2013 ~ Personal Finance and Money Management

Monday, December 16, 2013

Personal Credit Rating System Problems

9:56 PM 13 comments

As credit reports and credit scores become more embedded in the social consciousness of consumers, the personal credit rating system is more important than ever. We've never known more about the formulas that determine whether we'll get approved for credit and what kind of rates we'll get, which is both a blessing and a curse. While we can now build our credit around the metrics used by the banks, we can also see the flaws inherent in the system.

Today's most prominent personal credit rating system, the FICO score, takes into account five major factors from our credit reports. Of the five, the most important is your history of paying on time, which counts for more than a third of your score. Your level of debt in relation to your credit limits comprises 30 percent of your score, the age of your accounts is another 15 percent, and your mix of credit types and the number of inquiries on your credit report each count for 10 percent. The end product is a number that gauges the level of risk that you'll faithfully repay your debts to your creditors in a timely manner.

One huge problem in today's credit world is that, while you can get your credit report for free, you have to pay for a credit score that tells you how your credit really stacks up. This becomes problematic when you consider the many companies that try to hook you in with a "free" credit score, only to charge you for a monthly credit monitoring service you don't want. Worse, these companies don't sell FICO scores; instead, they sell their own scores using their own metrics, which may or may not line up well with your FICO score. As a result, you could end up getting charged upwards of $15 a month for a score that isn't even accurate.

Another drawback of the personal credit rating system is the priority it places on your mix of credit-based accounts. In essence, the credit system rewards you for having huge debts like mortgages, auto loans and student loans. One could argue that this is in the best interest of the banks, as it allows them to collect huge amounts of interest while simultaneously patting the backs of their customers. The idea behind the credit mix is that banks want to see how you can handle a big monthly payment; however, some consumers are so obsessed with their credit scores that they carry balances on their cards just so they can have a better credit mix.

With credit being such a huge issue in today's world, it's no wonder there are so many companies focused solely on helping people repair their credit ratings. However, what should be a benevolent industry is instead quite shady. Credit repair companies and debt settlement companies have come under fire from the Federal Trade Commission for taking the money of customers and providing nothing in return. Meanwhile, credit counseling agencies, which are seen as more legitimate, are largely owned by the credit card companies. It can be hard for customers to tell if any of these groups have their best interests at heart, leading people to neglect the help they so desperately need to get their credit fixed.

What If There Is An Error In Your Credit Report?

9:34 AM 7 comments

Under the Fair Credit Reporting Act, FCRA, you have rights as a consumer that entitle you to accurate reporting of your credit history. Both the credit reporting agency and the entity providing information about you are responsible for the accuracy of the information on your report. The Federal Trade Commission, or FTC, is the federal agency tasked with enforcing the FCRA, and can provide some assistance in correcting errors on your credit report.

The first step to take if you identify an error on your credit report is to inform the reporting agency, in writing, disputing the error. Include with your letter a copy of any documents that supports your contention that the report is in error. An error may be the amount due on an account, details about late payments or delinquent accounts, or charges you never made. There may be one or more errors in your report, in which case it may be helpful to include a copy of your credit report with individual items with mistakes circled. You should also obtain your report from the other major reporting agencies to see if they've duplicated the error.

Under federal law, the reporting agency has 30 days to investigate the charge once it receives your letter unless it is clearly a frivolous claim. In doing so, the credit reporting agency will contact the creditor providing the information and attempt to ascertain the facts. The credit reporting agency must provide you with a copy of its findings along with the name and address of the relevant information of the providers. The agency must also provide a free copy of your credit report if the error is corrected, and reports for up to the previous six months upon request.

Even though the credit reporting agency will contact the creditor, you should not wait to contact them yourself, in writing. Send a letter similar to the one you sent to the reporting agency disputing the charge. This then forces the creditor to report your dispute of the charge to any reporting agency to which it provides information. Include with your dispute letter copies of any evidence you sent to the reporting agency. If the creditor determines that the disputed information is in error, it must submit a report to all three major credit reporting agencies.

If the error on your credit report is a charge you didn't make, it may be a sign of identity theft. If you suspect you've been the victim of identity theft, you should immediately call the reporting agency and place an initial fraud alert on your account. This will trigger all three major credit reporting agencies to send you a free copy of your credit report. It will also prevent anyone from opening a new line of credit in your name for 90 days, but won't prevent usage of existing accounts. You may have to close down an account that has been tampered with and file a police report. Filing an identity theft report with the FTC can facilitate the process with the police.

How to Dispute the Validity of a Credit Report

2:09 AM 5 comments

Your credit history has a direct effect on your financial health. Having negative items on your credit report, such as late payments, charge-offs and collection accounts, can bring down your credit score and make it difficult for you to qualify for a new credit card or loan. Even worse, the credit bureaus who keep a record of your credit history can make mistakes, giving you a negative rating you do not deserve. By law, you have the right to review your credit report and dispute inaccurate information.

Instructions

Order a copy of your credit report from each of the three major credit bureaus. By law, you can order a copy of your credit report from TransUnion, Equifax and Experian free once a year through Annual Credit Report.

Print a copy of the credit report.

Review the credit report carefully and circle any errors, including accounts reporting inaccurate information and accounts that do not belong to you.

Write a letter to the credit bureau indicating that you wish to dispute the information. Be as detailed as possible when explaining the error.

Gather any documents to support your dispute, including copies of paid bills or written letters between you and the creditor.

Attach your documents and a copy of your credit report to the back of your dispute letter. Mail the dispute letter certified mail.

Contact the credit bureau that reported the error and inform them that you wish to open a dispute.

Provide the customer service representative with a detailed explanation of why you are disputing the information. Ask the representative for her full name and extension. Write the down the date and time or your call as well as your claim number and the name and extension of the representative.

Contact the credit bureau 30 days from the date of your original call and verify that they have conducted an investigation. By law, the credit bureau must investigate your claim and remove or correct inaccurate information within 30 days.

Visit the credit bureau's website and click the link to file an online dispute.

Enter in the requested information in every text box on the online dispute form, being as accurate as possible.

Press "Submit" to start your online dispute.

Contact the credit bureau in writing or by telephone if you have not received a response within 30 to 45 days from filing your dispute.

How Can I Get a Credit Report on a Person Who Is Not My Relative?

5:29 PM 5 comments

Creditors use credit reports to help determine if someone is a good candidate for a loan or other form of credit. Every person who has ever used credit has a credit report, and while you can look at your own report for free once a year, you cannot look at someone else's report without permission. You cannot even view your spouse's credit report unless you have legal permission, and looking at a non-family member's report is no different.

Instructions

Ask the person for a copy. The easiest way to look at someone else's credit report is to have that person get his own report and give it to you, or give you a copy. Everyone is entitled to a yearly free copy of his own credit report, and can easily obtain it by going to AnnualCreditReport.com, the only site authorized by the Federal Trade Commission to provide your yearly report.

Get written permission from the person whose credit report you wish to inspect. The document notifies the person that you intend to check the person's credit report, asks for particular information such as the person's social security number, birthday and address, and asks for the person's signature and permission to inspect the report.

Contact a consumer credit reporting agency. There are three consumer credit reporting agencies that maintain consumer credit reports: Experian, TransUnion and Equifax. You can contact these companies through the mail, phone or online vie their individual websites.

Equifax

P.O. Box 740241

Atlanta, GA 30374

1-800-685-1111

equifax.com

Experian

P.O. Box 2002

Allen, TX 75013

1-888-397-3742

experian.com

TransUnion

P.O. Box 1000

Chester, PA 19022

1-800-888-4213

transunion.com

Free Credit Score Online & No Credit Card Required

10:38 PM 6 comments

A credit score is a three-digit number that represents your creditworthiness based on information in you credit report. While it is impossible to calculate your credit score yourself, you can manage whether your credit score increases or decreases each month. You can obtain a free copy of your credit report once a year through AnnualCreditReport.com to monitor your credit-related axctivity, and you can order your credit score for a fee or, in some instances, for free.

Sometimes you can obtain a credit score free as part of a trial membership to an online credit monitoring service. These trial memberships may last from seven to 30 days, and they require you to provide credit card information. Keeping track of the cancellation terms and periods can be difficult, and if you forget to cancel the membership before the trial period expires, you will be charged a fee. Instead, you can find a free credit score service provider that offers your score without a credit card.

Free credit score resources online are scarce, but they are available with research. Websites such as Credit Karma and Quizzle provide you free credit scores in exchange for your personal information. However, no credit card is required to create an account. Both websites also offer credit monitoring services at no additional costs. Email alerts are sent each month to notify you of changes to your credit score and remind you to login to check your account. While less sophisticated than credit monitoring services offered by the three major credit bureaus, basic credit monitoring offered by free credit score outlets helps you manage your credit rating over time. These websites do not replicate the FICO credit score, which is the one used by most lenders, but they provide a credit score that is similar.

In addition to free credit monitoring services, applying for a installment loan online is another way to learn your credit score. One disadvantage to learning your credit score this way is that your credit score decreases with new credit inquiries, which occur each time a lender checks your credit report. An installment loan, such as a mortgage or car loan, is a loan repaid in increments until the balance reaches zero. When you apply for preapproval for such a loan, you receive an acceptance or denial notice that often includes your credit score. The credit score is included to explain the interest rate quoted for the loan.

Free credit score monitoring is available to help you better manage your credit rating. Though credit cards are not required when ordering your credit score from a free service, your Social Security number is usually required. Your Social Security number is used to verify your identity and ensure you receive the correct credit information. To ensure accuracy, order your credit score from multiple free outlets and compare your results. Credit scores won't be exact matches, because they don't always come from the same credit bureau, but each score should be fairly close.

How Much Does Your FICO Score Change Once a Charge Off Has Been Taken of Your Credit Report?

9:59 PM 5 comments

Charge-offs can do serious damage to your credit score, so getting them removed is an important step in improving your credit. Once removed, you should see an improvement in your score, though the extent of the improvement depends on other factors, including the age of the debt.

A credit score is a number that represents your financial history, particularly your use of credit. A higher credit score indicates a history of responsibly using of credit. There are several different formulas used to develop credit scores, though the best known is the one developed by the Fair Issac Company (FICO).

If a creditor believes that you are not going to pay a bill, it will eventually "charge-off" your account as a loss. In most cases, the creditor will write your bill off as a tax loss and either assign or sell your account to a collection agency. The creditor also reports the account to the credit bureaus as a charge-off, which will lower your credit score. Even though your account is "charged-off," you still owe the money. Many lenders, particularly those that specialize in mortgages, won't issue you a loan until you either pay off a charged-off account or get it deleted from your credit reports.

If you have a charge-off on your credit report and you do not believe that the account is yours or that you actually owe that creditor money, initiate a dispute with the credit bureau that is reporting the charge-off. If the account is yours, contact the creditor about getting the debt paid off. You may be able to get the charge-off removed from your account if you agree to pay off the debt. Charge-offs will drop off your credit report after 7.5 years passes since your last payment on the account. However, federal law allows credit bureaus to include old accounts on reports requested by lenders, insurers and employers if you are asking for an insurance policy or loan over $150,000 or a job that pays more than $75,000 per year.

While a charged-off account can initially lower your credit score by 50 to 100 points, your score may not suddenly jump up 50 to 100 points right after a charge-off deletion. This is because there are several factors that make up your credit score, and some areas of your credit may have improved or worsened over time. The debt's age also matters: If you get a very old charge-off removed from your report, don't expect to see a huge change in your credit score, as the impact of old negative accounts lessens over time.

Which Credit Score Do Lenders Use?

2:04 PM 5 comments

A credit score can determine whether you get a loan and affect other aspects of your life, such as getting a job, but not all credit scores are the same. Most lenders use the same formula to calculate your credit score, but they rely on information gathered by a third party. However, there are several alternative scores lenders can consult.

As of 2010, most lenders use a credit scoring formula developed by the Fair Isaac Corp., according to Kiplinger. The FICO score is so common among lenders that credit scores are often synonymous with the FICO model. Each of the three credit reporting agencies, however, have different information and scores can vary by several dozen points.

The Fair Isaac Corp. updates the FICO formula every few years. In 2009, for example, the latest FICO version was 08 and it would give a much different score than a lender using the FICO 98 formula, according to Consumer Reports. FICO also has scores based on niche needs, such as a formula designed for lenders who specialize in car loans.

Credit rating bureaus may try to sell you their own credit scores, such as the Experian ScoreX or TransUnion TransRisk, according to credit expert Michael Bluejay. The real FICO score sold by credit rating agencies also go by different names. Equifax calls the FICO score a "BEACON," Experian the "Experian Score" and TransUnion the "EMPIRICA," according to the Fair Isaac Corp.

Creditors typically use credit reports from all three ratings agencies and consider your median score your true FICO score.

All three credit bureaus -- which control almost the entire consumer credit rating industry -- started backing the VantageScore developed by these same credit bureaus in 2006, according to MSN Money Central. The VantageScore claims it gives consistent scores, while weeding out more bad borrowers than the FICO model. The FICO model, for instance, can give high scores to borrowers with a limited credit history.

As of 2010, there is not enough information to determine whether the VantageScore will supersede the FICO. Only 5.4 percent of lenders chose the VantageScore model between 2006 and 2009, according to Bankrate.

Many companies, such as Ford, use credit scoring formulas they create themselves, according to Consumer Reports. Banks sometimes purchase a credit history and calculate a score themselves. Some lenders look at scores from companies that report payments not traditionally included in credit reports, such as rent and utilities.

How to Dispute Your Credit Report & Win

8:33 AM No comments

If you find mistakes in your credit report, it's up to you to initiate the process of getting them fixed. While the process can be lengthy and tedious, it is possible to successfully dispute inaccurate information in your credit report.

Instructions

Obtain copies of your credit report from all three major credit bureaus. Each consumer is entitled to one free copy of her credit report every 12 months from each of the three major credit reporting bureaus. It is a good idea to obtain all three reports at once to determine whether inaccurate information is duplicated on more than one report.

Gather receipts, canceled checks, and other evidence of payments. Make photocopies of all relevant records. You will need these copies to submit with your dispute form or letter. The more evidence you can provide, the better your chances are of winning a dispute.

Obtain an official dispute form from the credit reporting bureau. The form should include entries for the name of the creditor, the contact address, and the amount of the bill. State exactly which items you believe are inaccurate and present evidence to support your claim.

Contact each of the disputed creditors with a copy of the dispute form being sent to the credit reporting bureaus and a letter specifically targeted toward the creditor in question. The letter should contain the account number along with a description of the disputed item(s), including the amount(s) and date(s). State your specific objections and provide copies of your receipts and other proof of payment.

Follow up with the credit reporting bureaus and the individual creditors. If you do not receive a response within a specified period of days (generally 60 to 90 days), contact the credit reporting bureau and/or the individual creditor again. Keep following up until the situation has been satisfactorily resolved.

Check again after the dispute has been resolved. Especially if the dispute was decided in your favor, you should make sure the necessary changes are made in your credit report. In some instances, you may have corrected reports sent out on your behalf to potential employers and prospective landlords, among others, at no charge to you for a specified period of time.

Does Your Credit Score Get Hit When Your Credit Is Pulled?

11:16 AM No comments

When you apply for credit or a loan, the lender must look at your credit report to check the strength of your credit, a process called an inquiry. You naturally want to shop around to get the best deals but may worry that if too many creditors are looking at your score, it could lower the score. While this is true, it's probably not something you have to worry about.

Suddenly acquiring a lot more credit seems like a risky behavior to the credit companies, and they can lower your credit score as a result. Though it may be a small difference, that small amount could mean a big difference in your loan rates and the amount of money that you pay over the lifetime of the loan you get. When shopping for the best rates, you need your credit score to be as high as possible.

When you apply for a credit card, you typically know up front what type of rate you can get on it. With mortgages, auto and student loans, however, you want to shop around so you can get the lowest rate. The credit bureaus know this and do not penalize you for shopping rates -- these types of inquiries are in a different category than credit card inquiries. All of the inquiries on your account within a 45-day period for these types of loans will count as just one inquiry on your account.

Each inquiry on your account can reduce your credit score by 5 points, according to myFICO. That's enough to drop you into second- or third-tier ratings, though. Inquiries for credit cards can be particularly damaging because your score can drop 5 points for each one.

When shopping for rates, do your best to keep all of your shopping within the 45-day window. This is best anyway, as rates change on a daily basis. Even if your score does take a small hit from the credit inquiries, you can quickly raise it back up by being financially responsible -- paying your bills on time and working to reduce your debt.

What Affects a Middle Credit Score

10:00 AM No comments

If you've got a mid-range credit score, chances are you've managed your credit with responsibility but hit a few snags along the way. Getting your credit score out of the middle range and into the excellent range requires an understanding of what factors can increase or drag down your score. With some time and dedication to achieving a better score, you can attain a score that will ensure you get the best terms on credit cards and loans.

The three credit bureaus -- Equifax, Experian and TransUnion -- use their own credit scoring models, so your may have different scores for each bureau; even the same number across the three bureaus can mean slightly different things. Further complicating things is a fourth score, called a FICO score, that is often used by lenders. For instance, Experian's credit rating system, goes from 330 to 830, while TranUnion's goes from 150 to 934.

Late or missed payments are among the most common factors negatively impacting middle scores. Late or missed payments will stay on your report for seven years. Conversely paying bills on time is the most important thing you can do to boost your credit, according to the Experian website.

Having a lot of open credit cards with high balances can negatively impact your credit score, according to the Experian website. Loans with high rates that prevent you from repaying the debt quickly can also put a damper on your credit score. However, paying such debts off quickly and making on-time payments can positively impact your score.

If you marry someone with poor credit and you get a joint credit card, his poor credit can drag down your score. If he's bad about paying on time, your credit score will suffer. If you live in a community-property state, any debt acquired while married, even if you did not sign for it, is considered joint debt. This means that your spouse's excessive debt can impact your score. Additionally, if you cosign for a child or other family member on any type of loan and he fails to pay back the loan or send in payments on time, those actions will be reflected in your credit report.

Another factor that can also impact your middle credit score, albeit not as dramatically, is whether you rent or own a home. If you miss a rent payment, it likely won't be reported to the credit bureaus, but if you miss a mortgage payment, it will be reported and your score will take a hit. On the other hand, a real estate loan that is consistently paid on time can go a long way in helping you get out of the middle range and into the good to excellent range. Additionally, applying for credit will affect your score, while inquiries for unsolicited loans and credit cards will not.

Old credit is good credit, so the older an account in good standing is the better it is for your score. Closing old accounts in good standing, then, is a no-no. Rather, take the turtle's slow-and-steady approach to achieving a good credit score by continuing to use your older accounts responsibly.

Years to Repair Credit History

1:12 AM No comments

A poor credit rating can halt your attempts at getting the mortgage you need or the loan for buying that new car. Lenders are cautious about giving money to those with a poor financial track record. Depending upon what's on your credit report, it can take a short amount of time or more than a decade to repair credit history.

When your credit history has suffered a number of setbacks, take a few proactive steps to get your credit score back up to a more attractive level. You can almost instantly fix your credit score by lowering your debt ratio to 30 percent. Fixing errors on your report can improve your score within three months. Paying your bills on time will repair your credit history with each monthly payment, so the more on-time you are, the faster your history will repair.

More serious negative incidents in your financial past take much longer to come off the record. Under the Fair Credit Reporting Act, civil suits, judgments, records of arrest, collection records, accounts that are closed with a negative record of foreclosure records and any late payments and repossession records will remain on your record for seven years. That means when a lender looks at your history, these incidents will be highlighted for seven years.

Bankruptcy filings are the only items that the Fair Credit Reporting Act dictates as serious enough to warrant staying on your credit history for 10 years. However while it is mandatory for a Chapter 7 bankruptcy to remain on your report for 10 years, a Chapter 13 can come off after seven years, at the discretion of the credit bureau. Bankruptcy is the most serious offense for credit reporting and will take the longest time to repair.

If you have not suffered any of the seven- or 10-year offenses, then there is no reason to allow your credit history to suffer. Even if you have gone through a bankruptcy or any of the seven-year offenses, spend that time to be on your best financial behavior. Do all the little things to keep your score strong and improve it by paying bills on time and keeping debt low. That way, when your seven or 10 years are up and that serious offense comes off your record, your history will look strong to lenders.

How to Boost Your Credit Score Legally

12:40 PM No comments

Your credit score follows you everywhere. Whether you want to buy a house, a car or even open a bank account, your credit score will be a major factor in the process. If your credit score is less than stellar, there are ways to fix it. Scam artists promise that they have secret ways to fix your credit, but most of what they promise is either illegal or a lie. Instead, you can fix your score yourself the correct, legal way.

Instructions

Gather your credit reports from all three credit reporting companies: Experian, Equifax and Trans Union. Print out copies of each one and go through them one by one. Highlight anything that is not current or does not seem accurate. Look for accounts that have many late payments, are past due, are in collections or have any other negative comments listed.

Get current on your bills. You will never improve your score if you are behind on payments. Cut out any unnecessary expenses from your budget at least temporarily, and use the extra money to get your payments up to date.

Work your way through any delinquent accounts. Call the collection agencies and ask them to settle with you. Often they will offer to lower the amount owed if you are willing to make an immediate payment or agree to a payment plan.

Correct any mistakes on your account. If there are any bad accounts listed on your credit report that are not actually yours or have incorrect amounts, contact the company and ask what their process is for removing it from your credit report. Each company will have a process for making corrections.

Begin building a good credit record. Stay current on your bills. Choose one credit card, preferably the one you have had the longest, and use it once or twice a month for small purchases but always pay the amount off in full. Start paying down debt, especially the credit cards.

Does an Increased Credit Limit Hurt a Credit Score?

7:14 PM No comments

Your credit score, which ranges from 300 to 850, is an important financial number. It determines whether a credit application will be accepted and, if you are approved and lent money, how much interest you will pay. There are borrowing behaviors that can improve your credit, and some behaviors that can hurt your credit. A change in your credit limit, which is the amount of available credit on an account, is one factor that can impact your credit score.

Generally, an increased credit limit will not adversely affect your FICO score, the most commonly used credit-worthiness scale. Your FICO score is determined by five factors: Payment history (35%), amount borrowed (30%), age of accounts (15%), types of credit used (10%) and inquiries, which are requests to see your credit report (10%). The higher the score, the better. An increased credit limit generally impacts the component of your score that deals with the amount borrowed, although in some cases it may also result in an inquiry as well.

When creditors look at the amount borrowed, they don't simply look at how much you owe. When creditors determine your FICO score and look at the "amount owed" (which, remember, makes up 30% of your score), they look at two numbers: your debt to income ratio, and your debt to credit ratio. Your debt to credit ratio is impacted by a higher credit limit, and your debt to income ratio might be impacted, if you use the additional credit extended to you.

Your debt to credit ratio looks at the amount of money available for you to borrow, and compares that to the amount of money you actually have borrowed. If a creditor gives you a $100 limit on a charge card, and you borrow $50, you have a 50 percent debt to credit ratio. As a general rule, your credit score will be higher if you keep your credit usage at 30% of your total available credit or less. An increase in your credit limit will lower your debt to credit ratio, provided you do not increase your debt proportionally.

The only exception to this rule is when a credit card becomes "unlimited" or has no limit. When that is the case, you need to check with your creditors for what they report as the "limit," because that will be used to determine your debt to credit ratio.

The other factor evaluated when determining how much you owe is the ratio of your debt to your income. The more money you make, the more money you are able to borrow without hurting your credit score. So, if you have an increased credit line and borrow more money as a result, this may adversely affect your debt to income ratio, since you will now be carrying more debt but your income will remain the same.

Inquiries is the other potential component of your credit score that could be affected by an increased credit line. If you request a credit line increase, you should ask the lender whether it will result in your credit report being pulled. If it does, this will show up as an inquiry on your report and generally remains on your credit report for two years. Too many inquiries can lower your credit score.

What Is an Average FICO Score?

11:24 PM No comments

A person's FICO score, also known as a credit score, holds a lot of weight with lenders and creditors. Knowing your score, and how it compares to the national average FICO score, will help you know how banks and other creditors decide to approve your loan and at what interest rate. (Figures below are from November 2009.)

FICO stands for Fair Isaac and Co. It developed the software most often used by credit reporting companies to apply a score to a person's financial habits.

On average, Nevada residents rank the lowest in the credit score ratings with a state average FICO score of 668. Texas, Mississippi, Louisiana and North and South Carolina are also all near the bottom of the list with average FICO scores of 670 to 674.

Minnesota residents seem to have the best financial habits with a state average FICO score of 721. Other states with top average credit scores are North and South Dakota, Vermont and New Hampshire with average credit scores of 714 to 719.

According to Experian, one of the three major credit score reporting agencies, the national average FICO score is 692. Credit scores are on a scale from about 300 to 850.

Banks and other creditors use the national average FICO score to compare a consumer's credit score and determine how risky it would be to lend that person money. Someone with a score of 750, well above the national average of 692, would most likely get a loan easily and at the best interest rate. Someone with a score of 600 may have a harder time finding a loan at a low interest rate, or at all.

Does Co-Signing on a Loan Affect My Credit Score?

8:41 AM No comments

Lenders often require people with poor credit or no credit to get someone to cosign for a loan. However, before you sign, you need to carefully consider how cosigning could lower your credit score.

Your credit score suffers when you cosign a loan because the formula considers you to be responsible for the debt. Your outstanding debts account for 30 percent of your credit score.

Since you are legally liable for the loan, your credit report will contain whether the payments on the loan were made on time or late. If the person you cosigned for makes all payments on time, your credit score will improve because of the positive payment history. However, any late payments will decrease your credit score, even if you did not know about them.

If the person you sign for fails to repay the loan, the creditor can turn over the account to a collections agency, which can then come after you for repayment of the loan. Even if you pay off the debt as soon as you find out about it, the collections will still appear on your credit report, which will lower your credit score.

How to Build Credit When You Turn 18

4:45 AM No comments

Building your credit will make lending institutions more likely to provide you with loans. Additionally, the higher a credit score, the more likely an individual will be offered better interest rates. A person who turns 18 will be able to start building credit and improve his credit score by doing several things over time. There are some things that will reflect negatively on a credit score, such as being late on payments, but there are also some things that can be done to improve it.

Instructions

Credit cards will help build a credit history.

Start building a credit history. A credit history is one of the main components of a credit score. You build a credit history by obtaining a credit card and making payments on time.

Make payments on the credit card balances, keeping them well below the limit. Credit card balances that are near the limit will reflect negatively on your credit score.

Call or go online to find out how to get your credit report.

If you have any questions about your credit score and want to see your credit report, which is a good idea as you learn how to build credit, get a copy of your credit report from one of the three main credit reporting agencies--Equifax, TransUnion or Experian.

Keep good records of your financial transactions.

Don't apply for too many credit cards. While one or two credit cards are necessary to build a credit history, if you have more credit cards, you can begin to appear to be a bad credit risk, resulting in a lower credit score.

Don't pay cash for a new car. Use a loan to build a credit history.

Get a car loan even if you can pay cash for a new vehicle. Automobile loans are a form of credit, but they don't reflect negatively like a new credit card. Make payments on the car loan to continue establishing a good credit history.

Continue making payments on time. Don't be late with your payments. Not only will this reflect negatively on your credit report, it could result in an increased interest rate.

How to Fix Credit Scores After Chapter 13 Bankruptcy

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Filing a Chapter 13 bankruptcy reduces your credit score, and because you need help managing your outstanding debts, future lenders reviewing your credit applications may feel hesitant to extend a line of credit. While a Chapter 13 bankruptcy hurts your overall credit rating, bureaus delete this negative mark from your credit report after seven years. In the interim, it's best to take steps to improve your unfavorable credit rating.

Instructions

Apply for credit immediately after your bankruptcy. Fixing your credit score after a bankruptcy necessitates acquiring new credit and making better credit decisions. Acquire credit by requesting a secured credit card from your bank or another financial institution, or by adding your name to another person's credit card to become an authorized user on their account.

Make remaining loan payments as agreed upon. Exclude your auto loan or student loan from a bankruptcy filing and continue to send in these payments to your creditors on time to help improve credit after a Chapter 13.

Use cash and avoid credit card debt. Learn to live on cash and only use credit cards for emergencies and when you can afford to pay off a charge within a few weeks or a month.

Enroll in credit counseling. Repeating past mistakes can trigger future debt problems. Research local or online free credit counseling services to learn how to budget your money and manage debt better. Understanding how credit scoring works can help you achieve a good credit rating.

What Causes a Bad Credit Rating?

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Your credit score provides lenders with a snapshot of how likely you are to default on a loan. Most lenders use the FICO credit score, which credit bureaus calculate using an algorithm developed by the Fair Isaac Corporation. FICO scores range from 300 to 850, with higher scores meaning a lower chance of default. Credit bureaus determine your score by compiling information about how you've managed your debt in the past. Having a higher credit score will get you a lower interest rate, but a bad credit rating will limit your borrowing options.

The largest factor in your FICO score calculation is your payment history, which accounts for 35 percent of your credit score. Your payment history suffers for seemingly small things, like late payments, as well as more significant negatives including delinquent accounts, collections and bankruptcies. These damaging records have a greater impact on your account if they happened recently, as opposed to further in the past. In addition, the longer the delinquency, the greater the impact on your score. A payment 15 days late will be less damaging than a payment 90 days late.

The second-largest factor, accounting for 30 percent of your score, has to do with the amounts you owe. The more money you owe, the more your score will suffer, because you pose a greater risk of defaulting when you owe more money. Part of this evaluation also examines your debt-to-available-credit ratio. When your credit card balances take up more than 30 percent of your credit limit, your score will suffer as a result, according to MSN Money. For example, if your credit limit equals $4,000, you should try to keep your outstanding balance below $1,200.

Your overall debt-to-available-credit ratio is also considered. If you have two credit cards, each with a credit limit of $5,000, your total credit will be $10,000. If one has a balance of $3,000 and the other has a balance of $2,000, your total debt will be $5,000. Dividing your debt, $5,000, by your total credit, $10,000, would show you were using 50 percent of your available credit.

Inquiries refer to the number of times your credit score is pulled by lenders because you applied for credit, such as for loans or credit cards. Credit inquiries that you do not initiate, such as checks by an employer or checks that you perform on your own credit report, will not affect your score. The number of inquiries you have accounts for 10 percent of your credit score. When you have a large number of inquiries, your credit score falls. If you do not have a long credit history, you should space out your applications for credit. Your score will be negatively affected even if you do not use the cards on a regular basis. For example, if you apply for six store credit cards, even if you only use them only once to take advantage of a special discount, your score will still be damaged.

I Want to Check My Credit Report

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Your credit report is a collection of data from all of your credit accounts, which includes auto loans, mortgages, student loans, credit cards and other types of consumer credit. Check your credit report to see all of the data that goes into calculating your credit score and determining whether you are approved for credit.

The main credit bureaus that keep a record of your credit history are Experian, TransUnion and Equifax. Although you can order a credit report at any time from the credit bureau that maintains the report, you are also entitled under the Fair Credit Reporting Act to one free report each year from each bureau. To get this free report, go through the Annual Credit Report website (see Resources) or call 877-322-8228.

When you order your credit report online, you get immediate access to the report. If you order the report by phone, it will be mailed within 15 days in most cases. You have to wait one full year before you can get your next free report from that credit bureau through the Annual Credit Report website. If you would like to check your credit report more frequently, one option is to space out your requests from the three bureaus. Rather than getting all three of your annual reports at once, get one report every four months throughout the year.

When you receive your credit report, check every detail against your records to ensure that the report is accurate. Because your credit score is based on the information on your credit report, inaccurate information can artificially lower your score and hurt your chances for credit approval. Details to check include the date on which you opened an account, the credit limit, the balance owed, the number of late payments and the account status. In addition, check for accounts you do not recognize. An identity thief might have opened an account in your name. If you find any errors, write a letter that identifies the error and asks that it be corrected. Send a copy of the letter to the credit bureau and to the company that holds the account.

Some companies offer access to free credit reports, but these offers typically have conditions attached. For example, you might have to sign up for a free trial of a credit monitoring service that will charge you monthly if you do not cancel the service. Use these services with caution. The Annual Credit Report service is the only government-authorized source for your free credit report.

Can a Bad Credit Score Prevent Me From Renting an Apartment?

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Consumers sometimes assume that if they do not use credit, they do not need to worry about their credit rating, but a credit rating can affect whether you get an apartment. Fortunately, you probably do not need anything other than average credit to rent an apartment. You probably can rent one apartment with bad credit, but you have far fewer options than someone with good credit.

Bad credit can prevent you from renting an apartment, because landlords often perform a credit check on rental applicants. Seriously negative items, such as bankruptcy and civil judgments, send red flags to the landlord that you may pay your rent late or default on your contract. Most creditors and landlords consider a FICO score of 620 the bare minimum for "good credit," but a higher score increases the chances of approval for an apartment.

Similar to a credit report is a consumer report. A credit report usually does not contain a rental history, so landlords often purchase a consumer rental history from a separate agency. Thus, you need to have never broken a lease or have other negative items on a rental-history report, like frequent late payments, to rent an apartment.

Run a personal credit check through Annual Credit Report -- a website set up by the national credit bureaus to give consumers one free credit report annually. Scan your reports from all three major credit bureaus for negative items like late payments, collection accounts and civil judgments. A credit report does not contain a credit score, but you probably can estimate your credit score. Some websites, including Fair Isaac Corporation the maker of the FICO scoring system, offer a free FICO score estimator.

You can rent an apartment with poor credit, but it may take you longer to find a landlord that does not perform a credit check than it would if you have at least average credit. You may need to make concessions with a landlord to rent a dwelling. For example, you can offer to pay for the entire lease upfront or offer a larger security deposit than the landlord expects. The landlord may require someone to guarantee or co-sign your lease.

Uses of a Credit Score

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A person's credit score is provided by credit reporting companies, financial services companies that collect information about borrowers and lenders. This number, compiled using a formula developed by the Fair Isaac Corporation, is between 300 and 850. The reports are composed of information about the individual's credit history, such as debts he has incurred, loans he has taken out and how he has repaid each of these obligations. These credit scores may be accessed and used by a number of different companies.

According to United States law, a party can only access an individual's credit report and see his credit score if the party has a "legitimate business reason" for doing so. U.S. law does not specifically define what a "legitimate" reason would entail, leaving it open to the interpretation of the courts. However, there are a number of parties that commonly access credit reports. For example, a company considering whether to lend a person money would have a legitimate reason for checking the score. A landlord preparing to rent an apartment would also have a reason to check a credit report as the score gives him some indication of the person's financial history.

The most common group of people who regularly consult credit scores are lenders. Lenders often want to know a person's credit score before offering him a loan, as this will give some indication of whether the person is likely to repay the loan. For example, a mortgage lender considering a home loan for an individual or a bank considering a car loan would want to look at the person's credit score. In addition, the credit score can provide the basis for how much interest the lender will charge him on the loan's principal. A person with a score above 700 is generally considered to have good credit and would receive an interest rate close to the prime rate.

Many landlords also regularly review credit scores before they agree to rent to a prospective tenant. This is done for two reasons. First, by allowing a person to stay in an apartment, a landlord is, in effect, extending the person a form of credit. Some rental agreements are structured so a person will not pay in advance. In addition, credit scores may give an indication of the person's financial reliability and how likely he is to pay his rent on time. For example, a high score would likely indicate the person is more likely to pay their rent on time.

An employer will often consult a prospective employee's credit score before hiring him. Although a person's credit worthiness will likely not have an direct bearing on his ability to perform his job, it may provide the employer an indication of the individual's character. This is because an employer may believe that a person with a higher credit score has honored his debts more often that someone with a lower score, who likely was delinquent or defaulted on some of his debts. This may lead the employer to believe the person with better credit to be more trustworthy and responsible. Some states, however, prevent employers from making hiring decisions based on an individual's credit score, as this may put people with bad credit at a severe disadvantage.

How to Dispute Information for Transunion

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Your credit report is an important factor in multiple facets of life, especially when you apply for a loan through a bank. Your credit score gives businesses an idea of how likely you are to repay the loan and under what terms they will lend the money. If you have a negative mark on your credit report, it can cause you to be denied for a loan or perhaps have a higher interest rate than necessary. If there is a negative mark you believe should not be on your Transunion report, you can dispute it.

Instructions

Go to the TransUnion online dispute page at http://annualcreditreport.transunion.com/entry/disputeonline. Create an account or log in with your existing username and password.

Click accept to get a "Free Personal Credit Report for dispute" and click "Next."

Click "Continue" on the next page.

Look through your credit report. If you need to report an inaccuracy, click "Report an inaccuracy" at the top of the page. It is placed under the "Score" tab.

Click "Submit Dispute."

Enter your email address and click "Save."

Click "Request Investigation" and read and accept the terms and conditions.

Fill in the verification information.

Click "Investigate" or "Update" next to an item that you feel you need to dispute.

Fill in the information about the dispute, including why you feel it needs to be changed. Click "OK." It will take you back to your credit report. Click "Investigate" or "Update" next to any other disputes.

Scroll to the bottom and click "Continue." Review the summary and click "Submit" to send your dispute request. Click "Continue." TransUnion will email you with the results within 30 days.

Does Lowering My Interest Rate Affect My Credit Score?

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Credit cards have variable balances and payment requirements each month, depending on how much you spend and pay. Loans are for a fixed amount, with set monthly payments and a predetermined repayment time. Both of these account types impose interest charges, which can sometimes be lowered. The reduction can then have ripple effects on your credit score.

Many financial factors affect your credit score, including all credit-related account balances and payments. Scorers like FICO plug data from your credit reports into their formulas to come up with your three-digit number. Your loan and credit card interest rates are not part of your records at the Equifax, TransUnion and Experian credit bureaus, so there is no direct effect on your score if you lower your rates. Your score affects your initial rates, as lenders give better terms to their most creditworthy customers.

Lower interest rates indirectly affect your credit score because they influence your owed amounts and repayment time. High interest costs you more over the life of your loan, making you more likely to run into financial trouble if you are on a tight budget. Credit card accounts with high rates take much longer to pay off if you cannot afford to send more than the minimum due for each statement. Some of each payment goes toward the interest, so a high rate means that less is applied to the actual balance. The Credit CARD Act makes card issuers print a payment schedule that shows how long it takes to repay an account if you stick to the minimum, according the Board of Governors of the Federal Reserve System. Lowering your rates reduces that time.

Refinancing lowers your installment loan interest rate if you find a bank, credit union or other lender that offers better rates and accepts your application. For example, you can refinance a vehicle loan or mortgage if interest rates go down or if you improve your credit score after getting the initial loan and now qualify for better terms. The refinancing applications hurt your score slightly, but it should not go down more than five points even if you apply with multiple lenders, according to the MyFICO scoring website. Fill out all the applications within 30 days so the scoring formula figures them in as a single inquiry. You score will recover if you consistently make all payments on the new loan and your other bills on time.

Credit card interest rate lowering is often a matter of asking for better terms, according to Bankrate writer Lucy Lazarony. Check competitors' terms, then call your bank and ask for a match if you found anything better. If you are a long-time cardholder who always pays on time, emphasize that fact. Your balance will drop more quickly if your rate is lowered, but you continue to pay the same monthly amount, and the lower debt load raises your score. Transfer your high interest balance to a lower interest card, if possible, if your bank refuses to give you a better rate.

How to Dispute Closed Credit Report Accounts With Experian

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You can dispute anything on your Experian credit report, including closed credit accounts. According to Experian, the fastest and easiest way to file disputes is online at the Experian website. In one session you can download your most recent Experian credit report, identify incorrect information, and file a dispute. You'll be able to return later to check the status of your complaint and review the results.

Instructions

Request a copy of your report directly from Experian, or refer to a copy that you already have that is less than 90 days old. You can order a copy at Experian.com. Find an identification number, called the "report number," on the front page of the report.

Review the report. Identify any inaccurate information regarding your closed credit accounts. Navigate to Experian's homepage. Enter "dispute" in the search box and click on the proper link for filing a dispute. Click on "Request A Dispute Online" to begin. The system will ask you for the report number from your credit report and your Social Security number. Follow the prompts to enter the information.

Begin your dispute. You will see all of your credit accounts listed, including the closed accounts. There will be options for disputing the closed accounts, as well as the others. Options will allow you to deny ever having paid the account late, or you can argue that the account never belonged to you. Click on the option best matching your reasons for filing a dispute. You will also be able to enter comments about the inaccuracies. Finish entering your disputes and follow the prompts to close the system. According to the Experian website, an investigation will begin immediately. Experian will contact your creditors about the dispute and your creditor will have 30 days to respond. If the creditor responds that the information is correct it will remain on your credit report. If the creditor does not respond, Experian will remove the information from your report, according to the website.

Wait for an email from Experian. The company will notify you when the results of the investigation are ready to be viewed and will send you a link to the results online. Click on the link to see the results. You can also return to Experian.com, re-enter the disputes area of the site and click on the link for "dispute status updates." There is no charge for disputing the information or reviewing the results online.

Credit Report Abbreviations

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You are entitled to receive one free credit report each year from each of the three credit reporting agencies: TransUnion, Equifax and Experian. This can be obtained from the individual credit reporting agencies or from AnnualCreditReport.com. When you receive the report, you will find your personal information, including past addresses, credit limits and balances and payment histories. There are several abbreviations used on your credit report.

According to the Consumer Credit Counseling Service, three abbreviations for account status are utilized. "O" is the abbreviation for an open account; "R" is the abbreviation for a revolving account such as a credit card; "I" stands for an installment account such as student loans or a house or car loan.

The credit reporting agencies use similar abbreviations for the payment status of each account. According to Tenant Data, Experian uses three abbreviations for a current account. "C" is current; "N" is current with a zero balance and no updates from the creditor; and "0" is current with a zero balance and updates from the creditor.

Past due accounts are indicated with Nos. 1 through 6. A "1" indicates that the account is 30 days past due; a "2" indicates an account is 60 days past due. This continues up to "6," indicating an account is 180 days past due.

Other codes are utilized for charge-offs and foreclosures. A "7" indicates the debt is a part of a Chapter 13 bankruptcy payment plan; a "9" indicates a debt discharged in bankruptcy; "G" shows that the account is in collection; "H" means the account is in foreclosure; and "L" indicates a charge-off. A voluntary surrender is abbreviated with a "J"; and repossession is abbreviated with a "K."

A dash or blank area indicates that no payment history was reported by the creditor.

According to the Consumer Credit Counseling Service, abbreviations for account ownership may be slightly different for each credit reporting agency. The standard abbreviation for an individual account is "I."; a joint account is abbreviated "J"; "A" indicates that you are an authorized user on the account; and "T" indicates that the account is terminated.

How Does Refinancing Car Loans Affect a Credit Score?

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When you refinance a loan, you are closing one loan and opening another. This can cause a temporary drop in your credit score. In a short period, though, you should be able to repair this.

A number of factors including inquiries into your credit, your outstanding loan balance, and how many loans you have opened determines your Fair Isaac Corporation (FICO) score. When you refinance, all three of these factors will temporarily negatively affect your credit.

You apply to refinance your loan. The lender does a credit inquiry, dropping your FICO sore a few points. Then, the lender approves you and you open a new loan, again dropping your score a few points. Finally, with your new loan, you owe more than 80 percent of the purchase price of your car, dropping your score once more. This last point is important. If you place a larger amount down, it will not affect your score.

Even though each of these factors can very briefly lower your score, you will ultimately be able to regain points within a few months of making your new loan payments on time. Each payment you make will help counter the effect of the new loan and credit inquiry, which were only small drops to begin with. As you pay more of your loan, your outstanding balance will decrease, further helping your credit.

What Guidelines Determine If One Can Get a Free Annual Credit Report?

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The federal government has several provisions in the Fair Credit Reporting Act for how consumers can obtain a free copy of each of their credit reports each year. Although your credit report does not contain your credit score, it lists all of your credit accounts and allows you to review and check the accuracy of the information that goes into calculating your score.

All consumers are eligible to receive one free credit report from each credit bureau during any given 12-month time period. Therefore, if it has been at least 12 months since you last received a free credit report from a particular bureau, you can get another free report from that bureau. The credit bureaus that provide free annual credit reports are Experian, TransUnion and Equifax. You must order your free credit reports through the Annual Credit Report website, which will determine whether 12 months have elapsed for each credit bureau.

Under federal guidelines, the credit bureaus must directly provide you with one free credit report per year, upon your request, if you are unemployed and are planning to look for work within 60 days. Potential employers might want to check your credit report, so if you get a free copy of your report before you apply for jobs, you can check its accuracy. If your report is inaccurate, follow the instructions listed on the credit report to dispute the errors and have them removed from your credit report.

If you are on any type of public welfare assistance, you can obtain one free credit report per year from each of the credit bureaus. As with the free reports due to unemployment, you need to order the reports directly through the credit bureaus. They cannot charge you for your first report each year if you prove that you are on welfare.

A few additional guidelines provide you with free copies of your credit report and do not limit you to one report per year. If you apply for credit, insurance or employment and are denied because of your credit, you are eligible to get a free copy of your credit report from each bureau during the 60 days following receipt of the denial notice. The notice contains instructions for how to get your free reports. If you have reason to suspect that your credit report is incorrect because of fraud, including identity theft, you can also obtain a free copy of your report at any time.

How to Raise Your Credit Score by 30 Points

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You can make a big difference in the interest rates you pay on loans by increasing your credit score by 30 points. Credit scores below 620 suggest that the loan is risky because the borrower is not responsible with credit. A score higher than 720 will put you in the "excellent" range, making you eligible for the best rates. Raising your score just 30 points can put you into the next higher tier. Combine methods of raising your credit score and you are more likely to get good loan rates. In fact, you may be able to raise your score more than 30 points in just a short period of time.

Instructions

Get a copy of your credit report. You can do this at AnnualCreditReport.com, but this free report does not include your score. Experian, Equifax and TransUnion are the three major bureaus that monitor your credit behavior. Your score may be slightly different among each of the three. Your report should list your open accounts, such as your mortgage, credit cards and student loans. It will also reflect your history for each one, such as whether you've been paying on time.

Dispute inaccuracies on your credit report. Scan your credit report to look for mistakes, such as open accounts that you've closed, balances owed that you've paid or incorrect credit limits. If you find these inaccuracies, send a letter to the credit bureaus detailing the mistake, along with documentation that supports your claim, such as a deposited check or a letter stating that your account is closed. The bureau must respond within 30 days.

Ask for a credit limit increase while paying down your balance. One factor that counts toward your credit score is the amount of money that you owe as a percentage of the total amount of credit you have available. If you increase the amount of available credit---without using it---you'll improve this percentage. You can ask over the phone. Some credit card providers even allow you to do this online. Increasing the available credit on an older account is better than opening new accounts, because the credit bureaus prefer to see an account with history. If you have a new account, it could temporarily decrease your score.

Pay your bills on time. Timely payments play a big factor in determining your credit score. If you have a history of late or delinquent payments, making consistent, timely payments will improve your record and gradually increase your credit score over time.

Use credit cards that you have held for a long time. Credit history plays a role in your score, but established accounts carry more weight.

Does a Forbearance Hurt Your Credit Score?

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When times get tough financially, it is easy to let your bills fall behind. In these times, your bank might be able to help you to get out of trouble. Forbearance is an option that can help you get your bills current and save your credit in the process.

Forbearance is a type of loan deferment that is usually offered in conjunction with student loans and, less commonly, mortgages. When your loan is on forbearance, you are not responsible for making monthly payments, giving you the chance to catch up on past due payments, or resolve other aspects of your financial situation that affect your ability to pay the loan in question. However, interest does accrue on a monthly basis during forbearance.

The most common reason why you'd want to apply for a forbearance is if you're having financial difficulty and you're unable to meet your monthly payments. In this case, placing your account on forbearance can allow you to save money and avoid a potentially disastrous situation in which you're consistently late and unable to catch up. Such a situation would not only result in late fees and collection activity, but it could also significantly damage your credit.

If you're having trouble meeting your student loan obligations, your problems may be much deeper than owing more money now. A late payment on your student loan can stay on your credit report for seven years, making it harder for you to obtain credit in the future. If you need to buy a car, or if you want to apply for additional student loans to continue your studies, the damage you do to your credit through your student loans can be a deterrent to your future plans.

Should you go on forbearance, the terms of this arrangement are not indicated on your credit report. However, the fact that you will go months between payment is noticed by credit bureaus, who may see this as a bad sign for your overall credit profile. That said, the overall impact of forbearance is felt in the late payments you won't be making. You'll only take a slight hit, if any, for not making payments as a result of an agreement with the bank, but the impact of several late payments could be devastating. Avoiding this route is a far better option than running late every month and destroying your credit for the future.

If you're interested in applying for forbearance, you should contact your student loan bank and see what types of options they provide. For example, Citibank offers forbearance to students whose monthly student loan payments are an excessively high percentage of their income, students who are having financial difficulty or students who are currently teachers in low-income areas. Each lender has different options, as well as lengths of time, you may be able to use forbearance benefits. To apply, you'll need to provide proof of your financial hardship, which may include pay stubs, student loan statements or a written statement describing your financial situation.

Employment History on a Credit Report

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Credit reports are not just for approving a borrower for a loan, they can also be a screening tool for job applicants or any other area that uses background searches. This occurs because credit reports also contain demographic information, such as a person's employment history. Jobs listed on your report, however, won't affect your credit standing directly, but can hurt other aspects of your life.

Lenders have the option of reporting information on a credit application to the credit rating companies, including information about your address and employer. Future employers may run a credit check, if you authorize it, and compare your stated employment history with previous employers listed on your credit report, according to Credit Builders Alliance.

Employment history has absolutely no effect on your credit report -- either good or bad, according to Experian, one of the major credit bureaus in the U.S. Employment history and salary were factored into credit scores during the 1980s, but the credit bureaus stopped this practice because salaries were self-reported and unverifiable. Also, employment says nothing about a person's willingness or ability to pay bills.

Employment history can factor into whether or not you get credit. Banks will look at your employment history to ascertain your financial stability. If you bounce around jobs every few months, the lender can consider you unstable and too risky to handle credit. Other people who pull your credit report, such as an employer or landlord, can also view a sporadic or unstable employment history as suspicious or risky.

Pull your credit report from each of the three major credit bureaus to review your employment history -- you get a free one each year from all three bureaus. If you find false employment data, you can dispute this information with the bureau or have it removed completely, if you do not want it on there. Most credit reports contain erroneous or outdated employment history, according to the "The Wall Street Journal."

Fast Ways to Clear Credit

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Trying to boost your credit score is a great goal to go after, but do not expect much to happen overnight. The credit scoring formulas offer relatively few ways to clear your credit history of bad items fast. Most negative items stay on your report for seven years and some items remain indefinitely.

Credit scores factor in the amount of debt you owe, but also credit utilization---the portion of credit debt used as compared to available credit. Maxing out a credit card costs 10 to 30 points on an average score and a little bit less on a poor credit score, according to Bankrate. Thus, paying credit card debt improves two variables in the credit scoring model at once.

A single negative item almost always tarnishes your credit report far more than a single positive item improves it. When you review your credit report and see a negative item, dispute it with the credit bureaus no matter how small. Individual hard inquiries---credit checks because you applied for credit---do minimal damage on their own, but become a very negative item once you have more than six on a report.

You should have at least one credit card and one active installment loan on your credit file to increase your mix of loans, worth 10 percent of your credit score, according to Liz Weston of MSN Money Central. Holding two revolving accounts for every installment account usually gives the optimal mix of credit for most borrowers.

Lenders stop reporting a credit card account to the credit bureaus if you do not use it. Thus, you should make a small purchase to make it active again. Also, ask your lenders for a higher credit limit to lower your overall credit utilization rate.

Stay away from self-proclaimed credit repair clinics; they cannot do anything for you. A credit repair company might even suggest illegal tactics, like using a fake Social Security number. Applying for credit under anything other than your Social Security number is file segregation and can be considered a felony.

How Not to Talk Negatively at an Exit Interview

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The exit interview is a tool for your employer. It helps the business learn how it is doing. Since you are leaving the firm, you have a unique position. You are not beholden and needn't fear reprisal. In an exit interview, it is not obligatory to discuss every ill event that transpired during your tenure. The goal is to be frank and helpful. Even if your experience was poor, there are ways of discussing it that can have a possibility of remedying the situation for those still there and those to come.

Sit down and makes some notes about your experience prior to entering into the interview, preferably in a relaxed environment that can help you reflect on your tenure more objectively. Note both the good and poor. Think about why things that worked did and the reasons behind the things that didn't.

The idea is to focus on improvement of the employer's operations. Even if you are unhappy, or have reason to be, the exit interview shouldn't be about retribution. If you faced an adverse situation, try to discuss it in neutral, terms, and stick to particulars. Back up your comments with ideas, if you have some, on how the employer might do better. This will be appreciated and increase the weight of your comments. Avoid personal comments.

You can speak frankly and should. If there is a serious problem, systemic or personnel related, the employer should know. That said, it is possible to discuss difficulties you may have faced objectively. That isn't being negative. If you had difficulty obtaining documents necessary to produce your work regularly, saying so isn't negative if you simply relate the information.

Even if the report of your exit interview is by an outside or otherwise neutral person, you never know who will see it. For instance, if a former boss or other executive should come across it, negativity in the interview may backfire. For instance, perhaps you have now accepted a new post. That doesn't mean things couldn't go awry. You may want an opportunity to reapply for a position. Further, word may be spread to others in your professional community, which could impact your reputation. These are good reasons to stay professional, direct and upbeat.

How to Dispute a Credit Report Issue

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The time to discover your credit report contains errors is not when applying for a loan or mortgage. It is essential to protect yourself and your credit rating by monitoring the credit report all three major agencies maintain, and disputing erroneous information if it occurs. While Experian, TransUnion, and Equifax may have procedures specific to the company or issue, there is a general process you can follow to dispute a credit report issue.

Instructions

Contact the credit-reporting agency either by mail or online, where you discover the error. Explain, in writing, the error you found, why you feel the information is inaccurate, and specifically state you are disputing the information. Include copies of supporting documentation, such as a utility bill displaying a correct address, a cancelled check or credit card receipt, or a "paid-in-full" receipt for a judgment or lien.

Maintain both a call log and paper trail of all written correspondence, phone calls, and emails. This can be a simple list or a computer spreadsheet that includes dates, times, names and titles of persons you speak with, and a description of the conversation.

Verify the agency updates incorrect information by requesting an additional copy of your credit report when the dispute process is complete. The Fair Credit Reporting Act requires credit-reporting agencies to provide this report to you free of charge.

Request the credit-reporting agency send a notice of correction to any person or agency that viewed your report in the preceding six months.

Which Accounts Are Not on a Credit Report Unless Past Due or in Collections?

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Consumers who are very serious about their credit score know that any account or past due bill can end up on a credit report, even overdue fines from the library. As time passes, more and more creditors send accounts to an outside collections company rather than deal with the hassle of collecting the debt themselves. To prevent this from happening, you should always pay a past due account.

As long as you have a legal liability to pay a bill or debt, it can end up in collections. This most often happens with monthly bills, such as rent, utilities and cell phone charges. What matters most is the account going to collections and the agencies finding out about it. Debt collectors often post account details to private databases for the agencies, but some actively report accounts to the bureaus.

The list of accounts that do not appear on a credit report until they go to collections or the company charges off the debt is endless. They include late fees from video stores and unpaid parking tickets. Governments often send unpaid fines to collections agencies, because it helps recover fines that citizens refuse to pay.

The Fair Isaac Corporation tweaks its formula and releases new credit scoring software every few years. In 2011, the latest version is FICO 08. The most important update for collections in this model is it ignores collection accounts with an original value under $100. This assumes that the lender upgrades their software; creditors that use older software will consider any collection account in their score calculations.

Never ignore a bill and let it go to collections. Creditors can see it even if the FICO scoring system ignores small collections and may hold it against you or require you to repay it. If you cannot pay a bill now, ask the creditor to set up a payment plan. Also, keep in mind that some nontraditional accounts are starting to appear on credit reports, and missing payments could lower your credit score, even if the account does not go to collections. In 2010, for example, Experian acquired RentBureau, so your rental history can affect your credit.

Does Escrow Shortage Affect Credit Score?

1:31 AM 9 comments

An escrow account is a special cash account that your mortgage lender uses to pay your property taxes, homeowner's insurance premium, private mortgage insurance and homeowner's association dues, if applicable. Your lender projects the cost of these liabilities each year and divides the amount equally into 12 monthly installment payments billed as a part of your mortgage payment, relieving you of the burden of reserving funds for such expenses. However, an increase in your property taxes or other escrow expense could result in an account shortage, leaving your lender to foot the bill.

An escrow account is a cash account -- not a line of credit or a loan. You fund the account throughout the year and use funds in the account to pay property and mortgage-related bills when they come due. It is treated as a personal checking or savings account would be treated at a bank. A shortage of funding in the account to pay your tax and insurance obligations is treated as an overdrawn account, and your bank will subsequently notify you of the shortage and how to bring the account positive.

According to chartered financial analyst Dr. Don Taylor of Bankrate.com, a FICO credit score does not reflect information in your personal accounts, but your borrowing history. In other words, while defaulting on your principal mortgage payment will damage your credit after becoming 30 days past due, your escrow shortage will not affect your credit score so long as you work with your lender to balance the account.

If your escrow balance falls negative, your lender will likely give you two options for bringing the account positive. You may choose to pay the deficiency with one lump sum, or you may opt to spread out the deficiency over several months of mortgage payments by increasing your escrow payment each month. If a tax increase or insurance premium hike is to blame for the low funds, your lender will also adjust your future escrow payments to avoid a future low balance.

Your credit score may suffer if you do not abide by your lender's guidelines to bring your escrow account positive. Your escrow payment is a part of your monthly mortgage payment, and according to MSNBC.com, even if you send your lender a check for your payment amount prior to the adjustment of your escrow payment, your lender probably won't accept it. Most lenders will only accept a full payment. Once you miss a payment by 30 days, your FICO credit score will take a hit. Continuing to fall behind on payments by 60, 90 and 120 or more days will further damage your credit and could ultimately cause foreclosure.

How to Challenge Items in Your Credit Report

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Seventy-nine percent of consumer credit reports contain at least one error, according a 2004 report by the U.S. Public Interest Research Group (PIRG). Twenty-five percent of reports contain a serious error that could result in a person being turned down for a loan or line of credit. Since 1991, PIRG has researched credit report inaccuracies seven times, and each time, serious problems were found with the way credit accounts are reported. Your best defense against mistakes and inaccuracies is to obtain a copy of your credit report and challenge the inaccurate items.

Instructions

Obtain a copy of your credit report from all three major credit bureaus: Equifax, Experian and Transunion. Start by visiting the Annual Credit Report site listed in the "Resource" section. Identify the inaccurate items and write down the creditor, the claimed balance, the date and the credit bureau(s) that generated the report on which the item appears.

Gather documents to support your case, if possible. If the item is an unpaid balance or inaccurate late payment claim, find your receipt or bank record showing the payment and the date. Make copies of your supporting documents.

Write a letter to the credit bureau(s). For each item, you'll need to write a separate letter. Use the sample letter provided in the "Resource" section, but remember to transfer your information to it.

Wait 30 days for a response. By law, the credit bureaus must investigate your claim within 30 days and notify you of their decision in writing. If the creditor cannot disprove your claim, the item(s) will be removed from your credit report.

Follow up with another letter or a phone call to the credit bureau(s), if you have not heard back within 30 days. You can challenge an item as many times as you want--there is no limit.

Building Your Credit History

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After the credit crisis of 2008, a good credit score became more important than ever. Fortunately, even if you have yet to start your credit history, you can probably achieve an good credit score within a year or two. The biggest hurdle is probably getting that first loan, but you can circumvent the normal loan application process if you know someone with an active account.

To start your consumer credit history with the major credit bureaus you must obtain a loan from a creditor that reports to the bureaus. Ask your lender which bureaus he reports to. Most credit cards or other revolving accounts, such as home equity line of credit or installment loan, such as a student loan, should report to the major bureaus.

Most people purchase their home with a mortgage and to get one at the best rate you will need a good credit score -- likely north of 740 to get the best rate as of 2011, according to MSN Money. You can also usually obtain utility services, including cable and Internet, and a cellphone without putting down a large deposit or taking an expensive plan.

A good credit history includes more than just on-time payments. The credit score calculation looks at how much of the available credit on your revolving accounts you use and if you have more than one type of loan. Your credit score also includes how long you have managed credit and if you have applied for any new accounts recently.

Apply for a secured credit card. This requires a deposit on the credit limit, but also has the loosest lending requirements. You could cosign on a loan to start building history immediately and bypass the hard inquiry check that dings a score when you apply for a loan on your own. This also means the primary account holder could miss payments -- affecting your score negatively -- and make you liable for the debt. If your bank offers automatic bill pay, use it. Should you acquire multiple credit cards, spread the balance evenly over them instead of putting a large balance on one card.

How Often Can I Check Credit Scores Without a Penalty?

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When multiple companies make hard inquiries about your credit history, credit bureaus assume that you are planning to borrow more money. Because more borrowed money increases your liability as a consumer, credit bureaus could lower your score. However, there is typically no penalty for checking your own credit information, regardless of the number of inquiries you make.

The three major credit bureaus, Experian, Equifax and TransUnion, calculate credit scores based on the length of your credit history, whether you make your payments on time, the amount of money you owe, the type of credit you use and whether you have recently obtained or are planning to obtain new credit. To determine if you have new credit or are applying for new credit, the credit bureaus record inquiries that companies make about your creditworthiness.

A credit inquiry can be hard or soft. Only hard inquiries lower your credit score. Hard inquiries include mortgage loan applications, car loan applications, credit card applications, credit checks to obtain a lease and applications for student and personal loans. One hard inquiry typically decreases your credit score by five points or fewer. Additional inquiries within a short period might not have as much impact. Credit bureaus typically consider mortgage, auto and student loan inquiries obtained in a 30-day period to be the same as a single hard inquiry.

All major credit bureaus consider obtaining your own credit information to be a soft inquiry. Because soft inquiries don't indicate that the borrower is seeking new credit, they don't lower your credit score. Other soft inquiries include promotional inquiries made by companies offering new credit and inquiries made by your current employer or a potential employer. Information about soft inquiries is available only to you and doesn't appear on your credit report when another entity requests it.

Checking your credit information periodically allows you to identify and correct errors. If you check your credit report and find an error, you can dispute the error by contacting the credit bureau in writing. The credit bureau must investigate the entry within 30 days. If the creditor can't validate the entry, it must remove the entry from your report.

Monday, December 16, 2013

Credit Rating System

Predatory Credit Score Merchants

Credit Score Composition

Credit Repair

Sunday, December 15, 2013

Write the Agency

Investigation

Write The Creditor

Identity Theft

Instructions

How to Dispute a Credit Report Through the Mail

How to Dispute a Credit Report Over the Phone

How to Dispute a Credit Report Online

Saturday, December 14, 2013

Instructions

Friday, December 13, 2013

Trial Memberships

Free Credit Score

Alternate Resources

Considerations

Credit Scores

Charge-Offs

Credit Report Deletions

Impact of Deletion

Identification

Variations

Misconception

The Future of Credit Scores

Other Alternatives

Thursday, December 12, 2013

Instructions

Disputing Erroneous Information on a Credit Report

Wednesday, December 11, 2013

Why You Should Worry

Mortgage, Auto and Student Loans

The Negative Effect

Mitigating the Effects

Definition

Late/Missed Payments

Excessive Debt

Family

Other Factors

Considerations

Less than One Year

Seven Years

Ten Years

Tips

Monday, December 9, 2013

Instructions

Saturday, December 7, 2013

Increased Credit Limit

Amount Borrowed

Debt to Credit Ratio

Debt to Income Ratio

Inquiries

Friday, December 6, 2013

FICO Scores

Lowest States

Highest States

National Average

Use of the FICO Score

Thursday, December 5, 2013

Outstanding Debt

Payment History

Collections

Instructions

Instructions

Wednesday, December 4, 2013

Bad Payment History

High Balances

Many Inquiries

Tuesday, December 3, 2013

Get Credit Reports

Time Frame

What to Look For

Warning

Identification

Consumer Report

Building Credit