What Is a Weak Credit Rating?

If you have a bad or weak credit rating, you may find it quite difficult to obtain new forms of credit, such as a car loan, mortgage or credit card. While there is no single definition of what constitutes a week credit rating, you can generally get an idea of how bad your credit is by finding out your credit score.

Credit Scores

Every individual consumer who has ever used any form of credit has a credit report. These reports contain the details of how you have used credit. Some companies take that information, assign it a point value and determine your individual credit score. In general the higher your score is the better your credit.

FICO Score

One of the most commonly used credit scores around is the FICO score, a score that ranges from 300 to 850. The Federal Citizen Information Center reports that borrowers with a FICO score of 600 or lower are generally considered risky. This means that if you apply for credit with a score of about 600 or lower, your creditor will view you as more risky than most other borrowers and will be unlikely to grant you a loan with competitive rates.

Other Concerns

A weak credit history is not only detrimental to your ability to find new loans, but it can also significantly impact other aspects of your life. For example, some employers, especially government employers that require security checks or security clearances, view people with a bad credit history as more risky than those with a positive history. This is because employers see those who have difficulty controlling their credit as those who may fall into financial hardship and possibly resort to unethical or illegal means to make ends meet.

Fixes

If you do have a weak or bad credit history, it doesn't have to follow you around forever and you can take steps to improve both your credit report and your credit scores. Lenders want to know that the money they give you is in safe hands and will not go unpaid, so the best way to show that you are not a risk is by paying all your bills on time and not getting or using more credit than you can afford.

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Does Opening a Savings Account Affect Your Credit Score?

Lenders use your credit score as a barometer to loosely gauge the probability that you will pay back your debts if the company loans you money. A credit score is generally composed of five factors, each of which is weighed differently. Certain actions can negatively or positively affect your credit score. In general, opening a savings account will not affect your score.

Credit Score Composition

Payment history, amounts owed, length of credit history, new credit and the types of credit used all factor into your credit score, according to MyFICO.com. The biggest factors are your payment history and the amounts owed; combined, those two factors account for 65 percent of your overall score. The length of your credit history accounts for 15 percent; new credit accounts and the type of credit used account for 20 percent (10 percent each).

Bank Credit Policies

Opening a bank account may or may not impact your credit score, depending on the type of account and the bank's specific guidelines or procedures used with regard to new accounts. The effect depends on whether the bank does an "hard" or "soft" inquiry into a consumer's credit history. Hard inquiries request the consumer's credit score; such inquiries can affect a person's credit score, according to CreditReport.com. Often, banks use hard inquiries when determining how much overdraft protection is needed for the account, a practice usually reserved for checking accounts. Opening a savings account generally does not require a hard inquiry and will usually not affect your credit score.

Actions that Negatively Impact Credit

Some banks may require customers to maintain a specific balance in the account and can assess fees for failing to do so. By failing to pay the fees due, a consumer can negatively impact her credit score. Additionally, actions such as late payments, high credit balances and opening new credit accounts can harm your credit score.

Savings Account and Borrowing Money

Having a savings account may assist a borrower in securing a loan. According to BrokerOutpost.com, lenders often require borrowers to have certain "reserves" available and look at balances in borrower accounts, such as savings accounts, to determine how much reserves a borrower has. Opening a savings account may minimally affect a credit score if your credit score is good in general.

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Is Opening Credit Cards Good for Your Credit Score?

Opening new credit card accounts has both short-term and long-term effects on your credit score in a few categories. Although each new card generally hurts your score initially, the new account can have significant benefits in the future, depending on how you use and pay off the credit cards.

New Credit Effects

Approximately 10 percent of your credit score calculation is based on new credit cards and loans, which hurt your credit score. This is the main drawback to opening credit cards. Part of the penalty results from credit inquiries, which occur when credit card companies check your credit report to help evaluate your application. Therefore, you can hurt your credit score just by applying for credit cards, even if none of your applications is approved. In addition, once you receive a new credit card, your score is negatively affected because you own a new account. The scoring formula also considers the proportion of credit cards that are new. In general, the new credit penalties affect your credit rating for up to one year after you open each credit card.

Credit Utilization Effects

One benefit of opening credit cards is having more available credit, which can increase your credit score. The amount of debt you have accounts for 30 percent of your score, and credit utilization is an important factor in this category. Your credit utilization ratio is the balance on each credit card divided by the credit limit of each card. Your overall utilization, which is the total of all your credit card balances divided by all their limits, also affects your score. The higher your credit utilization ratio on individual cards and overall, the more it hurts your credit score. When you open a new credit card, the card begins with a utilization of zero percent, which can help your score. The new credit limit also decreases your overall credit utilization. However, as soon as you start using the new credit cards, their utilization ratios increase, which negates some of the initial positive effects.

Payment History Effects

The most important factor in your credit score is your payment history, which accounts for 35 percent of the score. Opening credit cards can either help or hurt your payment history, depending on how you use them. If you purchase only what you can afford and pay your bills on time every month, having more credit cards will help build a more consistent payment history. However, if you lose track of bills or use the credit cards to make purchases you cannot afford, you could miss payments, which will hurt your credit score.

Bottom Line

Opening a new credit card generally causes a drop in your credit score because it is a new account, followed by a gradual increase if you use the card wisely over time. Therefore, if you are trying to boost your credit score in the short term -- to qualify for a lower interest rate on a mortgage, for example -- opening credit cards probably will not help. However, if you are trying to build your credit in the long term, you should have a few credit card accounts you use regularly and responsibly. Long-term responsible use will eventually compensate for the initial credit score penalty.

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Lowest Score to Be Considered Fair Credit

When negatives prevent your credit score from entering into the excellent range, you at least want "fair" credit or you may not qualify for a loan at reasonable terms. The lowest score in the fair range constantly changes and even if you have fair credit with one bureau you could have terrible -- or excellent -- credit at another.

Identification

As of 2011, most lenders consider fair credit any score in the range of 620 to 659, according to the BCS Alliance. Changes in the state of the lending industry, which often follow the overall economy, can tighten lending standards. After the credit crisis of 2008 some lenders moved their "fair" credit tier up to a minimum of 675.

Considerations

A score of 620 is usually the lowest score you can have to qualify for a loan with a typical bank in any lending environment, but this does not mean you get a low rate on a loan. Only scores in the top tier get the prime rate. As of 2011, this is usually a score of at least 750 to 760. Low interest rates on a loan mean you pay hundreds or even thousands less over the course of the loan.

Variance

It always pays to shop around for the best rate on a mortgage or car loan because lenders can consider scores lower than 620 to be "fair" and the FICO scoring models counts all applications for these loans in a 45-day period a single inquiry. The Federal Housing Administration, for instance, tends to have very low credit score requirements. In 2011, it accepted applications from borrowers with scores as low as 580. Also, most borrowers have different scores from all three major credit bureaus because of variation in reporting standards and missing some items. Lenders usually standardize the variance in scores by taking the middle score or averaging all three.

Tip

If you have a score that falls into the fair range you probably have a few negative items or too much debt dragging it down. Get your free credit reports from all three agencies via AnnualCreditReport. The reports will contain tips on your weaknesses as a borrower and dissect your outstanding debts. Pay off as much credit card debt as possible, but make sure you never pay less than the minimum on any account.

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How do I Get a Credit Report Without an Email Address?

The Fair Credit Reporting Act (FCRA) gives your free annual access to your credit reports from Equifax, Experian and TransUnion. You can choose from several options to get the reports. Many people use the online request system, which sends information to an email account. You have other options if you don't have an email address or don't want to use one. Your credit reports can be ordered via postal mail or over the phone.

Postal Mail

The government website allows you to request your free credit reports via postal mail. You must visit the site and download a form in .PDF format, which requires Adobe Reader. This software can be downloaded free from the Adobe website if your computer does not have it already. Fill out the report with the required demographic information and your Social Security number. Indicate whether you want a report from Equifax, Experian or TransUnion, or all three, and mail the form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. The form will be processed within 15 days and your reports should arrive in two to three weeks, according to the AnnualCreditReport.com website.

Phone

You can call (877) 322-8228 toll-free to request your credit report. The system is automated so you will not speak to a live operator. You will be required to enter certain information that proves your identity. Your reports will be mailed to you when the verification process is complete. World Privacy Forum recommends calling from your home phone, since the system can automatically verify it. You may be asked to enter additional information if you call from another phone.

Temporary Address

You can open a temporary email account if you don't already have an email account or don't wish to use your existing address. Sign up for an account with a free email provider like Gmail, Yahoo! or Hotmail. Use it to request your credit reports online, then print out the reports and delete them from the email account. You can close the account or simply abandon it.

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What Is the Best Way to Increase Your Credit Score?

If you want a good deal on your mortgage or car loan, you need a good credit score. The score is calculated based on your credit history---timely payments, bankruptcy and foreclosures---and gives lenders a quick assessment of your credit risk. Your score isn't fixed in stone; if yours isn't good, it's possible to improve it.

Errors

You can order annual free reports from the three big credit bureaus---Equifax, Experian and TransUnion---through the Annual Credit Report website (see Resources). Check your reports for errors, such as open accounts you've actually closed. If you find debts you never incurred or new accounts you never signed up for, it's likely that your a victim of identity theft. If you find errors, notify the bureaus and get them to change it. If the information is negative, removing it is a simple way to up your score.

Prompt Payment

The Fair Isaac Corporation, which developed the FICO credit-scoring system, says payment history counts for 35 percent of your score. That means making payments regularly will go a long way toward raising your number. If you have trouble making timely payments, consider arranging for as many automatic payments as possible. If you are planning to take out a loan soon, make extra effort to keep payment current: Recent missed payments will hurt your score more than old ones.

Cutting Debt

Thirty percent of your FICO score is based on how much you owe, so cutting debt will also do a lot to raise your current number. Don't pay off one card while leaving the others maxed out, Liz Pulliam Weston says on the MSN Money website: Credit bureaus monitor the percentage of your available credit that you've used up, so keeping a low balance on several cards will work better. Don't rush to close paid-off accounts, either---if you have less credit available, it makes your percentage worse.

Variety

There are two main kinds of consumer debt. Credit cards are revolving debt; every time you pay off your card, you can reuse the credit. Installment debts such as mortgages, personal loans or car loans are a one-time deal---you pay the loan off and the account is closed. Weston says mixing both kinds of debt will boost your score; if you don't have any installment credit, try taking out a small personal loan from your bank.

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How to Pay Off Derogatory Accounts for a Credit Score

Derogatory accounts on a credit report can include charge-offs, judgments and collection accounts. These remarks indicate that a debtor didn't fulfill his debt obligation to a creditor, and having derogatory information on your report lowers your credit scores. If you are hoping to qualify for a loan or negotiate better interest rates, you can talk with creditors about paying off these accounts.

Instructions

1

Get your credit reports to review derogatory information. Your credit reports supply information on your entire credit history, and these reports list any derogatory accounts that need addressing. Get free reports once a year from Annual Credit Report.

2

Take steps to pay a charge-off. Creditors may charge off an account after a six-month lapse in payments. Call your original creditor to see if you can pay the debt with the company. If so, submit your payment; or get information on the collection agency that purchased the debt.

3

Write or call collection agencies. A debt collector might purchase an old debt from creditors. While the original creditor no longer retains the debt, you can settle the balance by sending a payment to the collection company. Original creditors have contact information for the company that bought the debt, or you can check your credit report for the collector's information.

4

Face judgment orders to help improve your credit score. Judgments are left on credit reports for seven years; however, paying a credit judgment works to your advantage when applying for loans because the listing updates to "paid" once you satisfy the debt. A court orders payment, and you can submit your payment through the court or contact the creditor.

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Four Major Categories of Information That Appear on a Credit Report

Your credit score can determine the credit card interest rate you may qualify for, help a prospective employer make a hiring decision on your behalf, help you qualify for a rental or get your utilities connected without a deposit. A credit report consists of several categories of data that, combined, give the lender or credit company the best indicator of your financial health and how likely you are to repay your debts.

Payment History

Every payment you make--or miss--on your credit card debt or loans is recorded on your credit score and archived to cover the past seven to 10 years. According to Bankrate, your lender reports this information to the credit agencies each month. If you are late, your credit report shows the number of late payments for each debt. If you have bankruptcies, judgments, liens or other negative marks on your credit history, it shows up in this category and can negatively affect your credit score for up to 10 years.

Amounts Owed

This category details the portion of your available credit you are using. If your credit lines are maxed out, this can damage your credit score. According to Jamison Law Group, the credit scoring software that determines your score likes to see that you carry small credit card balances. Ideally, try to use a maximum of 10 percent of your total credit card limit. If you can transfer balances to spread the debt over several cards, you may see your credit score rise.

Age of Your Accounts

How long you have held onto your accounts with a successful history of repayment is another piece of the picture in determining your credit worthiness. The older your accounts, the better the score; that's why it's important to not close your credit card accounts. This category takes into consideration the age of your credit cards and the average age of credit cards on your credit report. Every time you apply for and open a new account, the age of your credit is lowered.

Inquiries

Numerous credit inquiries for new credit cards within a short period of time is another determining factor of your credit. According to MyFICO.com, if you open several credit cards simultaneously, your credit score can suffer because this equates with higher risk. Most scores are not negatively affected by numerous inquiries from car, home or student loan lenders, as these are treated as single instances or inquiries.

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What Is Considered a Fair Credit Score?

The majority of Americans have fair credit--they are neither exemplary financial citizens nor complete borrower deadbeats--particularly younger people who have had less time to learn the ropes of personal finance and are less likely to be locked into a long-term career. There are many ways to both deal with having only fair credit and to ameliorate it involving effective communication with lenders and sensible personal finance practices.

Identification

There is no technically defined range for a fair credit score, but most agree that any range between 640 and 680 could be considered fair. Anything worse than 640 and many lenders will either be very cautious or will not offer loans to you at all. People with scores over 680 are offered some of the best rates, and are generally not very far from achieving good or excellent credit ratings.

Significance

People who have fair credit ratings either have one or two delinquent accounts, have a demonstrated pattern of failing to pay back revolving credit balances in full or may have a very poor debt to income ratio. In many cases, a downgraded credit rating can merely indicate an error on the credit history. It is good practice to check up on your credit report regularly to ensure that it is accurate and up to date, particularly after paying off large debts.

Function

People with fair credit often have to work slightly harder to get access to loans at good rates. Negotiating with creditors can often have surprisingly beneficial effects on the loans that you are offered. Merely the evidence of a capacity to negotiate is considered a positive indicator by financial institutions. One good tactic for improving loan rates is to ask to pay a higher down payment in return for better interest rates. Some foresight and planning can save you substantial amounts of money.

Considerations

Many people with fair credit can find it difficult to get approved for a lease at many relatively exclusive apartment buildings. Some solutions can involve getting a co-signer for the lease, providing proof of income, putting down a larger deposit or even providing months of rent in advance. These positive steps can demonstrate that despite your tarnished credit, you are sufficiently responsible and financially healthy enough to be a good tenant.

Prevention/Solution

Many people end up hovering at a fair credit score, convinced that it is "good enough." This is a very risky proposition, particularly as credit markets have tightened significantly. It can be quite easy for someone with fair credit to drop precipitously to a bad credit rating after only a few missing payments. Many credit card companies have taken to aggressively slashing lines of credit, and mortgage holders with adjustable rates to increase minimum payments required without warning. Preparing for the worst will help you persevere, and perhaps improve your fair credit score.

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Rental History and Credit

Credit bureaus have traditionally limited themselves to credit-related accounts like mortgages, car financing and other loans and revolving credit like department store accounts, gasoline cards and general credit cards like MasterCard, Visa, Discover and American Express. Now some bureaus are reporting on other financial transactions, like rent payments, which makes credit more accessible to people who do not regularly borrow money or charge purchases.

Mainstream Credit Bureaus

Only one mainstream credit bureau is adding rental payment history to its credit score calculations. Equifax and TransUnion still ignore home and apartment rental payments, but Experian includes them in its scoring formula. Most landlords do not report their tenants' payments to credit bureaus, so Experian only includes data from larger property management firms that share their information, according to Tracy Jacim of My Fox Orlando News.

Alternative Credit Bureaus

Alternative credit bureau Payment Reporting Builds Credit collects data on rental payments and shares it with Fair Issac Corp., the major credit scoring company, which uses it to calculate a special number called an Expansion Score. Consumers renting homes or apartments pay a small fee to set up automatic payments through the PRBC website or get their rental payment histories verified, according to Kiplinger's Personal Finance magazine. Some lenders use the Expansion Score for evaluating applicants who do not have lengthy traditional credit reports.

References

Credit report use is not restricted to lenders, insurance and employers. Many landlords review your credit records when you move to a new home or apartment, and some even pass the cost of the credit check on to you when you fill out a rental application, according to the NOLO legal website. If you have no credit history and must move, ask your current landlord to act as a reference if you have an excellent rent payment history. The new homeowner or apartment manager may be willing to accept this in lieu of official credit records.

Alternative

You can build up a credit rating even if you do not wish to get heavily involved with credit cards and loans by getting one account using it to make regular charges. Get a secured card, which does not require an established history because you match the credit line with a deposit that provides collateral for the account. Secured cards are reported to the three major credit bureaus, and your usage information figures into your FICO score. As little as $200 is required to get this type of card, according to MSN Money writer Liz Pulliam Weston.

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How to fix your bad credit in 30 days or less and improve your credit score!

This article will teach you to repair your bad credit in 30 days!

Instructions

1

The first thing you need to do is pull all three of your credit scores. You can do this for free by going to annualcreditreport.com. Print this reports if possible.

2

Once you have this report handy, look through it, and circle anything over ten years old. Also, highlight or circle anything that you don't recognize or want to dispute. Once you have done this to ALL 3 reports, write a letter, (you can also dispute this online), to all three reports. In this letter you want to include, what you are disputing and the reason why. If something is 10 years old, or older, that would be your reason. You also want to MAKE sure that you let them know that they have 30 days to resolve your dispute, or they will be have to removed the item from your report. Send your letter' s certified.

3

More than likely you will hear back from the credit bureaus by then, if not, pull your reports in 30-60 days. If your disputes are still there, resend then letter, this time listing it as a second notice, and with a threat to hire legal counsel. Once all your disputes are cleaned up, your credit score can be boosted by 100 points or more!

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National Credit Reporting Organizations

There are four national credit reporting organizations: Experian, Equifax, Transunion and Innovis. These organizations have reports that list your individual and joint credit accounts, including, but limited, to credit cards, mortgages, auto loans, student loans, collection agency accounts, judgments and foreclosures. Every account you have doesn't report to every agency, and so it is important to review your individual reports frequently to make sure they are correct. Credit is important in today's society, and it is vital that you make sure you know what is being reported by each credit reporting agency.

Experian

Experian is one of the foremost credit reporting organizations, and its reports are frequently used by businesses. You are able to access your credit reports, but you are no longer able to purchase your true Experian FICO score. Experian and other credit monitoring services will give you a FAKO score, but that is not the same score that people pulling your credit will see.
Contact information for Experian:
Mail: Experian
P.O. Box 9556
Allen TX 75013
Phone: 1-888-397-3742

Equifax

Equifax allows you to purchase your credit report and your real credit score (FICO), and it also provides a monthly credit monitoring service that shows you all updates to your Equifax report and any changes in your score for a monthly fee.
Contact information for Equifax:
Mail: Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
Phone: 1-888-766-0008

Transunion

Transunion also allows you to purchase your credit report and your real credit score (FICO), and it also provides a credit monitoring service (Truecredit) that provides you with daily updates and changes to all three credit reports for a monthly fee.
Contact information for Transunion:
Mail: Transunion
P.O. Box 1000
Chester, PA 19022
Phone: 1-800-916-8800

Innovis

Innovis is a lesser-known credit reporting agency, and usually its reports don't contain most of your credit accounts. It is also the least checked credit report by any credit-granting business or agency. You can request your Innovis report, but there is no way to get your Innovis score.
Contact information for Innovis:
By Mail: Innovis
Attention: Consumer Assistance
P.O. Box 1358
Columbus, Ohio 43216-1358
By Phone: 1-800-540-2505

How to Get Your Reports

The government has made it so every person can receive a free copy of her credit reports every year through annualcreditreport.com (see Resources), and there is no charge for your reports. You may be required to pay a fee if you wish to get your score though.

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Does Bankruptcy Ruin Your Credit?

Bad credit results in negative entries in the debtor's credit bureau files. TransUnion, Experian and Equifax -- the three main national bureaus -- record financial actions, including if someone opens and closes accounts, makes on-time or late payments, or faces car repossessions, property foreclosures and bankruptcies. Credit is hurt by declaring bankruptcy, but the exact effect on an individual's credit report depends on multiple factors.

Definition

Bankruptcy is a court action that eliminates a person's debts or creates a special repayment plan, depending on the type. The Federal Trade Commission explains that Chapter 7 bankruptcy is the more radical filing because it forces liquidation of most assets and gets rid of most debts. Chapter 13 bankruptcy allows the filer to keep more possessions and requires repayment of certain debts.

Time Frame

Both Chapter 7 and Chapter 13 bankruptcies stay in consumer credit files for 10 years. Equifax, Experian and TransUnion include bankruptcy records in credit reports for that entire time, and the bankruptcy notation is seen by anyone who orders those reports. People can file bankruptcy more than once, although they must wait at least two years between Chapter 13 filings and eight years between Chapter 7 cases.

Effects

Bankruptcy is a negative on any credit report, but most people who declare bankruptcy already have low credit scores, according to Rod Griffin of Experian, so their numbers are unlikely to drop much farther. It is hard to get loans and credit cards immediately after the bankruptcy, but the credit score rises if the person handles new accounts responsibly. Lenders see a history of recent on-time payments as a sign that the person is sincere about rebuilding a good record.

Solution

MSN Money financial columnist Liz Pulliam Weston advises that consumers can recover from the most drastic bankruptcy effects within a year or two. The process involves getting new accounts and always paying them on time. People who cannot get regular credit cards might qualify for secured accounts , which require them to deposit a few hundred dollars with the creditor. Those funds act as collateral and guarantee repayment of credit card bills. The issuing bank converts the account to a traditional card within a year or two if it is repaid as agreed.

Alternatives

Several alternatives to bankruptcy do not stay on credit reports for as long and have milder effects on credit ratings. Creditors often negotiate directly with consumers who are having financial problems to create manageable repayment plans. Even auto loan and mortgage companies may be willing to work with people, the FTC explains. Credit counseling firms offer third-party assistance with budget creation, debt negotiation and repayment plans.

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How to Get Items Off Your Credit Report

Negative items on your credit report can damage your credit report. If the items on your credit report are accurate, there is not much you can do to remove the item from the report but wait for the item to drop off. You can work to fix negative reports by paying off the loan. However, you can remove incorrect items from your credit report. It takes two different strategies to remove the item completely from your credit report. You need to contact the bank, which reported the item, as well as the credit agencies.

Instructions

Contact the Bank

1

Pull your credit report and make a list of all incorrect items and the bank which incorrectly reported an item. This could be late payments, delinquent accounts or accounts you do not recognize.

2

Call the bank regarding the information listed on your credit report. Talk to a person about the incorrect information. If it is a late payment, you should have a copy of the payment you sent and the date. If it was online, have the reference number you received when you made the payment. Get the address so you can send the bank a letter explaining your situation.

3

File a police report for identify theft if the account has been opened under your name without your permission. You will need the report for both the bank and credit bureau to dispute incorrect items.

4

Write a letter to the bank explaining when the payment was made or why the information was inaccurate. If you did not open the account, then you need to say that in the letter and include a copy of your police report. Request that the bank write you back regarding how they resolved the matter. Give a time frame for the item to be corrected. Include contact information in case they need to call you.

5

Send the letter certified mail to the bank so you have proof of receipt in case you need it if the matter does not resolve itself quickly.

Notify the Credit Bureau

6

Compose a letter to the credit bureau about one month after you send the letter to the bank. Explain why the item is incorrect and that you have contacted the bank about the matter. Ask them to research the specific item and then to contact you once they have.

7

Send the letter certified mail for proof of receipt.

8

Check your credit report after a month or two to make sure the item has been taken care of. If it has not, you will need to contact both the bank and the credit bureau again. The bank needs to correct the error in order for the item to be removed from your report.

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Does Paying Off Collection Accounts and Closed Accounts Hurt Your Credit Score?

Paying an old debt, regardless of the its age, can never damage your credit score. The damage from allowing an account to go delinquent has already been done. However, paying an old debt can affect other aspects of debt collection that have no affect on your credit score, but can affect how a creditor or collection agency can recoup an outstanding debt.

Credit Reporting

According to the Fair Credit Reporting act, negative items are removed from your credit report seven years after the date of delinquency, which is usually the date of your last payment. Paying off old accounts does not renew the amount of time an account can appear on your credit history. For example, an original account that was closed or sold to a collection agency five years ago will still appear on your credit report if you pay it, but it must still come off of your credit report in two years. If you plan to apply for an apartment or purchase a new car before an old account reaches the seven year removal date, paying off the account is advantageous, because potential lenders prefer to see a paid collection account as opposed to an unsettled one.

Statue of Limitations on Debt

While paying off old debt will not hurt your credit score or affect the removal date from your credit report, it can restart the statue of limitations on the debt. The statue of limitations is the amount of time a creditor or collection agency has to sue or garnish your wages for an outstanding debt. The statue of limitations varies according to state and the type of debt. Some people incorrectly assume that once a debt passes the statue of limitations, there is no longer an obligation to pay the debt. While a creditor or collection agency cannot sue you or garnish your wages for an outstanding debt past the statue of limitations, it can still legally call or mail you in pursuit of the outstanding debt beyond the statute of limitations.

Paying Off Old Accounts

When you pay off an old debt, consider paying the debt in a lump sum. Creditors and collection agencies are usually willing to settle debts for a percentage of the original amount when paid in a lump sum, according to Consumer Reports. If you pay off an old account, obtain written conformation that the collection agency will note the account as "closed," "settled" or "paid as agreed" on your credit report, as opposed to negative line notations, such as "charged off." Also, review your credit report a month or two after settling the account to ensure the account details reflects the proper notation.

Considerations

No matter how many times your old debts are sold and purchased by debt collectors, the original date of delinquency should not change. According to the Neighborhood Economic Development Advocacy Project, some debt collectors tend to re-age debts or report the date they receive the delinquent account as the date of delinquency to keep debts recurring on your credit report beyond the statue of limitations. Debt re-ageing is in violation of the Fair Credit Reporting Act and you have the right to dispute re-aged debts as an error, even if the original account is valid.

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Does a Loan Modification Affect Your Credit Score?

The 2008 recession and rising unemployment caused many to fall behind on their debt, but companies are willing to help. In 2008, for example, Bank of America modified the accounts of 850,000 customers -- giving terms such as lowered interest rates. Loan modification, however, may have an adverse impact on your credit.

Identification

Loan modifications programs can hurt or possibly help your score. It all depends on how your creditor reports the loan to the credit bureaus. If, for instance, the lender accepts a reduced payment, it may appear as delinquent on your credit history.

Considerations

Some lenders require a loan to be in default before approving loan modification. Most require a loan to be at least 30 days past due, but some only offer loan modification to accounts at least 90 days behind. A payment 30 days late wont harm your score much, but a 90 day late payment will seriously damage your credit. Some credit counseling services even suggest stopping payment until the lender agrees to negotiate. Both scenarios could destroy your credit.

Benefits

Usually, loan modification is the best option if you cannot make payments -- even if it dings your credit score. Having a settlement on your credit report will probably hurt you less than constantly missing payments or possibly having the bank foreclose on a home or force you into bankruptcy, according to MortgageLoan.com.

Tip

You might want to refinance your home instead of seeking a loan modification. Refinancing means you repackage your current loan into a new one at a lower interest rate.

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Debt-to-Income Ratios & Credit Scores

The debt-to-income ratio (DTI) is the amount of debt you have--such as a car loan, credit cards, or mortgage--compared with your income. Lenders look at DTI when making lending decisions. They measure your debt load based on the outstanding debt that appears on your credit report, and this debt load helps determine how high or low your credit score is.

History

In 1989, Fair Isaac created the FICO scoring model in partnership with Equifax. Originally, the credit score carried the name BEACON, which is a trademark of Equifax. FICO is the score lenders use most, according to Fair Isaac.

Significance

According to Fair Isaac, 30 percent of a FICO score is based upon the amount of debt a consumer has relative to the amount of available credit. Outstanding debt impacts not only the FICO score but also constitutes the debt portion of the DTI that lenders look at when making loan decisions.

Prevention/Solution

FICO suggests that consumers keep balances low on revolving credit, such as credit cards and store charge cards. By paying the balance off completely each month, consumers can avoid accumulating a balance and keep their debt obligations low.

Considerations

Having several credit cards with small balances on each can help increase a credit score; having one credit card with a huge balance can lower it. This is something to consider when deciding whether to do multiple balance transfers onto one card.

Warning

If a consumer exceeds a credit limit, such as maxing out a credit card, FICO looks at this negatively, and it will lower the credit score. Exceeding a credit limit is considered risky behavior and indicates that you are having a hard time meeting your financial obligations.

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Credit Collection Abuse

Some collection agencies take extreme measures during the collection of a debt, such as constantly calling your house, contacting you at your place of business, harassing relatives and neighbors for your contact information and contacting you outside of allowable avenues. Collection abuse is an illegal activity, and you have several methods to combat it.

Contact Times

Collection agencies are not permitted to contact you at any time that they want. According to the FTC, debt collectors are restricted from contacting you over the phone before 8 a.m. in the morning, or after 9 p.m. at night. Contact after these times can be considered harassment.

Methods of Contact

A collection agency is allowed to contact you by phone, at home or at your place of business. However, the collector must refrain from contacting you at work if you inform the collector you are not permitted to receive personal calls at your place of business. A collection agency can contact you by mail to inform you of your debt and any legal proceedings related to that date.

Barred Practices

According to the FTC, collection agencies are barred from several different forms of abuse and harassment. Collection harassment can come in many different forms, such as calling your friends or coworkers, continually calling you at work after you have indicated you cannot receive calls, threatening to send you to jail due to not paying your debts, cursing at you or claiming to be an attorney in an effort to make you pay the debt. Collection agencies are also not permitted to add onto the debt amount with interest fees or additional charges.

Cease and Desist

A cease-and-desist statement is a written document sent to the collection agency, informing the collector to stop contacting you in any form except mail concerning your debt. The cease-and-desist legally prevents the collector from contacting you except to inform you through the mail about legal proceedings being taken against you, or in response to direct contact from you. A cease-and-desist letter does not need to be written and sent out by a lawyer to take effect. Using the cease-and-desist phrase is enough to prevent contact.

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How to Make a Notation on My Credit Report

Many consumers do not realize they are entitled to place a notation on their credit reports. The credit bureaus collect information from banks and other lenders to include on these reports. You cannot control this process, but you can review your reports and challenge mistaken entries with Experian, Equifax and TransUnion. They must remove errors, but they may tell you they found evidence that the item is correct. You can submit a notation detailing your disagreement that must be added to your credit report under the Fair Credit Reporting Act, Creditcards.com explains.

Instructions

1

Write out a clear and concise notation that spells out your side of the dispute. Creditcards.com warns that all three credit bureaus make you limit your notation to 100 words. Plan it out carefully to hit the most important points.

2

Send a copy of your notation separately to each of the three credit bureaus. They are independent companies, so your statement will only appear on the credit reports compliled by the bureaus to which you sent it. Keep a copy for your records and send the notation through certified mail to ensure it is received.

3

Ask the credit bureaus to provide a new copy of your credit report, including your notation, to any lender that turned you down for an account over the past several months. The Federal Trade Commission (FTC) says they usually charge a small fee to do this, so only request it if you believe your statement is compelling enough to convince the lender to change its decision.

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Ways to Repair Credit After a Settlement

Settling that old debt may have cost you up to 125 points on your FICO score and possibly a little more, but you can recoup those losses in months. Repairing your credit after a debt settlement is much the same as recovering from any other seriously negative item. Also, you are in a much better position than if you declared bankruptcy.

Considerations

Debt settlement may not have ruined your credit score as much as missed payments that led to the creditor agreeing to take a portion of the balance rather than risk receiving nothing in a bankruptcy case. If you headed into the debt settlement with a score of less than 680, the settled account probably took off fewer than 45 points. Also, removing the debt from your profile may offset some of the points you lost.

Prevent Future Delinquencies

Review the other accounts on your profile. Try to pay off any other debts or at least meet the minimum payment and become current so you do not have to settle another account or force the creditor to write it down or send it to a collections agency. Lenders usually offer some help, such as deferred payments, if it helps you get back on track, but you must ask for this as soon as you see signs of trouble.

Start a New Account

Paying existing accounts probably won't be enough to repair your credit, so Credit Karma suggests opening a new account -- if you feel you can handle it -- to have a line of credit with no blemishes in its history. A credit report with a debt settlement as its only negative item may mean you still qualify for a regular, unsecured credit card. At the very least, you can go for a secured credit card, which requires a deposit that might be as low as $200.

Tip

Unless you settled the debt on your own, your attorney or representative may have made an agreement with the creditor on how to report the account. The representative could have included a stipulation, for instance, that you would only pay if the creditor wiped the account from the credit bureau records. In this case, the settlement did not harm your credit score and you may see a boost to it. Credit counseling is another option when you have a debt settlement agreement pending. The counselor might talk the creditors into a smaller payment or some other method that avoids a settlement.

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Does Your Spouse's Poor Credit Affect Your Credit If You Have Separate Bank Accounts?

Poor credit makes it difficult to obtain good financing rates and can make it impossible to get a loan. Poor credit affects many areas of life, and it is important to maintain your good credit in cases where your spouse has bad credit. Simply being married does not automatically result in you taking on your spouse's bad credit.

Credit Reports

Every person has a credit report assigned to him. When a couple are married and obtain joint credit, the credit report does not merge and remains two separate credit reports and scores. The only time a spouse's credit will also report on your credit report is if you are both listed on a joint account. A bank account, joint or separate, does not usually show on any credit report unless a loan is involved.

Joint Credit Accounts

Joint credit accounts require both spouses to report their name and income on the credit application, and the creditor will open an account listing each spouse as a responsible account holder. Common types of joint accounts are for mortgages, car loans and many credit cards. It is important to note that an authorized credit card user can also get both positive and negative credit reported to his credit report; therefore, you should never agree to be added to anyone else's credit card as an authorized user unless you are certain the credit card is handled responsibly.

Bank Accounts

Your spouse may have terrible credit, but it is not affecting your credit unless you have joint accounts that were mismanaged. It is safe to open a bank account together as long as the spouse with bad credit ensures he handles the account responsibly. Your credit is only affected by his actions from the point you are on accounts jointly. You should be aware that although his bad credit will not transfer over and affect your credit score, if a previous creditor receives a judgment on old debt, the funds in any bank account with his name on it could be garnished. Separate bank accounts are an option if you are not willing to take any risk.

Bad Credit Prior to Marriage

Your spouse's bad credit from before you were married or even credit that was obtained after you were married but only in his name will never affect your credit. While your credit score will remain untouched, and his negative accounts will not show on your credit report, you may be negatively impacted if previous creditors attempt to sue. Creditors can obtain judgments that will allow the creditor to garnishee wages, garnishee bank account and in some cases tax returns. Actions like this result in lower money coming into the household which do, ultimately, affect both spouses and the entire family unit.

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How to Read Credit Bureaus

There are three major credit bureaus; Equifax, Trans Union, and Experian. While each of these credit bureaus provide reports that look slightly different, each report contains essentially the same information. Credit reports are updated regularly by the financial institutions an individual has a trade line or a credit account with.

Instructions

1

Look at the top section of the credit report. It should contain the name of the credit bureau as well as the phone number of the credit bureau if you have any questions about your credit report or you notice that the credit report contains incorrect information.

2

Examine the section labeled "Warning," as this section will tell you if your credit file has been flagged for some reason. A file could be flagged due to an address related to you being misused.

3

Determine your credit score by looking at the section labeled "Score". A higher number means you have a better credit score. The highest score you can obtain is 850. This section will also give reasons to back up your score.

4

Find your name on the credit report. Your name will be in the "Identification" section of the report. This section also contains the date the your credit file was opened, as well as your previous addresses.

5

Identify the inquiries section which could be labeled "Inquiries" or "INQS" or a similar abbreviation. This section shows you the companies that have requested your credit report, as well as the date the report was requested.

6

Find the employment section. The employment section will be labeled "Employment," or you may see information that starts with the labels "E-". The employment section indicates your current and previous employment if this information has been updated on the credit report. This section is not commonly used since it is not regularly updated.

7

Determine if you have any collection claims, legal suits, or bankruptcies on your credit report by examining the information in the "Public Records" section.

8

Familiarize yourself with all credit accounts you have opened by examining the "Trade Information" section. This section will tell you when the account was opened, the maximum available credit on this account, the amount available for you to use, and your history of credit repayment.

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How Do I Add a Fraud Alert to My Credit Report?

If you believe that financial information which could be used to steal your identity has been made public, you should add a fraud alert to your credit report. Creditors would then have to call you before new accounts could be opened using your information. Adding a fraud alert doesn't cost anything. Unfortunately, it isn't a guarantee that you will be protected. Creditors sometimes overlook a fraud alert by mistake and process a fraudulent credit request.

Online

Go to Equifax.com and Experian.com to add a fraud alert with those credit-reporting agencies. Fill out the requested information online and hit the continue button. The fraud alert should be in place in 24 hours, and it will remain in place for 90 days. A fraud alert cannot be added online with TransUnion.

Phone or Mail

You can also contact the fraud division of the three major credit-reporting agencies by phone or mail. The process takes only a few minutes by phone. If you contact them by mail, just ask for a fraud alert to be added to your credit report.

Contact Equifax at P.O. Box 740241, Consumer Fraud Division, Atlanta, GA 30374-0241. Phone: (800) 525-6285, fax: (770) 375-2821.

Contact Experian's National Consumer Assistance at P.O. Box 2104 Allen, Texas 75013. Phone: (888) 397-3742.

Contact TransUnion's Fraud Victim Assistance Department at P.O. Box 6790, Fullerton, CA 92634. Phone: (880) 680-7289, fax (714) 447-6034.

Extended Alert

If you want an extended fraud alert that will last beyond 90 days, you will need to mail or fax additional information to the credit-reporting agencies. This includes a police report and a report from the post office that indicates you are a victim of mail theft.

For Equifax, fill out the extended fraud alert form and mail it with a photocopy of one of these forms of ID: Social Security card, pay stub with Social Security number or W-2 form. You must also send a photocopy of one of these forms of address verification: driver's license, rental lease agreement or house deed, or pay stub with your address. Mail this information and the fraud alert form to: Equifax Information Services LLC, P.O. Box 105069, Atlanta, GA 30348-5069. You can fax it to (888) 826-0597.

For Experian, mail a photocopy of one of the following forms of ID: driver's license, state ID card or military ID card. Also send a copy of a utility bill or bank statement to Experian, P.O. Box 9554, Allen, Texas 75013. See Experian.com for the letter that is also required.

For TransUnion, mail the same ID information along with a copy of a utility bill or bank statement to TransUnion, P.O. Box 6790 Fullerton, CA 92634.

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What Is Mid Score Credit Rating?

Credit scores are used to determine whether or not you will get approved for credit with a company and then if approved, what your APR for that credit will be. It is therefore important to try and keep your credit score as high as possible so that you can qualify for the best rates.

Credit Bureaus

Lenders typically use your credit score from either TransUnion, Equifax or Experian to decide whether they will give you credit. All three of these scores are different based upon each credit bureau's own algorithm.

Mid Score Credit rating

A mid score credit rating is when a company, typically a mortgage company, bases your offer of credit on the mid score. This is taken from your three credit report scores, and the scores are put in descending order. For example, if your three scores are 650, 630 and 610, your mid score credit rating would be 630.

Scores Wanted

In order to get a mortgage, you want to make sure that all your credit scores are good, but the lowest mid score that is accepted is approximately 620.

Warning

It is therefore extremely vital that you keep on top of all three of your credit reports, because even if one score is 720 but the other two are bad, you can still be denied credit.

Credit Scores

You can monitor all three of your credit reports, but you can only get your official FICO scores for TransUnion and Equifax. So it's important to make sure you pay special attention to your Experian report, and make sure everything is being reported correctly.

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Does the Green Dot Card Improve My Credit?

You can obtain a Green Dot card, which allows you to rent a car at some companies, and enjoy the convenience of electronic transactions without the need for good credit. One downside to this card is that you cannot build a traditional credit history. You can build credit but only with firms that allow self-reported payments.

Identification

Green Dot cards do not build credit history, according to the Green Dot website. Accounts issued by Green Dot are prepaid, so you do not receive a line of credit. Instead, you load funds onto the card, often by paying cash or through a credit or debit card. The major credit bureaus do not report prepaid accounts because they do not necessarily have as good a predictive value as a loan or other debt account.

Alternative Credit Agency

You can report purchases made using a Green Dot card to an alternative credit agency. This type of company reports any kind of account as long as you can prove payment, such as with a monthly statement. An alternative credit history, however, is not always accepted in lieu of a traditional credit history. Thus it is always ideal to use an account that reports to Experian, TransUnion and Equifax -- the national credit bureaus.

Considerations

Some prepaid cards, such as the Elite or Preferred Level Eufora Prepaid MasterCard, report to one or more of the major credit bureaus. However, they usually appear as an installment account rather than a revolving account. Revolving accounts are generally more important for building credit, because they are a better indicator of how a person uses credit. Also, prepaid cards with a credit building feature tend to charge a monthly fee.

Alternative

Retail, gas and secured cards are far better for building credit than prepaid accounts like a Green Dot card until alternative credit histories become widely accepted, according to Leslie McFadden of Bankrate.com. Look for a retail, gas or secured card that reports to all three national bureaus and charges a minimal annual fee. Some companies take advantage of people trying to rebuild credit by charging hundreds of dollars in fees for a secured card, according to the Federal Trade Commission.

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Can a Creditor Get My Credit Score If My File Is Frozen?

All states either have laws requiring the credit rating companies to freeze credit reports, where no creditor can look at it, or the credit companies offer this service voluntarily. Credit freezes are one of the most effective tools against identity thieves, but they do not guarantee that a creditor cannot see your credit score.

Identification

A credit freeze only prevents new lenders from seeing your report. Your current lenders do not lift the freeze if they use your credit report to review or collect on an account, according to Kiplinger. Also, the credit bureaus allow you to temporarily lift a freeze. This requires giving the credit bureaus advanced notice -- ranging from 15 minutes to 10 days -- and supplying the personal PIN you chose when you initiated the freeze.

Considerations

If you want to temporarily lift the credit freeze, you will have to pay a fee in all states except Indiana and South Carolina. Some states allow seniors to lift freezes for free. (ref 3)

Effective Freezes

The fees to freeze a credit report are actually triple that of the state rate, because you need to freeze reports from all three credit bureaus. Leaving reports at any bureau unfrozen means a would-be thief only needs to find a lender that accepts a credit report from the bureau(s) you left out.

Alternative to Credit Freeze

Instead of a credit freeze, you can place a fraud alert for free. This allows creditors to see your credit score, but they are supposed to ask for photo identification before processing any application. The key here is "supposed to." Lenders can ignore fraud alerts because the law does not spell out what steps a creditor must take to verify the identity of an applicant. Also, fraud alerts expire within 90 days, so you will have to keep renewing the alert unless you can prove you are a victim of identity theft.

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Envelopes for Budgeting

People start budgeting for a variety of reasons including saving money and to avoid living paycheck to paycheck. You can use several methods to start budgeting. If you want to get better control over your money, consider using envelopes for budgeting.

Process

The method of using envelopes for budgeting involves withdrawing cash at a pre-determined date in the month and then separating the cash into individual standard envelopes. You label each envelope for each bill or need, such as "Electric Bill," "Cable," and "Entertainment." When the bill comes due, you take the cash out of the envelope and pay the bill. In the case of money for entertainment, groceries or other needs you're limited to the pre-determined amount for that period. When the money runs out of the envelope, you must sacrifice until the next period to refill it with more cash.

Purpose

The purpose of using envelopes for budgeting is to better manage the money you earn. When using debit cards or checks to purchase items and pay bills throughout the month, you can easily overspend or fall outside of your budget. When you simply withdraw one lump sum to pay all of your obligations and then categorize it, you may have a better chance of staying committed to the budget.

Cash in Hand

Having cash in your hand might make it more "precious" to you in a way. When you see the cash you're more reluctant to give it away for frivolous needs and so you spend less. Alternatively, when you use plastic or a check to buy items, you don't get a chance to look at, feel and appreciate the cash that you've earned in your hand before deciding to spend.

Suggestions

In some cases it is fine to add a check to the envelope system, particularly in the case of large bills such as mortgage, rent or a car loan payment. So put cash away in the envelopes for the small bills and pay the large bills with a check (physical or online). For an envelope such as groceries or entertainment that requires regular withdrawals, write the reason for withdrawal on the front of the envelope so that you can keep track of how you're spending that portion of your income.

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Can a Company Ask for Your Credit Score When Hiring You?

Many employers routinely request credit checks as part of their hiring process. Some use the information in credit reports to verify an employee's identity and work history, while others consider an applicant's financial history when making employment decisions. You don't have to consent to a credit check, but some employers won't consider your application unless you do so.

Credit Reports and Scores

A credit report is a history of how you manage debt and credit. Creditors can place accurate information about their dealings with you, including the amount of credit you have available, your payment history and when you opened your credit accounts. Your credit reports also contain information about where you used to live and work, as well as public records, such as liens, lawsuits, bankruptcies and judgments. Your credit score is a number that represents your creditworthiness based on the information in your credit report. A higher number means better credit.

Employer Background Checks

Each employer has its own criteria for employment and uses background check information, including credit histories and scores, differently. Some employers may set a minimum credit score as a qualification for employment; others may review the entire report with an eye toward weeding out applicants with severe delinquencies or judgments. Some employers only run credit checks on employees who deal with money or highly sensitive material on a regular basis.

Credit Discrimination Laws

As of 2011 a few states, including Washington, Hawaii, Illinois and Oregon, have laws restricting how an employer can use credit information in hiring decisions. While these laws sometimes exempt certain employers or positions, they otherwise prohibit employers from refusing to hire someone just because of their credit history. Federal law also prohibits employment discrimination based on a previous bankruptcy, though it does not address other forms of credit history discrimination.

Consumer Rights

Employers need to get your permission before running a credit check on you. If they decide to not hire you because of something in your history, they have to disclose this. They also have to tell you the name and address of the bureau or screening company that generated your report and you can request a copy of the report free of charge.

Avoiding Problems

If you are concerned that you might have credit problems, get copies of your credit reports to see what they contain. You can get a free report from the bureaus once every twelve months by visiting annualcreditreport.com. If you are currently unemployed, but looking for a job, you can request additional free reports directly from individual credit bureaus. If you find inaccuracies, you can contact the credit bureaus directly to request the deletion of incorrect information.

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Does Getting a Credit Card & Not Using It Build Credit?

Obtaining a credit card is essential to building a credit score, but not if you never use it. If you ignore a credit card account, the credit reporting bureaus omit it from your credit rating. You can use the account to build your credit rating at any time once you start using it. But do not overspend, which can cause much more damage than leaving the account inactive.

Identification

Not using a credit card account usually means the creditor reports the account as inactive after six to 12 months of no activity. This means that you do not add positive data to your payment history, nor do you boost your available credit limit. You want as much credit available to you as possible, because your ratio of credit used to credit limit available, or credit utilization, is a significant part of the "Amounts Owed" category in the FICO credit scoring system and most other risk models too.

Keeping The Card Active

You do not need to carry a balance or make a minimum purchase to keep the card active. You could, for instance, charge a small bill, such as a water bill, to the account each month and pay it off immediately. The creditor just needs to be able to report something to the credit bureaus, because credit scoring depends on your payment history, so lack of account activity means the bureaus cannot rate you as a risk.

Canceling Card

If you let an account sit inactive for a prolonged period of time, the lender might lower the limit on your account or cancel it altogether, because lenders must keep a certain amount of cash reserves on hand based on their outstanding credit limits. You do not want the lender to cancel your card, because you will have apply for a new account if you want credit in the future, and applications for credit do a few points of damage to your credit rating.

Tip

Review your spending habits. If you frequently splurge on big-ticket items like televisions and stereo systems, you might want to keep the account inactive if you can't avoid the temptation to spend. Otherwise, keep the line active but always have a plan to pay off the balance in full. A credit utilization ratio over 50 percent is always damaging, and you should try to keep it below 33 percent, according to the Credit Builders Alliance.

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Where to Get a FICO Score

Your credit score is an important number to know. This is a mathematical expression derived from a statistical examination of your credit history. It signifies your creditworthiness. A credit score is mostly based on your credit report details. Fair Isaac Corporation created the FICO credit score. Lenders who employ risk-based system of lending use it. The three major credit-reporting companies create a similar version of the FICO credit score.

Instructions

1

Understand your rights. The FCRA, Fair Credit Reporting Act, passed as an amendment in 2003 requiring all credit reporting agencies supply a free report each twelve months when asked for. This includes TransUnion, Experian and Equifax. These three agencies created a mutual company, Central Source LLC, to supervise their fulfillment of the amendment. The reports do not include a credit score, but it can be added to it for a charge.

2

Register and supply fundamental information to get your free report and FICO score.You have to register with the website and supply your name, address and social security number. You will then be redirected to a website for the report you want from one of the three credit reporting agencies. You must correctly answer a few security questions to verify your identity. Once you have done this, you will be able to access your report.

3

Request your FICO credit score. You will able to request your score at the time you request the credit report from the website. You will have to supply payment for it, before you will be able to get it. You will have the option to print your report and score for your records.

4

Keep an eye on your FICO credit score. This process can be repeated for each credit-reporting agency at once or spread out over time. A good way to keep track of your credit report and score is to request a report from one agency every four months. This way you will always be able to get a free report and only be charged a nominal fee for your credit score.

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Will Negotiating With My Credit Card Company Hurt My Credit?

When credit card debt overwhelms you, you might be able to negotiate with the card issuer to pay it off for pennies on the dollar. While a debt settlement plan with a credit card company may help your financial situation, it could destroy your credit. In most situations, you have to sabotage your credit before the issuer even hears an offer.

Considerations

Most credit card companies won't listen to a debt settlement offer until the borrower misses several payments. Debt settlement companies often advise customers to stop paying their bills, but this guarantees to destroy a person's credit score. Not paying your bills for 90 days, for instance, drops a score by 70 to 135 points, according to CNN. A bankruptcy, the worst item you can have on a credit score, drops it by 130 to 240 points.

Effect

When a credit card company agrees to settle for less than the amount owed, it usually reports the account to the credit rating bureau as "partially paid" or "settled." Having a debt paid back for less than the balance is an extremely negative item and almost as bad as a bankruptcy, because you cause the lender a loss. If this is your only negative item it will have a greater impact than if you had several collections or charge-offs.

Benefit

Taking the hit of a settled account might be better for your credit in the long-term than constantly having missed payments on your record. Also, "paid, but settled" is still better than having an open, delinquent account or an account sent to collections when a lender pulls your report. Though negative accounts stay on a report for seven years, creditors weigh accounts within the past two years the most.

Alternative to Settlement

You could go to a credit counselor who may be able to work out a debt-management plan with creditors. In a DMP, the debtor gives the counselor a single payment to be broken up between all creditors. Plans typically take 36 to 60 months to complete. but the creditors report the account as paid as agreed to the bureaus.

Tip

If you decide to go with a settlement plan, try to negotiate for a "delete letter." In return for paying 35 to 50 percent of the debt, the creditor might be willing to claim the account was listed in error to the credit reporting agencies, according to Bargaineering.

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Is it Worth Hiring an Attorney to Improve a Credit Score?

People with bad credit can go to extremes to try to help themselves out of their financial problems. While a bad credit score is not necessarily going to ruin your life, it can make it very difficult for you to get a loan. Some attorneys can help you improve your credit score. Talk to an attorney in your area if you need legal advice about your credit score or other related issues.

Credit Score

Your credit score represents how much of a risk you pose to a creditor if the creditor decides to give you a loan. A low score means you are a risky borrower, while a high score means you are not. Your score is based on the information in your consumer credit reports. These reports contain information about how you've used credit in the past. In general, you can remove negative information on your report only if it is incorrect, while correct information must remain.

Improving Your Score

The two main ways you can rebuild your credit score is by removing negative information from your credit report and improving the way you use credit. An attorney cannot force you to use credit more wisely, though she can offer you advice on how to use credit to improve your score. An attorney can also represent you and your interests when dealing with creditors or the credit reporting agencies that collect credit report information.

Defending Your Interests

An attorney can help you when you face a lawsuit or collections action from a creditor. Attorneys can defend your interests against anyone suing you or contacting you in an attempt to collect a debt and fighting a lawsuit without the help of an attorney can seriously damage your credit. An attorney can help negotiate a settlement with your creditors and limit the legal and financial repercussions of a lawsuit. You should always talk to an attorney any time you get sued by a creditor.

Assistance With Removals

Many credit repair or credit services attorneys advertise their ability to get negative information removed from your credit report and thus increase your credit score. It is difficult to know whether an attorney will be better able to get a negative item removed from your credit than a consumer, but if you are unable to take the time to do it yourself or are uncomfortable with the process, you might consider hiring an attorney to help you with your credit repair needs.

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What Is a Credit Score Simulator?

Credit scores are calculated using a formula developed by the Fair Isaac Corporation and are used by lenders to determine how creditworthy lenders are. These scores range from 350 to 850, with higher scores being better. Your scores are calculated using information found on your credit report.

What is a Credit Score Simulator?

The Fair Isaac Corporation, creator of FICO scores, does not release the formulas for calculating credit scores to the public so people cannot calculate their credit score on their own. However, a number of groups have attempted to create similar formulas to allow consumers to estimate what their FICO scores may be. These calculators are called credit score simulators, and they attempt to predict what your credit score will be based on information you provide.

Factors that Affect Credit Scores from Simulators

The Fair Isaac Corporation does not release the actual formula but does explain the factors that are used in the calculation of the score. These factors are your payment history, which makes up 35 percent of your score; your balances owed, which makes up 30 percent of your score; the duration of your credit history, which is 15 percent of your score; your use of different types of credit, which makes up 10 percent; and your recent applications for credit, which makes up 10 percent of your score.

Why the Formula is Kept Secret

The formula for calculating credit scores is kept secret for business and reliability reasons. The Fair Isaac Corporation has an effective monopoly on the credit score industry because it has developed a model that lenders rely on for its accuracy. If the formula were released, Fair Isaac would lose a significant amount of revenue. Also, the Fair Isaac Corporation argues that if the formula were released, the formula would lose its effectiveness because consumers could manipulate their finances to artificially inflate their scores.

Benefits of Credit Simulators

One of the biggest benefits of using credit simulators is you can estimate what would happen to your score if you changed certain elements of your credit report. For example, if you were considering opening a new credit card account, you could estimate the effect that would have on your score. You could also estimate how much your credit score would be affected by making all of your payments on time for the next year.

Limitations of Credit Simulators

Credit simulators can only use the information you provide to calculate your score. While most people will fill out the information to the best of their ability, they may not have a complete view of their credit. For example, they may not realize that each time they apply for a new credit card an inquiry is created on their account or they may have incorrect information on their credit report that will negatively impact their actual score. Also, most credit scores will give you a range of scores rather than a precise score. While this may not be important if your range is 800 to 850, the difference between a 680 score and 730 score can be significant.

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Agencies That Allow You View Your Credit Reports for Free

Consumers in the United States are entitled, through the Fair Credit Reporting Act, to receive a free annual credit report. Equifax, Experian and TransUnion are the only credit reporting agencies in the United States. They have authorized annualcreditreport.com as the only official source for free consumer credit reports. This official credit report includes reports from each of the three U.S. credit reporting agencies. The official annual credit report may be obtained online, by phone or through the mail. You are also entitled to a free credit report within 60 days of being denied credit. A number of states also allow consumers more than one free annual credit report.

Be Safe

There are many websites offering credit information and free credit reports. While many of these sites are legitimate, credit reports are a common target for criminals and websites that attempt to gain access to your confidential financial information. Because of the security risks to consumers, the U.S. government and the credit reporting agencies recommend that consumers do not click on links from third-party websites, but instead go directly to the only authorized free credit report site: www.annualcreditreport.com.

What's in My Credit Report?

Your free annual credit report is an overview of your personal credit history. It includes your current and previous residences, employers, credit cards, loan accounts, credit and loan delinquencies and any accounts that have been reported and turned over to a collection agency. It also includes a list of companies and organizations that have requested your credit report and those that have been given access to your information. It does not include personal financial information such as bank balances, income or monthly bills such as utilities.

Errors and Differences

When reviewing your free annual credit reports, you may discover that some of the information in your credit report is wrong. You may also notice that the information in each of the three credit reports may be different. It is vital that you review and report any errors on your credit reports as these errors may interfere with your credit score and could possibly result in being denied credit or a loan. Each of the credit reporting agencies provides information on how to report errors.

Where's My Credit Score?

Your free annual credit report does not contain your FICO score, also known as your credit score. This score is developed for the three credit reporting agencies by the publicly traded Fair Isaac Corp. You may have a different credit score at each of the three credit reporting agencies due to differences in your credit reports. If you obtain your free annual credit report online, you will be given the opportunity to purchase your FICO score from each of the reporting agencies. The fee for each credit score is usually under $10. You may also obtain your FICO score for a fee from MyFICO. Because your FICO scores are used to determine whether or not you are a good credit risk, they are important numbers to know.

Credit Monitoring

Checking your credit report each year is a good way to guard against identity theft. In reviewing your credit reports, you will be able to see if anyone else is applying for or taking out loans or credit in your name. There are many credit monitoring services that, for a fee, will monitor your credit reports each month for unusual activity and potential identity theft. Your bank or credit union, MyFICO and the three credit reporting agencies all offer secure, low-cost, monthly credit monitoring and identity theft prevention services.

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What Are High & Low Credit Scores?

Wading through information on credit scores can be confusing, because there are few absolutes in the sector of credit scoring. One lender may view your score as high, while another could consider it too low -- and both could be right. Instead of zoning in on a score to reach, look at what your credit history contains.

Considerations

Your FICO credit scores exist to tell lenders what a mathematical formula designed to rate the odds of you missing a payment says about you, not whether you are a good credit risk. So, one lender may view your 700 as an exceptional score and give you the best rate possible, while another could adjust your rate higher, because you do not fall into the highest class of credit scores.

Identification

Over time, lenders have settled on a fairly narrow range of scores that they consider the breaking point between a good and bad risk. Most creditors consider anything above 620 a prime or good risk, according to Bankrate. Above 700 means you are a very low risk borrower, and anything above 760 slots you as lowest risk, based on the FICO scoring model. An 850 is the highest score in the FICO system but next to impossible to reach. A score above 800 is elite and extremely difficult to obtain. Once you get below 620, almost anything is equally bad. Only 13 percent of U.S. consumers have a score below 600 and a borrower in this class tends to miss payments more than he pays on time.

Credit Report vs. Credit Score

Credit scores and credit reports are not the same thing. A credit score uses information in your credit report to quantify you as a risk. Thus, you should examine your report for negative information to find out why you have a low score. A single negative item usually has a much larger impact than a single positive item. If you have a low FICO score, there are probably several missed payments and maybe some delinquent accounts, such as a collection account, charge-off or even a bankruptcy.

Tip

The only way to gauge whether you have a high or low credit score is to see what a lender thinks of your credit. You can apply for mortgages, student and auto loans as many times as you want in a 45-day window and have it count as only a single inquiry. Ideally, you should become current on any past due accounts and eliminate as much debt as possible from your profile before submitting an application.

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Why Is It Important to Have a Good Credit Score?

Your credit score is only one part of your overall credit picture, but it plays an important role in your personal finances. Keeping your credit score in good shape can help you keep your finances on track.

Definition

Your FICO credit score is a number between 300 and 850. It is determined through a statistical analysis of five factors regarding your payment history and credit use.

Getting Good Credit Terms

Companies use your credit score as a predictor of your ability to pay back a loan in a timely manner. For this reason, consumers with higher scores will be offered better terms such as lower interest rates, fewer fees or flexible repayment periods.

Getting Credit

By establishing a good credit score, you ensure that you can get a loan or a line of credit. You won't have to worry about shopping around trying to get a bank to accept your application.

Employment

Many employers are beginning to use credit scores and records to help them assess the overall suitability of a candidate. This is a more common for individuals who would handle money regularly or have access to company credit accounts.

Housing

While your credit score plays a large part in determining eligibility and terms for a mortgage, many people don't realize that it can also affect your ability to find a residence to rent. If you have a bad credit score, many rental agents or complexes will require that you obtain a co-signer.

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How Fast Can You Increase Your FICO Score?

The FICO credit score, developed by the Fair Isaac Corporation, is one of the most common measurements lenders use to assess your creditworthiness. Much of the score is based on your history of using credit, meaning increasing your score is not something you can do overnight. However, there are some things you can do that will bring your score up within a matter of weeks.

How Your Score is Calculated

Fair Isaac uses five factors in calculating your FICO score and gives different weights to each. Credit history is the most important factor, making up 35 percent of your score. The amount of debt you have is the second-most important factor, at 30 percent of your score. Credit history makes up 15 percent of your score, while the types of credit you have and how often you take out new lines of credit make up 10 percent each.

Correcting Errors

One of the fastest ways to raise your FICO score is to correct any errors on your credit report. Bankrate.com cites a 2004 study showing that up to 80 percent of credit reports contain some sort of error. While most are minor, some, such as showing accounts that are current as past due, can harm your score. When you dispute these errors to the credit bureaus, they have 30 days to act. You can try to speed up the process by contacting the bureaus by phone, but the most reliable way is to dispute the error in writing and provide copies of any corroborating documentation. Once the error is fixed, your FICO score should increase quickly.

Paying Off Debt

Because a big portion of your FICO score is based on how much you owe, you can improve your score relatively quickly by paying down debt. Liz Weston, writing for MSN Money, says that you can improve your credit score in 30 days or less by paying off a significant amount of credit card debt.

Considerations

Most actions you can take to increase your credit score take time. As stated on the MyFICO website, "Repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score." The best thing you can do to raise your credit score and keep it high is to pay your bills on time. If you have black marks on your credit report, such as a bankruptcy, foreclosure or debt sent to collections, it will take years before the items disappear. However, their effects on your credit score will dwindle over time if you use credit responsibly.

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How Do You Determine What a Credit Rating Score of Excellent or Good Means?

When it comes to the world of credit scores, consumers can get bogged down in confusing terminology. You may learn what your three-digit credit rating score is, but not have an understanding of whether it's considered excellent, good or bad. Or, consumers may be told that they have "excellent" credit, but wonder what that credit score range includes and what the positive effects of excellent credit may be. Understanding key definitions related to credit rating scores can help you determine whether you'll qualify for the perks and privileges associated with "good" or "excellent" credit.

Credit Rating Scores

Companies use a variety of factors to determine your credit rating score. Elements taken into consideration include the type of credit you hold -- for example, installment loans such as student loans, auto loans or home mortgages are viewed more positively than credit cards -- and overall debt loan compared with annual income. Your score is affected by your credit history; on-time payments of more than the minimum required help boost your score, and late or skipped payments will hurt your score. Having a long history with creditors increases your score; opening numerous accounts over a short time indicates you may be scrambling for credit because of poor financial management. Having accounts turned over to collection agencies or filing for bankruptcy can cause your credit rating score to take a big hit.

Excellent

Consumers with credit rating scores of 720 or higher are considered to have excellent credit, according to Lending Tree. Excellent credit rating scores mean that you'll qualify for preferred interest rates, and may be permitted to take out larger loan amounts for home mortgages with less money down, compared with consumers with average or below-average credit. While many consumers pay interest rates exceeding 18 percent in 2011, excellent credit scores may net you interest rates of 10 percent or lower. Once your score skyrockets into numbers over 770, creditors may pay less attention to whether your score is a 775 or 780; you've already established yourself as a trustworthy consumer, according to Credit Scoring.com. The average credit score is around 720, according to the same source.

Good

Good credit scores reflect ratings below 720, but at least 675. Consumers with good credit scores may not qualify for the most preferred loan rates or credit card offers, but should still score decent interest rates and loan offers compared with people with bad credit. Good scores may positively impact your auto loan approval, or increase the chances of landing an apartment lease or job offer. Scores below 620 may result in lenders taking a closer look at your finances before approving applications.

Improving

If you'd like to transition your credit score from good to excellent, first pull your own credit history to identify whether any incorrect information could be dragging your score in the wrong direction. After contacting the three major credit bureaus -- Experian, Equifax and TransUnion -- to correct any errors, continue making on-time payments of more than the minimum until debts are paid off. Avoid taking out new, unnecessary lines of credit, according to the Consumer Federation of America.

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