from each bureau. You aren't required to enter your credit card information, and acquiring a free report is not subject to signing up for additional services. Go to the Annual Credit Report site (see Resources), enter your personal information, answer a few questions to verify your identity and then access reports from Experian, TransUnion and Equifax. Checking your reports is crucial to cleaning up reporting mistakes made by creditors and identifying identity theft early.

Collections and Judgments

Paying a collection account or judgment may not eliminate the negative item from your report. But if looking to finance a car or house, paying off a collection or judgment and asking the creditor to include a statement saying that the "account is paid" can help your qualifying efforts. These items stay on reports for seven years. But paying off an old debt may convince a creditor or lender to look past the delinquency and conclude that you're responsible to handle future loans and credit.

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How Much Will Paying a Judgment Help My Credit Score?

Although more than one credit scoring system exists, most businesses that check credit scores request a FICO score. Your FICO score lies somewhere between 300 and 850. Positive credit entries, such as timely payments to lenders, increase your credit score while negative entries, such as judgments, diminish your score. Sustaining a high credit score helps you qualify for a variety of goods and services and ensures that later lenders charge reasonable interest charges on new credit and loans. If a civil judgment on your report is dragging your score down, paying it off benefits your financial future -- even if it doesn't help your credit score.

Credit Score Impact

Because civil judgments are derogatory public records, paying off a judgment does not benefit your credit. Your credit score remains the same regardless of the judgment's status on your credit report. This is because the original judgment demonstrates you previously overlooked a debt -- crucial information that assists credit and loan companies when deciding whether to work with you.

Considerations

While a credit report judgment notes past irresponsibility, paying off the judgment demonstrates that you are compensating for your financial mistakes. Lenders will still take your low credit score into consideration, but paid debts reflect better upon you than unpaid ones. This is an important fact to consider since judgments often remain on credit reports longer than other entries.

The Fair Credit Reporting Act (FCRA) specifies reporting periods for each piece of information that could potentially appear on your credit record. While most derogatory items disappear after only seven years, a judgment can show up in a credit inquiry for much longer. Unlike other entries, states set the reporting period for judgments. Because a judgment could linger on your credit report for up to 20 years in some states, more future lenders have the opportunity to see and consider it. The sooner you pay it off, the more responsible you will appear and the more likely you are to obtain the goods and services you need.

Preventing Credit Damage

Paying off the judgment does not improve your credit score, but preventing the entry from ever appearing in your credit file prevents your score from dropping. Some states, such as New Jersey, provide debtors with a certain amount of time to pay the judgment before the court "dockets" it. Once the court dockets your judgment, the debt becomes public record and appears on your credit report. If your state grants you the option to avoid docketing through immediate payment, satisfying the debt quickly prevents it from ever showing up on your credit report and blighting your good credit score.

Improving Credit Scores

If the court already docketed the judgment or your state does not give you the option to prevent docketing through payment, you can offset the damage a judgment does to your credit by improving it other ways. You can help your credit score steadily increase by keeping your credit card balances low, paying your bills on time each month and disputing credit errors with the credit bureaus.

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What Method Does FICO Use to Calculate Credit Scores?

Your FICO credit score is a three-digit numerical representation of the information contained within your credit report. It ranges from 300 to 850. According to Fair Isaac Co., inventors of the FICO scoring model, your FICO credit score measures five key credit areas.

Identification

Thirty-five percent of your FICO score reflects how well you pay your debts. How much debt you owe is 30 percent of the score. The length of your credit history is 15 percent, the types of credit you have is 10 percent and the amount of new credit opened accounts for the final 10 percent.

Considerations

Your payment history has the largest impact on your FICO score and explains why it's so important to make all of your payments on time. Late payments will drop your score. How much it drops will depend on the other factors present on your credit report.

Warning

Credit report errors can lower your score. Check your credit report at least once a year. If you find mistakes, you have the right under the Fair Credit Reporting Act (FCRA) to file a dispute with the credit bureaus to have that data removed or corrected. The bureaus have up to 30 days to investigate your dispute and make changes.

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How to Understand and Upgrade Your Credit Score

One of the most important numbers in your life is your credit score. That three-digit number determines whether you qualify for a mortgage, what interest rate you will get on a credit card or auto loan, whether you can get an apartment and sometimes, even a job. Lenders and employers are increasingly looking at your credit score to determine whether you are financially responsible.

Instructions

1

Learn what factors do and do not affect your score. Your income, age or race has nothing to do with your score. What does matter is payment history, amounts owed, length of credit history, types of credit used and new credit. Your credit score ranges from 300 to 850. If your score falls below 660, you probably will not qualify for prime interest rates. Any score below 600 typically puts you in the subprime loan category.

2

Pay your bills on time if you want a good credit score. Payment history on your credit report accounts for the largest percentage of your credit score -- 35 percent. Payment history includes whether you make your payments on time or late, delinquencies and bankruptcies.

3

Keep a large amount of available credit. The amounts-owed category on your credit report accounts for 30 percent of your score. How much you owe on your credit cards and installment loans falls under this category. What makes your score go up or down is how much available credit you use. Maxing out your credit cards, for example, does not look good on your credit report; using only 25 percent of your available credit does.

4

Apply for credit. Length of credit history accounts for 15 percent of your score. The longer you have had a credit history, the better.

5

Keep a healthy balance of the types of credit you have. Types of credit accounts for 10 percent of your score. Your credit report lists your credit cards, installment loans and mortgages. You don't want to have a lot payday loans and nothing else, for example.

6

Say no when a retail store entices you to apply for credit if you are planning to apply for a mortgage or an auto loan. New credit accounts for 10 percent of your score. When you open several accounts in a short period, this sets off a red flag to lenders who look at your credit report. For people who don't have a lengthy credit history, applying for a lot of new credit looks especially risky, according to Bankrate.com.

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How to Get a Free FICO Score Online

When you apply for a loan or a credit card, the agency will review your FICO credit score to determine if it will give you the credit line you desire. If your credit score is too low, your application may be rejected. If a credit score is high, your interest rates and monthly payments may be reduced. Your credit score affects many aspects of your life as even landlords and employers run a credit check.

Instructions

1

Visit the Annual Credit Report website (see Resources for a link). This website allows you to receive your free credit report, including FICO score, from the three credit reporting agencies: Equifax, TransUnion and Experion. This website will not ask for credit card information.

2

Select your state on the Annual Credit Report website. Click on the "Request Report" button.

3

Complete the form by providing basic information, including your name, address, date of birth and Social Security number. Click the "Continue" button.

4

Select which agencies from which you wish to view your credit report. If you want a report from all three, mark the box next to all three agencies. Click the "Next" button.

5

Follow any additional steps to access your credit report and FICO score. Verify your information with each website. You will be asked personal questions, such as about banks you have used or addresses you have previously resided. Once you answer these questions, your requested credit report and FICO score will be displayed. This step will need to be repeated for each additional agency from which you requested a report.

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Basic Credit Reports

Knowing the information on your credit report helps you qualify for different types of financing, from mortgage loans to credit cards. Some consumers don't review their own credit report, which often results in errors and identity theft. Learn the importance of an accurate credit report and learn how to acquire your personal file.

Purpose of Reports

Credit reports are documents that reveal your entire credit history; they feature every credit account that you've held in recent years and the status of each account. Lenders checking your credit to assess your habits can see this information, and based on their findings, they decide to approve or reject your application for a credit card or loan. Factors that harm credit reports and scores include late payments, delinquencies, collection accounts, bankruptcies and foreclosures.

Free Credit Reports

Every consumer should check their personal credit report at least once a year. Every consumer has three credit reports available from the three major credit bureaus--TransUnion, Experian and Equifax. Consumers can request a free report by contacting each bureau individually, or by requesting free reports from Annual Credit Report. Annual Credit Report is the company authorized to provide consumers with free reports from each of the bureaus. Consumers can request a report online from the company's official website and view their complete reports within minutes.

Disputing Mistakes

Credit report mistakes can occur, and depending on the seriousness, mistakes can impact credit scores. What's more, someone can steal your personal information and open an account in your name. This fraudulent account can appear on your credit report and possibly lower your personal score. If ordering credit reports from Annual Credit Report, there's a link on the website that lets you file a dispute online. You can also dispute errors by contacting the creditor who reported the information and asking them to investigate the mistake and update your file.

Reports and Inquiries

Checking your own credit report will not reduce your credit score. However, credit checks or inquiries conducted by creditors and lenders can impact your credit score. Sporadic or one-time inquiries may not affect your rating. On the other hand, frequently applying for credit, such as completing pre-approved credit card offers, or completing applications for a retail charge card will take points off your score. Only apply for credit when necessary.

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Positives Vs. Negatives in a Credit Report

Your credit reports, compiled by the TransUnion, Equifax and Experian reporting agencies, contain neutral data, such as your name, current and previous addresses and employers, phone number and Social Security number. Your credit bureau files also have information considered either positive or negative by creditors. Lenders weigh the good and bad when you submit credit applications, and they base their decision on you creditworthiness -- whether you are a good credit risk or likely to default -- on information in your credit report .

Positives

On-time payments are the most important positive items on your credit reports, because lenders want to deal with responsible people who pay bills as promised. Your credit score is based on credit report data, and 35 percent of your credit score is determined by the payment history on all your accounts, according to the MyFICO scoring company. Creditors also like to see a mixture of revolving credit, such as credit cards, and installment loans rather than just one account type. The amount of debt on your credit report can be a positive factor if the percentage of debt is low compared with your credit limits.

Negatives

Negative credit report information includes anything that shows you are having trouble making payments or are deeply in debt. Late payments are extremely bad for your reports, as are delinquency entries, including any balances charged off as bad debt, foreclosed homes, repossessed cars, bankruptcies, accounts being managed by debt collectors and lawsuits for non-payment. If your credit card balance is at or near your credit card limit, that is a negative item on your credit report. MyFICO warns that too many inquiries for new accounts within a short time also hurt your credit rating, especially if you make more than six within a few months.

Time Frame

Most of your credit report negatives are removed from your files by TransUnion, Equifax and Experian automatically after seven years, according the Federal Trade Commission (FTC). Data covered by this reporting limit includes late payments, account write-offs, collection agency entries, car and home repossessions and court judgments for unpaid bills. Bankruptcy is subject to a longer time frame, with automatic erasure in 10 years. Positive credit report entries show up indefinitely as long as the accounts are open, Experian notes. Positive closed accounts generally disappear in 10 years.

Considerations

Creditors pay the most attention to your recent financial activity, even though credit reports go back seven to 10 years. Bad credit can be repaired over time if you bring past-due accounts up to date and build up a long string of timely payments while paying down high account balances, according to MyFICO.

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How Are 3-in-1 Credit Scores Evaluated?

The three major credit bureaus, Equifax, Experian and TransUnion, offer a 3-in-1 credit report or score. Each bureau offers a score based off the information that has been reported.

Breakdown

A credit report contains information about various credit accounts, companies who have requested credit information, payment history, and collection accounts. Facts from lenders and collection companies are reported to the credit bureaus and placed on a credit report. All that information collectively determines a credit score.

Open and Closed Accounts

Depending on the type of account or charge off, information can remain on your credit report for as long as ten years. Accounts closed as a charge-off or collection account, such as foreclosures and repossessions, can stay on a report for 10 or more years.

Inquiries

Companies requesting credit reports issue a hard inquiry. Inquiries remain on credit reports for two years. There are two types of inquiries. A soft inquiry is when an individual requests their own credit information. When applying for credit or a loan, a hard inquiry can "cause a 5 point drop", according to All About Credit Scores at credit.com.

Payment History

With loans and credit cards, making payments on time is wise. If a payment is missed, the financial institution will report a late or missed payment to the credit bureaus. According to a Quicken Loans representative, Michael Sorenson, "A score can drop 30 to 50 points by making a payment 30 days late."

Collection Accounts

If an account is not paid per the terms of agreement, it can be sold or turned over to a collection agency to request payment. When the account is turned over to that company, it will report to the credit bureaus the status of the account.

Considerations

Not all information is identical on each report. Some companies will report to only one or two bureaus. Each score issued by a credit bureau in conjunction with the FICO scoring practices will differ. The Fair Credit Reporting Act requires each major bureau to provide one free copy of your credit report every 12 months. Although these reports do not offer a score, they will give up to date information.

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Can I Add Something to My Credit That Was Not Reported?

After checking your credit reports, you might feel disappointed if you find you have no credit history or fewer accounts than you expected. This frequently happens because customers mistakenly think that any bill they pay goes in their credit history. You can add something omitted from your credit history to your file, but it might not help you obtain credit.

Identification

Technically, you can add something to your credit report that was not updated by your creditor, but only if the creditor subscribes to the credit reporting bureau and you have proof of the item. For example, if you were a customer of Bank 1 that reports to Equifax, you can furnish evidence that you have a credit card with the bank by sending in a copy of your monthly statement to Equifax, but not TransUnion unless Bank 1 also subscribes to its reporting service.

Alternative Credit

Millions of Americans have no credit history with the major credit reporting bureaus, so companies called alternative credit reporting bureaus report the accounts not normally picked up by TransUnion, Experian or Equifax. You must pay for this service and prove payment history, such as with a canceled check. The Equal Credit Opportunity Act requires banks to consider alternative credit histories in lieu of a traditional credit history, but it does not guarantee that an alternative score has to satisfy a lender's borrowing requirements.

Contacting Creditor

Adding something to your traditional credit history usually works best when you have only one or two items missing. If a creditor always fails to report your payment history to the credit bureaus, there is probably a glitch with the bureau or the creditor. Contact the creditor about the problem. There could be a larger underlying problem, such as the bureau mixing up your profile with another person's.

Considerations

If you try to add data to your report and the bureaus reject your request, you might have a creditor that does not report to them. In this case, your only option is to self-report the payment history to an alternative bureau or work with a creditor that reports your accounts to the national bureaus. You should work with at least one creditor that reports to the major agencies so you have a wider array of choices when you need to apply for credit.

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