June 2013 ~ Personal Finance and Money Management

Sunday, June 30, 2013

Can You Figure a FICO?

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Credit scores play a role in a variety of financial transactions. From getting new insurance to applying for a loan or credit card, your credit score determines your eligibility and plays a role in setting your interest rate. One such score is the FICO score. More lenders request FICO scores when evaluating applications than any other credit score. Checking your own FICO score before your lender does helps prevent unpleasant surprises.

The Fair Isaac Corporation (FICO) owns the mathematical formula used to calculate FICO scores. The Fair Isaac Corporation has never released this formula to the public, because that would hurt the company's profit margin. If consumers could calculate their own FICO scores, many would do that rather than purchasing scores from the Fair Isaac Corporation. Without access to the formula, you cannot calculate your own FICO scores.

Although you cannot calculate your own FICO scores, you can purchase your TransUnion and Equifax FICO scores from the credit bureaus or directly from the Fair Isaac Corporation by visiting the myFICO website. Unlike credit reports, which can be obtained free once each year, you are not entitled to receive a free credit score.

While you can purchase TransUnion and Equifax FICO scores as often as you wish, you cannot purchase your FICO score from Experian. As of February 2009, Experian stopped allowing consumers to purchase its FICO scores and made its FICO scores available only to lenders.

To help consumers better understand their credit scores, the Fair Isaac Corporation provides general information regarding how the company calculates FICO scores. Your payment history accounts for 35 percent of your score, the amount you owe your creditors accounts for 30 percent, the types of credit you use is 10 percent, new credit accounts for 10 percent, and the length of your credit history accounts for 15 percent.

FICO scores aren't the only credit scores available on the market. You can opt to purchase a "VantageScore." The VantageScore is a credit score calculated and marketed by the three major credit bureaus. If you plan to purchase your FICO score from the credit bureaus rather than the Fair Isaac Corporation, you must stipulate that you want a FICO score rather than a VantageScore.

In an effort to maintain the highest degree of accurate risk assessment, the Fair Isaac Corporation alters the formula it uses to calculate FICO credit scores every few years. Thus, even if you did obtain the blueprints behind your FICO score, the information would only remain valid until the Fair Isaac Corporation updated its scoring formula.

How to Get a Debt Off Your Credit Report After 7 Years

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Not all debt on your credit report is bad. Any accounts for which you have a good payment history are positive items. Accounts that have zero account balances because the creditor charged it off and all collection accounts are negative items. Negative items don't always automatically drop off your credit report in seven years, but you may be able to remove them after that time has passed.

Instructions

Obtain a current copy of your credit report from all three bureaus, TransUnion, Equifax and Expeian, at AnnualCreditReport.com (see the Resources section). To know the exact age of your accounts, you need the most current copy of your credit report.

Note the outdated accounts. To get debt off your credit report after seven years, you need to verify the age of the delinquency.

File a dispute. Because the accounts on your credit report can be different, you need to file your dispute with each credit bureau (see the Resources section). You may dispute errors on your credit report online, by phone or by mail.

Check back with the credit bureaus after 30 days. After you file a dispute, the credit bureaus must investigate and respond within 30 days, according to the Federal Trade Commission (FTC). If it is over seven years old, the creditor will submit its findings to the credit bureaus, who will then remove the account from your report.

How to File Complaints to the Credit Bureau About Incorrect Reported Information

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Incorrect information on your credit report can cause a multitude of problems, including the inability to get a job, secure insurance on your car or obtain a loan. Fortunately the Fair Credit Reporting Act provides help against inaccurate reporting.

Instructions

Get a current copy of your credit report. Under the Fair Credit Reporting act all three of the nationwide credit bureaus---Equifax, Experian and TransUnion---are required to provide you with a free copy of your credit report, at your request, once every year. If you have an inaccuracy on one report, odds are its on the other two as well. So get copies of all three. The Federal Trade Commission (FTC) reports the only official annual free credit report site is annualcreditreport.com. The FTC has issued warnings of other fake free credit reporting services, so use the one it recommends.

Prepare a statement regarding the error on the report. Explain the error and gather supporting materials that prove the mistake such as canceled checks. Send your statement, copies of your proof and a copy of the error on the report by certified mail with a return receipt to the credit bureau(s) that have reported the error as well as to the creditor company. Be sure to file the returned receipt when you get it back as its proof of your contact with the companies should it ever come into to question whether they received your statement.

Wait for a response. The credit bureaus have 30 days to respond to your statement in writing. During that time it investigate, including contacting the creditor in question. You will then receive a notice about the results of the investigation as well as a new report with updated information. You can ask that the new report be sent to all companies that requested access to your credit report over the last six months.

File a complaint against the credit bureau. If the credit bureau fails to respond or doesn't correct the error and doesn't give a satisfactory response to its decision, you can file a complaint with the Federal Trade Commission (FTC). While the FTC won't act on you behalf, if there is a pattern of complaints, they will investigate. In your complaint you'll want to prepare a statement that outlines all that you have done, including sending of proof to the credit bureau as well as the return receipt information that shows the bureau received your statement.

Notify the credit bureau in writing that you've filed a complaint with the FTC. It's possible that it will take another look at your complaint if it knows you're going to pursue further action.

Find an attorney who specializes in consumer advocacy. If you're certain you have a good case for the change on your report, you can hire an attorney who knows the ins and outs of the Fair Credit Reporting Act. Check at the National Association of Consumer Advocates for a lawyer near you (See Resources).

What Is an R9 on Your Credit File?

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At any given time, only about 2 percent of Americans know their exact credit score, according to the Frontline. Even less know about the codes used by some lenders on credit reports. "R9" is one of the most important codes you should watch for because it is potentially very damaging; however, you might be able to get it off of your record.

An R9 on your credit file means you have a revolving loan, most likely a credit card account, in very poor standing or sold to a collections agency. Most lenders send an account to collections after 180 days of nonpayment. An R9 is the worst status you can have on any account, as it shows a refusal or inability to pay the debt.

The Fair Isaac Corporation (FICO), the company that invented the scoring formula accepted by the majority of lenders, keeps its equation secret so that nobody knows the precise effects of a collections account on a credit score. However, collections accounts insinuate a flagrant misuse of debt, so expect a huge drop in your score. Similar public judgments, such as foreclosure, shave off up to 160 points of your score, reports CNNMoney.com.

You should review your credit report several times a year to check for errors -- 25 percent of credit reports contain a serious mistake, like an erroneous collections account, according to the U.S. Public Interest Research Group (PIRG). The major bureaus have standard forms on their websites to dispute information, which they must investigate within 30 days of your claim.

Contrary to popular belief, paying off a collections account does not improve your credit score, according to MSN Money. You may, however, feel a moral obligation to pay the debt and lenders may require you settle any old debts before they accept an application for credit. Also, check your state's law on collection of old debts. Debt collectors can only pursue a debt for so long. If you want to pay off the debt to remove the collections account on your report, deal with the original creditor because collections agencies cannot remove it under any circumstances.

What is a Credit Report?

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If you've ever applied for a loan or a credit card, you've probably heard about credit reports. Credit reports are a way for money lenders to hold borrowers accountable for the money they owe, and alert other lenders about bad borrowers.

A credit report lists all of your credit activity for the last 7 years. This includes accounts like credit cards, car loans, home loans and store accounts, and can include accounts from creditors like cell phone companies and cable companies. Bankruptcies are also listed, and remain on your report for 10 years. A credit report states whether the accounts are delinquent or in good standing, if there are or were late payments, if the account has gone to collection and the length of time the account has been open. From this data, lenders can decide on your creditworthiness.

There are three major credit reporting bureaus: Experian, Equifax and TransUnion. All of these companies maintain a credit report on everyone with credit history, but they may not all contain the same information. Lenders are not required to report to all three bureaus, so one bureau may have more or less of your information than the others.

Because your information can differ between bureaus, it is important to check all three of your credit reports occasionally to ensure that the information is correct and up to date at all three. Each bureau has an online form that you can complete to try to fix any errors. You can also contact them in writing with proof of erroneous information.

The items on your credit report are graded and your credit score is formulated from the data. Therefore, any errors on your credit report should be attended to immediately, as they can negatively affect your credit score. Additionally, having only a short credit history affects your score negatively. Keeping your oldest credit accounts open and in good standing is the best way to lengthen your positive credit history.

You are entitled, by law, to one free copy of your credit report each year from each of the three major credit bureaus. To obtain this free report, go to Annualcreditreport.com. All other "free" credit report sites are actually sites that sell credit scores. However, Annualcreditreport.com does not give you your credit score, only your credit report. If you want or need to see your score, you will have to purchase it separately.

What Does 'Written Off' Mean on a Credit Report?

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"Written off" can appear in a credit report when the debt has been unpaid after collection action by the company has been pursued, according to Maxine Sweet of Experian, a credit-reporting agency.

"Written off" means the company has discharged the debt from its own books.

A debt that has been written off does not mean it has been wiped out. Many times, the debt has been sold or transferred to a collection agency.

A written-off or charged-off account reflects poorly on your credit report and credit score.

Attempts to collect the debt will continue even after the debt has been charged off. A new account will appear on the credit report by the collection agency.

Any payments made on the debt will be made to the collection agency rather than the originating company.

Minimum Credit Score to Get a Mortgage

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Banks loosened their mortgage loan standards in the first part of the 2000s, according to "U.S. News & World Report" writer Luke Mullins, and this easy loan availability contributed to a housing crash. Standards, including credit score requirements, are now much tighter. You need good to excellent credit to qualify as a new home buyer, and and a large down payment helps too.

You have a credit score as long as your credit reports show at least one account that has been open for a minimum of six months, according to the Home Loan Learning Center website. The score summarizes your credit history into a convenient three-digit number that is reviewed by many creditors including mortgage lenders. Your number indicates whether you are likely to repay the home loan or are a high default risk.

Credit scores go up to 850, and Bankrate.com website writer Sheyna Steiner advises that you usually need to have a score of 620 or better to qualify for a mortgage. You will not be considered for a home loan if your number is lower, even if you have personal assets and a good job with a high income. Lenders also look for a lengthy on-time payment history on your credit reports and a mixture of installment loans like car financing and revolving accounts like credit cards, Steiner advises.

Your credit score impacts your mortgage interest rate if it is high enough to qualify you for a mortgage. Steiner explains that you need a score of at least 740 to get the lowest available rates. Rates steadily increase as your score decreases, with borrowers at the lower tier paying about $300 more each month. The extra cost adds up to about $100,000 over the life of a typical 30-year home loan.

You can often raise your credit score before filling out mortgage applications because many credit bureau files are full of errors. A 2007 survey by polling company Zogby discovered that 37 of people who checked their reports found mistakes. You have yearly free access to your TransUnion, Equifax and Experian files through annualcreditreport.com, according to the Federal Trade Commission. Each bureau has an online dispute form for reporting mistakes. The bureaus get 30 days to check into your claims and fix or remove the errors. Apply for a home loan once you get notification that your disputes are processed and new credit report copies showing the changes.

Credit Restoration Guide to Repairing Bad Credit

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Techniques to fix a low credit score can help you secure financing for a home and cars. Lenders have to review credit scores before granting a loan approval. Credit scores help lenders assess the risk of approving an application. People with high ratings are normally lower risks, whereas high-risk applicants are usually those with bad credit. Improve your credit score and become the ideal loan candidate.

Paying off new credit card charges once you get the bills is key to eliminating debt and raising your credit score. The amount you owe makes up 30 percent of your credit rating, and restoring your low credit score calls for managing debt better and getting rid of high balances on your credit cards. Consumer debt isn't bad in itself. You need credit to build credit. However, responsible credit use and keeping balances low contributes to a high credit rating, whereas exceeding your given credit limit or keeping balances close to your credit limit harms your rating.

Timely payments refer to paying your creditors or lenders when your bills are due -- and not a day later. Creditors tend to give a little leeway, and they might not report a bill that arrives days after the due date. However, they will report accounts 30 days past due, and having a 30-day-late remark on your credit report can lower your score. Good organization helps with timely payments. Keep all your statements in one place, and write due dates in a planner or on a calender. Pay early to ensure creditors receive the money before the cutoff date.

Don't allow inaccuracies on your credit report to ruin your chances of getting a mortgage loan or another type of loan. Check your credit reports at least once a year to ensure accurate updates (see Resources). Knowing what lenders are reporting helps you catch mistakes and problems early.

If you don't have a credit score, or if you have an extremely low score following a bankruptcy, establishing or restoring your credit history reverses your situation. Credit scores are important, and while you may feel content with no credit cards or credit accounts, lack of credit can prevent purchasing a home or financing a car. Rather than shy away from credit, learn how to use credit wisely and rebuild your history. Start with a secured credit card from your bank. These have credit limits that are based on your security deposit, and they're easy to qualify for with bad credit. As you make bill payments on time and pay down your balance, branch out and attempt to get a small personal loan using personal property as collateral. Having different types of credit benefits your credit rating and helps repair bad credit.

Does Closing a Bank Account Hurt Your Credit?

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There are many reasons for closing a bank account. You could be moving to another city where your current bank is not located. Maybe you have had continuous bad experiences with your current bank. No matter the situation, if you are planning on closing your bank account, be certain you manage the closure appropriately.

There is great significance to having a bank account. The bank can hold your money for you so that you don't have to keep large amounts of money on you. Banks also operate with the economy in that they provide loans to purchase homes or open a small business. Without your business, banks would not be in existence. This means everything will have to be paid with cash, even the purchase of a car.

Bank accounts have many benefits for your personal finance, as well as your credit score. If you manage your money accordingly and pay the fees, your bank account will not negatively affect your credit score. However, if you bounce checks or don't pay the fees charged to you and then close your account, this can hurt your credit score. The bank can decide to use a debt collector to collect the money you owe. If this happens, it can go on your credit for five years and you may not be able to open a bank account with another bank.

Keeping your bank account in good standing may not improve your credit score, but it can influence a creditor's decision to approve your credit application. Bank accounts do not show up on credit reports, but there is a Consumer Report, that can be obtained. It contains information about the handling of your bank account. If your bank account is shown positively in this report, this could be a plus for you.

You should take some things into consideration before closing your bank account. Make certain all of the transactions performed using the bank account have been processed before you close the account. You don't want a debt to go unpaid or the bank to charge you overdraft fees because you closed the account before a transaction was paid. Also leave the bank on good terms. A creditor may want to not only check your credit report, but also personally talk to representatives from all of your banks, new or old.

You can get a copy of your own Consumer Report from the monitoring agency ChexSystems. You are entitled to one free copy yearly. You can also dispute information on this report if you do not disagree with it. To obtain a copy of your report, you can visit the ChexSystems website.

Does Filing Bankruptcy Affect Credit Scores?

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Filing bankruptcy is one of the worst things to have appear on a credit report. When creditors see a bankruptcy, they may be worried that the individual might not be able to follow through on payments in the future either.

People who have high credit scores before filing bankruptcy will see a larger drop in their credit scores than those who had low scores before bankruptcy. Someone who had a very low credit score because he had been delinquent in all his accounts may even see his score rise slightly after the bankruptcy, according to Smart Money.

The accounts involved in the bankruptcy remain on the credit report for seven years. The bankruptcy itself stays on the report for seven years if it is Chapter 13 bankruptcy or 10 years if it is Chapter 7 or Chapter 11 bankruptcy. The bankruptcy's impact on the credit score lessens over time.

Paying off debts without declaring bankruptcy is ideal, but even people with a bankruptcy on their credit reports can rebuild their credit within a few years. After declaring bankruptcy, get a credit card and pay it in full every month to rebuild credit. Making on-time payments on an installment loan also helps rebuild credit.

What Affects a Credit Score in Canada?

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According to the Financial Consumer Agency of Canada, your credit score in Canada is calculated by two credit bureaus: TransUnion and Equifax. Your credit report will also contain identifying information such as where you live that does not affect your credit score.

There are several factors that affect your credit score in Canada: how well you have made payments in the past, how many judgments against you are on your credit report, how much money you owe, how long your account history is, and how many times your credit report has been pulled recently and the variety of credit you have used.

The purpose of a credit score is to determine your creditworthiness so lenders know how risky it is to lend you money and how likely you are to pay them back.

Credit scores in Canada range from 300 to 900, with higher scores better. You will usually need at least a score of 500 to qualify for a mortgage, with scores of 680 and up being better.

The higher your credit score, the more likely you are to be approved for loans and the lower the interest rates you will pay on those loans.

The amount of time certain financial events remain on your credit report and affect your credit score vary depending on which credit bureau you are using and which province you live in.

Credit Report Vs. Credit Score

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A credit report is a detailed list of a person's debt history and information. A credit score is a numeric value place upon the information in the credit report to show a person's likelihood of paying a bill.

Any time a consumer goes to take out a new form of debt, from a credit card to a mortgage, the lending institution will pull both a credit report and a credit score. Some lending institutions will only pull one score, but others will pull a tri-merge report.

The overall result of a review of a borrower's credit report and score will let the lending institution make an educated judgment as to the person's likelihood of prompt and complete payment. The higher the score, the less the bank's risk in lending the money.

Past errors in judgment and extenuating circumstances can be taken into consideration if the banking officer making the loan has loan authority. For example, a person who was in a bad car wreck may have several medical collections on their credit report pulling their score down; however, they may have had to resort to litigation to get their insurance company to pay the bills. Proper explanation on the borrower's part can help their cause if the information presented is accurate.

Many people feel as if a small collection, such as one under $25, is no big deal; however, any unpaid bill will lower credit scores and reflect poorly on a credit report. All bills should be paid on time and in full to receive the best possible scores and reports.

While the credit score and the credit report are two entirely different entities, each one can help the lending officer understand the other. If the credit score is low but the credit report displays a prompt payment history, the lender may have to look closer at the whole picture to be able to make an accurate judgment on the loan.

If I Cancel a Credit Card Will it Hurt My Credit?

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Canceling a credit card can hurt your credit if you carry high amounts of debt or you have a short credit history. The type of card you cancel matters too. Although the negative impact of canceling a credit card varies with each person's credit profile, you should review your current debt, assess the number and type of cards you own and examine your credit history length.

Review the amount of debt you owe and compare this with your overall credit limit. Amount of credit used compared with what you owe counts as 30 percent of your credit score. Suppose you have three cards with a $3,000 total credit limit and the total amount you owe is $500. This puts your debt- to-credit- limit ratio at 16 percent, which isn't bad. Close one of those cards with a $1,500 credit line and you wipe away half your total credit limit, boosting that ratio to 33 percent.

Determine your credit history length. This factor makes up about 15 percent of your credit score and takes into account the total number of credit cards you own and how long you have kept them active. Owning multiple credit cards for several years reflects a long credit history, so canceling one card may only drop your score a few points. Conversely, if you are in the process of building your credit history, canceling a card can dramatically reduce your score.

Examine credit card type before you cancel it. Canceling a department store card hurts your credit less than canceling a general credit card. Major credit cards are given more weight in credit scoring because they carry higher limits and their credit lines are not tied to a specific merchant. Cancel a major credit card only when it is costing you money and you already own three or four other major credit cards with low amounts of debt.

Before canceling any credit card, remember to check that there is a zero balance. Your creditor has the right to double your interest rate and demand that you pay any existing balance off within a certain time period. Never cancel more than one card at a time, even if you are transferring balances to another card; the same amount of debt with a lower number of cards will shorten your credit history, lowering your credit score. Also avoid canceling your oldest credit account.

How Much Does a Home Loan Hurt Your Credit Score?

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A home loan is just one of many items that appears on your credit reports. The Federal Reserve Bank of San Francisco website explains that your reports list all your open credit accounts, including their balances and payment histories, your demographic data and even recent inquiries into your file. All of your credit use activity, including your home loan, figures into your credit score.

The home loan application process hurts your credit score before it requires "hard inquiries," according to the MyFICO scoring information website. Inquiries resulting from applications are added to your TransUnion, Experian and Equifax credit reports and are used in the credit scoring process. Your score goes down by as much as five points for a single entry. MyFICO explains that multiple mortgage applications count as one inquiry if you are loan shopping and make all the applications in a two-week period.

Your home loan affects your credit score once it is approved and becomes part of your credit records. A mortgage affects your score in two main ways. MyFICO explains that scoring models weigh your outstanding debt against your credit limits. Home loans add a lot of debt, which can lower your score if you already have high credit card balances, loans and other bills. Your mortgage payments also influence your score. The Certified Mortgage Planning Institute explains that your payment history is 35 percent of your score, and home loan payments are weighed more heavily than other bills. The exact drop depends on your overall history, but it can be severe even if you make just one delinquent payment.

Home loans can help your credit score if you handle them properly. Use the weight carried by mortgage payments to your advantage by always paying them on time, the Certified Mortgage Planning Institute advises. Catch up as quickly as you can if you do miss a payment, as longer delinquencies hurt you more than just one late payment.

Your home loan stays on your Transunion, Experian and Equifax credit reports even after it is closed. It appears for seven years, according to the Federal Trade Commission (FTC), and influences your credit score for the whole time, although the impact goes down over the years. If you default on the loan and your home is repossessed, this also shows up for seven years.

Your home loan could unfairly hurt your credit score if any of the data is inaccurate. The FTC website advises ordering no-cost credit reports from annualcreditreport.com, which provides them yearly with no obligation. Review your home loan information and dispute any mistakes, like timely payments showing up as late, with the credit bureaus, which much take action within 30 days. The negative data stops hurting your credit score once it is corrected or removed.

Does Having a Lien Put on Your Boat Affect Your Credit Score?

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The circumstances surrounding placement of a lien on a boat that you own may have an impact on your credit score. Individuals and businesses can place liens for a number of different reasons. In some instances credit rating agencies have no knowledge of liens, which means that these liens do not appear on your credit report. However, other situations involving liens can cause serious damage to your credit score.

A lien represents an interest that a party has in a piece of property owned by another individual or entity. Legally, a lien does not exist until the lien holder records it. Laws related to the placement of boat liens vary from state to state but you typically place a boat lien by filing a lien document at your state's department of motor vehicles. A county clerk records the lien and the lien remains in place until you release it. You normally release a lien by signing the boat title or by filing a separate form known as a satisfaction of lien. The boat owner cannot sell or transfer ownership of a boat with an outstanding lien.

Recorded liens appear in your local county's public records and anyone can access information pertaining to liens. If you finance a boat, the lender places a lien on it. Creditors can also take you to court if you fail to pay your debts and a judge could allow a creditor to place a lien on your boat so you cannot sell it until you repay the debt. Most lenders and debt collection agencies make regular reports to the credit bureaus so the bureaus may find out about your debts from these entities. Alternatively, credit bureaus can also gather information by reviewing public records so the agencies may learn of the lien even if the lien holder does not notify the agencies about it.

The placement of a lien on your boat by a lender does not have an impact on your credit score but the loan that you secured with the lien does have an impact on your score. Whenever you establish a new credit account, your credit score drops by a few points because new accounts lower your average length of account history and this hurts your score. Additionally, when you take out a new boat loan, you initially owe 100 percent of the loan amount and your credit score also suffers when you have high balances on your debts. However, if you pay your other debts on time then a new boat loan should have only a minor impact on your score.

A lien that a creditor or other party places on your boat as the result of an unpaid debt does have an impact on your credit score. Such liens are placed as a result of a court judgment and the judgment causes the lien to have a negative impact on your score since a lien placement in isolation would not hurt your score. Liens tied to bad debts and judgments remain on your credit report for seven years. These liens, like foreclosures and repossessions, can significantly reduce your credit score and impact your ability to qualify for new credit products.

Can I Get Points Back on My Credit Score?

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Credit scores are dynamic reporting figures, meaning they do not always remain stagnant for long. Just as unwise money management can cause your credit score to drop, wise personal finance habits can cause your score to rise back up. Gaining points back on your credit score can be more challenging and much more gratifying than losing them, however, and the process requires patience, discipline and often sacrifice. Understanding what it takes to raise your credit score is the first step toward taking control of your finances.

Having too many open credit and loan accounts can reduce your credit score over time. Even simply applying for too many accounts can have a negative impact on your score. If you hold more than two credit cards, or have an outstanding balance on more than two personal loans, consider paying some of your accounts off to keep your number of credit accounts under control. Unlike the late 20th century, the focus on credit borrowing in the 21st century shifted toward emergency spending rather than continual discretionary spending. Let your credit profile reflect this trend.

Creditors and lenders often make regular reports to credit bureaus, even if your account is in perfectly good standing. Making all of your monthly payments on time, or early, can have gradual, positive effects on your credit score, earning back some of the points you may have lost. Make debt payments a priority at all times to ensure that tight finances don't cause you to fall into default.

Do not ignore debts that have been written off, and do not try to get out of a debt through the court system. While the legal system may be able to reduce or eliminate your defaulted obligations, nothing can prevent the negative impact it will have on your credit score. Pay off any outstanding creditors with which you may be in default, and close the accounts permanently.

Lenders and creditors are likely to report all the positive actions you take to improve your credit score to the major credit bureaus, but do not count on them doing so. Call each of your creditors and make sure they've reported your timely payments, account closures and other positive actions to the credit bureaus. If they have not yet done so, call back in a week or so to ensure that they have honored your request.

Things That Negatively Affect Your Credit Score

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A good to excellent credit score is critical in order to create financial stability or build future borrowing power. Excellent credit can get you into a car lease with little down or put you at the head of the list of a sought-after apartment or condo for lease. Credit scores are a complex set of statistical factors that determine the likelihood an individual will pay back the money he has borrowed. Several things on a credit report can negatively impact a credit score.

Late payments, collection agency attempts and personal bankruptcies can have the greatest negative effect on a consumer's credit score, according to Trans Union. Late payments are generally defined as being more than 30 days past due, but some banks may still report a missed payment fewer than 30 days late to a credit reporting agency depending upon the terms of your loan or account. Pay your bills on time to help raise your credit score.

If you are using more than 35 percent of your available credit, you can expect to see your credit score negatively impacted. Keep your credit card and loan balances as low as possible; many lenders would like you to stay close to the minimum available credit on your line or card to have the best credit score. Don't max out your credit cards; that can also hurt your score. Keep your balances low by making a payment right after making the purchase; you don't have to wait until the bill arrives in the mail.

Contrary to what you may think, cutting up your credit cards and closing your accounts can drop your credit score, especially if you close an account that you have had for a long time. That's because the longer you can show you have paid your bills on time and have been responsible with your credit, the better it looks on your credit report. You can improve your score by keep the oldest account on your credit report open and by using it wisely.

Too many inquiries attached to your credit report can impact your score, albeit in a relatively small way, according to Experian. Only credit applications that the consumer applies for can tick the score lower; inquiries made by your lenders or credit accounts for periodic review of your credit cannot. Inquiries are never the reason for truly poor credit, but when taking other factors into account, such as extremely high debt or low scores, they can make a negative impact.

How a Credit Reporting System Works

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Though the credit reporting system has been a vital part of consumer lending for decades, the same system used by banks to determine financial health and consumer risk is also used by many other entities. Prospective employers use credit reporting systems to determine the financial health of applicants who are seeking employment with their companies, and many landlord run credit checks to determine whether or not a potential tenant is an acceptable risk. Regardless of how these credit reporting systems are used, the fact remains that they are an important part of the decision-making process for many industries. However, many people aren't aware of exactly how they work or how to best use the system to their advantage.

Credit bureaus get their information from a variety of sources. Local and regional credit reporting services are typically used as sources for the main credit reporting agencies, which include Equifax, TransUnion and Experian. Companies with whom a consumer does business, including credit card companies, banks with whom the consumer has outstanding loans, and even utility companies provide account information to the credit reporting agency. Outstanding balances and past-due amounts are the primary pieces of information reported to the credit reporting agency, though other pieces of information--including student loan amounts and public court judgments--are available through the credit reporting agency as well. Each time a consumer goes looking for a loan, the company from which the loan is sought consults the credit bureaus. The credit bureau shares this information with the company, and the company bases its decision, in large part, on the data provided. A consumer's entire past credit history, including any late payments or foreclosures, is included in the report. Prospective lenders take a number of factors into account, including credit lines that have reached their limits and the debt-to-income ratio of the person who is seeking the loan. However, even though credit reporting agencies wield immense power in the financial industry, they are subject to heavy regulation by the government.

The entire credit reporting system is subject to the Fair Credit Reporting Act. The Act specifies precisely how these agencies can do their business, and how they must treat the information that they hold. Only companies with whom a consumer does direct business can access a credit report, and potential employers can only do so with express written permission from the job applicant. Though credit reporting agencies can provide consumer information to telemarketing firms, they must not do so if consumers request that they be excluded from any such lists. Credit reporting agencies must provide at least one free credit report annually to each consumer, and credit reporting agencies are required by law to investigate any claims of inaccurate information that are lodged by the consumer.

Difference Between Credit Score Agencies

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The three major credit bureaus, Experian, Equifax and TransUnion, have more similarities than differences. All of them are essential in determining your credit history and ability to obtain loans and financing for a variety of reasons.

A mathematical formula calculates your credit score (also known as a FICO score) by taking the information from your credit history (timeliness of payments on debts, revolving credit and the like) and comparing that to the credit history of millions of other individuals.

Credit scores range between 300 and 850. The higher the number, the better that reflects upon your ability to pay your debts in a timely and consistent manner. Typically, a lender pulls up your credit score from all three bureaus, and averages the three numbers to determine your overall FICO score.

Headquartered in Dublin, Ireland, Experian aids consumers and businesses on a global scale. Its principle business lines are credit services, decision analytics, marketing services and interactive resources for consumers.

In business for over 100 years, Equifax maintains its headquarters in Atlanta, Georgia. It provides commercial, consumer and personal information solutions. Its services include risk management, marketing database, data management, fraud prevention and personal finance management solutions.

The Union Tank Car Company created TransUnion in 1968 as a parent holding company, and it has since then become a leading business intelligence provider. TransUnion focuses on information, as well as international and consumer services.

How Long Can Liens Stay on a Credit Report?

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There are different time frames that liens stay on a credit report. The time frame depends on the type of lien that is owed. The Fair Credit Reporting Act dictates the length of time that a lien can stay on your credit report.

If you file bankruptcy, the bankruptcy stays on your credit report for 10 years. The 10-year time frame starts on the date of the entry of the final order in your bankruptcy case. A lien caused by a civil suit and/or judgment stays on your credit report for seven years or until the statute of limitations runs out, whichever period is longer. Paid tax liens remain on your credit report for seven years from the date of the payment of the tax lien.

Collection accounts and accounts charged off as a loss are also recorded on your credit report. These liens stay on the credit report for seven years. There may also be other adverse information on your credit report. Any other adverse information not outlined above, with the exception of student loans, stays on your credit report for seven years.

Student loans remain on your credit report for seven years. The "from" date varies: it may be from the date that the Secretary or agency puts a claim out, from the date the Secretary or agency reports to the credit reporting agency, or, if a borrower defaults then starts payments and defaults again, seven years from the second default.

The seven-year period for liens starts 180 days after the account is placed for collection or charged off, or on the expiration of a 180-day period that begins the first time collection action is taken against you.

Is It Possible to Increase Your Credit Score 300 Points in a Year?

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You may be ready for a steady increase in your credit score after a financial disaster. Three hundred points is an enormous leap for any score, even in a year. In theory, anything is possible, but you would likely need to start with a score at the bottom and manage your finances perfectly to see a 300-point rise in 12 months.

How exactly you raise your credit score by 300 points in a year, nobody knows, because the Fair Isaac Corporation, producer of the most popular scoring model, only reveals the general factors in its formula. You likely need to start with an extremely low score -- as close to 300, the worst FICO score, as possible -- then add dozens of accounts with positive payment history to your credit file. FICO scores range from 300 to 850, so the fact that you can jump 300 points implies that you have some heinous offenses on record, such as bankruptcy, that may impact your score for years.

To improve your credit score as much as possible in a year, pay your debt on time every month. As long as you manage your finances well, you eventually attain a good credit score. You do not need a perfect score either. Once your score reaches 650, you qualify for most loans, but probably not at the best interest rates.

The fastest ways to add points to a credit score are to dispute negatives on your credit report you believe are listed in error and co-sign on an account with positive payment history. Also, keep credit card balances low, because the portion of your credit card limit you use factors in heavily under the "amounts owed" variable. Paying old collection and charge-off accounts won't do much for your score, but the balance on the accounts still counts against your total debt.

Once you obtain a good credit score (about 750), you do not need to do much else other than keep paying bills on time and limiting the amount of debt you carry. If you have a credit score of 750 or above, you already qualify for the best rates on nearly every loan, so trying to boost your score could backfire. Adding points only gives you bragging rights.

What Is KD on a Credit Report?

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When you order your credit report, you will see a number of codes below your accounts or events in your financial history. If you order a combined report from all three credit bureaus, one of these codes is KD. This stands for Key Derogatory, and it describes one of a number of negative events that can cost you points on your credit score.

KD is one of the terms that may appear in the "Account History" portion of your report. If an account is current and there is no problem, you should see the code OK in green for that month. If you see a yellow number; 30, 60 or 90, this describes the number of days of a late payment. KD usually appears in red.

Depending on the account or event, KD can describe a number of different things. It could refer to a charge-off, a claim or a term default. It may also It could refer to a bankruptcy petition or discharge. It could also be used if you reaffirmed one of your loans in bankruptcy, but then had that rescinded. Usually credit reports use a different code, RF, for foreclosures, but occasionally a foreclosure can be represented by KD.

Sometimes you can experience a KD on your report when you believed you were doing the right thing. Some people who perform a short sale in order to avoid a foreclosure may find that it appears on their credit report as KD. This can be despite the fact that the bank agreed to the sale. A credit account that goes into collection will appear as a KD even if you subsequently pay off the balance in full---just the fact that it went into collection allows it to remain as a derogatory on your report regardless of the payment status.

If you are seeing KD on your report describing an event that is more than seven years old, you may be able to dispute whether it should still appear on your report. Many negatives must be removed after this period. Some others, bankruptcy information included, can remain on your report for up to 10 years. File a dispute online with the credit bureaus if you think it should be removed, and check the rest of your report for similar old negatives.

How a 3-Day Notice Can Affect My Credit

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Apartment defaults were at an all-time record 4.6 percent in May 2010, in large part due to tenants failing to meet their rental obligation, according to Real Capital Analytics. Landlords often serve a 3-day notice to pay rent due or face eviction as a collection tactic. While this probably won't hurt your record, an ensuing lawsuit or collection account will.

A 3-day notice to evict does not have an immediate impact on credit, because it is a private communication between the landlord and tenant. In addition, the credit bureaus do not report rental history for most tenants because landlords rarely subscribe to a credit reporting service due to the cost. As long as you pay the debt in a timely fashion, it will not affect your credit files with the three national bureaus. The landlord, however, may report the incident to a tenant screening service, which can make it difficult to get an apartment in the future.

If you fail to pay off the debt, the landlord might sue for a judgment, such as a wage garnishment. Judgments are part of the public record and the major credit bureaus report them if it includes an issue involving a debt, according to MyFICO.com. Judgments can do serious damage -- how much is unknown until the FICO formula factors in other data in your credit history. The landlord could also sell the debt to a collection agency. Collection agencies often report to the bureaus and a collection account does about the same damage as a judgment.

One of the major credit reporting bureaus -- Experian -- started reporting rental history after it acquired RentBureau in 2011. In 2011, Experian only reports positive data, but will start incorporating negative data in 2012 and beyond, according to Martha White of Wallet Pop. How negative rental history will affect credit is still up in the air in 2011, but any negatives are usually terrible for a credit score.

The laws for stopping an eviction depend on the state and area in which you live, but you can always prevent a potential lawsuit or collection account from appearing on your record by paying the back rent. The landlord might work with you on a payment plan to meet the rest of your lease obligation, such as deferring rent for a few months if you can prove you will be financially solvent soon. Communication with the landlord is essential and ignoring the problem is the worst thing you can do.

How to Raise an Already High FICO Score

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A borrower's credit score is a direct reflection of his willingness and ability to repay debt. A lender uses that credit score to determine the approval or denial of a new debt, as well as the interest rate associated with that debt. The highest credit scores net the most favorable interest rates and terms on debt. Therefore, it is important for a borrower to gain and maintain a high credit, or FICO score. There are a few ways in which a borrower can raise an already high FICO score.

Instructions

Obtain a free credit report from AnnualCreditReport.com. Each borrower is given one free credit report per year; however, additional credit reports, as well as the borrower's credit score require payment. You will be required to enter your full legal name, date of birth, Social Security number and a credit card number for identity verification purposes.

Read through your credit report. Report any errors listed on the report to the credit bureau immediately through the website. Federal law mandates that the credit bureau respond within 30 business days via email to your error report.

Pay down and keep your balance on any credit card or line of credit to less than 30 percent of the balance. This lowers your credit utilization and can quickly raise your FICO score.

Limit any credit inquiries on your credit report. Do not allow creditors to check your credit when shopping for a new loan. Provide the creditor with a copy of your credit report and score and only allow the final choice to pull your credit. You do not lower your score when you personally check it; however, each lender's pull does lower your score.

Does Your Credit Matter for Student Loans?

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The impact of your credit score on obtaining a student loan depends on the type of student loan being sought. Some student loans do not require a credit check, but for some other student loans, applications may be denied or high interest rates will be charged if you have bad credit.

The federal Stafford and Perkins student loans do not require a credit check. Therefore, applicants with a bad credit or no credit history can obtain Stafford and Perkins loans. These loans are guaranteed by the federal government and are designed to make college education more accessible. However, repayment standards are stricter, with rules that prohibit discharging the loans in bankruptcy and that allow the lender to garnish wages if the loan is in default.

Graduate students can take out PLUS loans, which are another type of federal loan. These loans do not require a full credit check, but an adverse credit history may disqualify an applicant for a PLUS loan. An "adverse credit history" is defined as having a credit account of any type in which payment currently is at least 90 days past due or having an account in default on a loan.

The federal government can deny a Stafford or Perkins loans for two credit-related reasons. One is if you currently are in default on a federal student loan, which occurs when you fail to make a payment on your loan for 270 days after it is due. The other is if you owe the federal government money for a grant. This might occur if you withdraw from school before completing 60 percent of the classes and do not return the required grant money to the federal government.

Private student loans offered through banks and credit unions do require a full credit check. Each lender has its own standards for how high your credit score must be for loan approval. In addition, the lender typically offers lower interest rates to people with excellent credit. If your credit is not good enough to get a private student loan, you can apply with a co-signer who has a better credit score. Because the co-signer agrees to be held responsible for repayment of the loan, the bank bases the loan offer on the co-signer's credit score instead of yours.

How Does Obtaining New Credit Affect Your Credit Score?

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Sometimes, you must take on debt to make your FICO credit score more attractive to lenders. A new line of credit, however, negatively affects your score as soon as you get the loan or if the bank rejects your application. Seldom should you let concern for your credit score stop you from obtaining emergency funds, but if you want to boost your score, a credit card is usually a better option.

Any new credit account usually comes with a hard credit check because you applied for an account. A single hard check hurts your score by no more than five points, according to the Fair Isaac Corporation. But multiple checks within any 12-month period do more damage collectively than any single check, because the credit score reflects the fact that obtaining several loans within a short span of time tends to stretch a person's finances.

You should have as long a credit history as possible on all accounts, because the FICO algorithm also considers the average age of your loans. Thus, if you had only one 15-year-old account and open a new one, your average account age goes from 15 years to 7.5 years and probably lowers your score.

That new credit account could boost your score by giving you a greater mix of loans. The "mix of credit" category is worth 10 percent, and to get the maximum points out of this category you must have several revolving credit card accounts and installment loans to show you can manage several types of accounts at once.

The dollar amount of debt you owe counts for 30 percent of your score, so any installment loan or balance you put on a new credit card could have an immediate negative impact. Installment loans, however, are far less harmful to your score than credit card debt, because installment loans are usually backed, or secured, by a real asset, such as a car or home. The borrower often can satisfy the secured loan by selling the property. Regarding credit card use, credit utilization -- the amount of debt you carry relative to your credit limit -- is a factor in the "amount of debt owed" scoring category. The higher your credit utilization percentage, the more it hurts your credit score. Opening a new credit card account could affect your overall credit utilization ratio in a positive or negative way, depending on its credit limit and how much of that limit you use.

When you apply for a mortgage, auto loan or student loan, the FICO score gives you a break on the credit check by combining all inquiries in a 45-day window as one, because it assumes you are shopping around for the same loan. If you have more than seven credit cards, the FICO model starts reducing your score for each additional credit card account, so consider paying off a current credit card instead of obtaining a new line. You can become a joint holder on an account to get a new line of credit without the credit check, but you should make sure the account has never been delinquent.

Can a Fixed Home Equity Loan Drop My Credit Score?

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A home equity loan is a type of loan in which a homeowner uses the equity that he has built up in his house as collateral. Generally, a homeowner will be able to take out a home equity loan after he has paid off part of his mortgage or the house has appreciated in value, creating more equity. Taking on additional debt can cause a homeowner's credit score to drop, as can applying for credit.

When you apply for a home equity loan, the lender to whom you apply will often usually choose to examine your credit report to get an idea of your creditworthiness and to determine the terms of the loan he will offer you. When a lender checks your credit report after you've applied to him for credit, this check will cause your score to drop a few points, as credit reporting agencies observe that you may be preparing to take on more debt.

One of the main variables that go into a person's credit score is the amount of outstanding debt that the person currently has. Generally, people with larger amounts of outstanding debt, particularly people with shorter credit histories, may see their score drop when they take out new loans, such as home equity loans. This is because taking out more debt causes credit reporting agencies to become concerned that you are financially stretched and preparing to default on one or more of your loans.

The single biggest factor that will affect your credit score is not your taking out of the loan, but how you pay it off. If you miss a payment on a home equity loan, you will certainly see your score drop. However, if you pay off the entire loan on time, your score will likely improve, as credit reporting agencies observe that you are capable of paying off relatively large loans in full, making you a better credit risk.

Home equity loans comes in two main types: fixed and variable. Under a fixed rate loan, the rate of interest that the borrower pays will remain constant for the whole loan. Under a variable rate loan, the rate of interest will constantly vary, usually according to the movements of market rates. Although credit reports recognize no difference between the two types of loans, fixed-rate loans are more stable: a borrower paying off interest at a fixed rate may have less chance of defaulting, as he will not be hit with an unexpected and potentially unaffordable spike in interest rates.

How Long Does It Take to Rebuild a Credit Score?

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Find out what is on your credit report. There are three major credit reporting agencies, and you are entitled to a free report from each of them every year. It can take between 3 and 7 years to repair your credit score, and a bankruptcy will stay on your credit report for 10 years. The three major reporting agencies are Experian, Equifax, and TransUnion. You can view your reports online or print them out. Be sure to record the report number so you can access them for free if you need to do so.

Review your credit report, and document and dispute anything that is wrong. Make sure there are no mistakes and that the report is a good representation of your credit history. The credit reporting bureaus provide information and links for you to use to dispute any inaccurate information on your credit report.
To dispute errors, you must send the credit reporting bureau a letter indicating what you are disputing and why. This must be accompanied by supporting documentation such as statements showing a disputed bill was paid. Make sure you send copies, not originals, of your supporting documentation.

Make your payments on time, every month. While late payments, charge offs and bankruptcy stay on your credit report for 3 to 10 years, the main thing lenders look at is your current activity. If you pay your bills on time, your credit score will start moving back up.

Try to pay off your credit cards or reduce the balances significantly. One thing credit agencies look at is the ratio of available credit versus used credit. The wider the gap between what you owe and how much you can borrow, the better your score will be. Shoot for using no more than 30 percent of your available credit.

Spread your spending over several cards, especially cards that you've had for a long time. Credit bureaus like to see that you've had some of your cards for several years. Even if you seldom use a card, be sure to use it once in awhile for a small purchase, and then pay the balance off immediately. Don't max out your cards, as this is a red flag for the credit bureaus, even if you pay off the balance in full. The bureaus don't look at your payments but at your monthly balance. If your cards are always maxed out, they assume you are struggling to make the payments.

Don't be tempted by those "You are already approved" ads. The more often you apply for credit, especially if you are denied, the more likely it is that your credit score will slip. Be particularly careful about applying for several new accounts over a short period of time.

Charge-Off's Effect on Your Credit Report

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A charge-off occurs when a creditor removes an unpaid debt from its accounting books. It most often refers to defaulted credit card debts. The charge-off process allows the creditor to dispose of the debt by selling it to a debt collector and writing off the remaining balance as a business tax loss. Charge-offs often have a negative impact on the debtor's credit report.

The creditor that charges off your debt can insert a negative note on your credit report to reflect the charge-off. Some creditors, such as credit card companies, routinely insert credit report comments, while other creditors, such as hospitals, do not. A charge-off within your credit record signifies that you ignored your financial obligations for a long period of time.

A charge-off not only adversely impacts your credit score but, by appearing on your credit report, serves as a red flag for future creditors when you apply for new credit or loans. The payments you missed prior to the charge-off will also appear on your credit report and further diminish your credit rating.

Charging off a debt does not mean that the debt itself ceases to exist. Creditors often sell charged-off accounts to collection agencies. This benefits the creditor by allowing it to recover at least a marginal amount of the unpaid balance through the sale. After buying your charged-off debt, a collection agency will insert a derogatory note on your credit report showing its ownership of the account. Collection agencies report charged-off debts they purchase to the credit bureaus regardless of whether the original creditor did so.

Not all creditors sell their charged-off accounts to collection agencies. If your creditor retains ownership of your debt it has the right to file a lawsuit against you. Likewise, any collection agency that purchases the charge-off can also file a lawsuit. If the creditor filing the lawsuit wins a victory in court, the court grants it a civil judgment.

Creditors who seek a civil judgment do so in an effort to expand their collection options. After the court awards the judgment, however, a record of the lawsuit and judgment appears within your credit report. Like charge-offs and collection accounts, judgments are derogatory and negatively impact your credit.

Different aspects of the charge-off remain for varying periods of time within your credit history. The charge-off itself and any missed payments associated with it remain for seven years. Collection accounts also appear on your credit report for seven years. According to the Fair Credit Reporting Act, however, a civil judgment can remain a part of your credit record for 10 years or longer -- depending on how long your state permits creditors to enforce their civil judgments.

How to Add a Credit Trade Line

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Trade lines can make or break your credit history. The number of open trade lines you have open on your credit reports and the amount you have available to you can have a dramatic effect on your purchasing power. However, not all trade lines are created equal. Credit cards, for example, don't have the same impact as installment loans on cars or houses. In order to make your credit history reflect the best that it can be it's important to have as many positive trade lines and variations of trade lines as possible. Here is your guide on how to add a credit trade line to your personal credit history that will reflect well in years to come.

Instructions

Review your credit report. Look at the amount of open trade lines you have and types of credit you have access to. If you have five credit cards and no personal installment loans or car loans, you will need to add trade lines that reflect what is currently lacking on your credit report.

Account for your FICO score. Your FICO score is a score between 380-800 that is a "ranking" of how good or poor your credit history is. The lower your FICO score the less likely you are to be approved for traditional installment loans like personal bank loans, car loans or home loans.

Assess your ability to pay back any trade lines you have open. Look at your budget and determine a workable monthly payment for any new trade lines that you intend to establish. The greater your capacity to make higher monthly payments the more likely you are to be approved for a greater trade line of credit.

Choose the type of installment loan or personal loan you need to add to your credit portfolio. Once you have determined which type of account will best suit your needs, it's time to begin the application process.

Look at loans from at least five different banks. It costs nothing to review credit terms and fees, so ensure that you get an estimate from those banks and as well as any application fees or annual fees attached to your credit line(s).

Apply for the type of loan that will benefit your credit the most. Normally personal installment loans of greater than $50,000 have the greatest impact on your credit score. The application process for many of these can begin easily on line.

Be prepared to supply your paycheck stubs, W-2 forms or other ways to verify your income to your loan processor. This information is key in providing the information the bank needs to verify your ability to repay your installment loan.

Sign your loan disclosures. This will successfully open your new installment account and will allow the firm to report your account to the three credit bureaus: Experian, Equifax and Transunion. Once this is completed you will see evidence of the open account within 30 to 60 days of the transaction. You have successfully added a trade line to your personal credit history.

How Do You Check Your FICO Credit Score?

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Fair Isaac Corporation develops FICO scores for the three major credit reporting agencies: Experian, TransUnion and Equifax. Your FICO score can range from 300 to 850; the higher your score, the better risk you are considered. Fair Isaac estimates that a 100-point drop in your FICO score could cost you more than $25,000 in additional interest over the life of a 30-year home loan. Packages are available from Fair Isaac and other companies that allow you to check, as well as track and analyze, your FICO score. You have to pay to find out your FICO score.

Instructions

Go to a website that offers access to your FICO score. You can do this at www.myfico.com, which is run by Fair Isaac. You also can use the website of each of the three credit reporting bureaus--Transunion, Experian and Equifax--as well as other sites offering credit scores and related services.

Determine the type of service you want. For example, as of March 2010, you could get your FICO score and credit report from Experian for a one-time fee of $15. You also can buy extended services, including monitoring of your credit score. For instance, as of March 2010, you could purchase a monitoring service from MyFICO that provides you with your FICO score and TransUnion report four times a year for $4.95 each month. Weekly FICO score monitoring was $9.95 per month through MyFICO.

Enter your information when prompted at MyFICO or another source that provides FICO scores. You will be required to prove your identity. In addition to basic identifiers (e.g., name, address and Social Security number), you might be asked to provide a driver's license number and answer questions about items contained in your credit file.

View your score once you have paid, which is usually done using a credit or debit card. Some services provide analysis of your score along with tips for improving it. For example, MyFICO's FICO score simulator, included with the purchase of a FICO score, predicts changes to your score based on actions such as paying bills on time or paying down credit card balances.

When Will a Charge Off Come Off My Credit Report?

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A charge-off is a negative entry placed on your credit report after you fail to pay a debt. The creditor closes the account after in-house collection efforts fail. Charge-offs damage your credit rating and may prevent you from getting approval on loans at reasonable interest rates. Some mortgage companies will not approve your application until all charge-offs are resolved.

The Fair Credit Reporting Act allows for charge-offs to be reported on credit reports for seven years. So-called credit repair clinics advertise that they can remove charge-offs within 30 days. However, the Federal Trade Commission reports that you should avoid such agencies because many are run by scam artists who collect large fees but fail to deliver on their promises.

Paying a charge-off doesn't remove it from your credit report unless you make other arrangements as well. Paying the charge-off results in the account being updated on credit reports to show as a "paid charge-off." This usually does not improve your credit score, because the damage was done when the charge-off was initially added to the credit report.

Charge-offs can be removed by paying the creditor in full and asking that the information be deleted in exchange for the payment. This is called "pay-for-delete," and not all creditors will agree because they feel removing accurate information undermines the credit reporting system. However the option is sometimes available. The only other ethical solution for removing charge-offs is to contact the credit bureau and ask that the information be removed because it is inaccurate. Federal law requires all inaccurate information to be removed from credit reports within 30 days of your notifying the credit bureau by phone, mail or through its website.

Removing the information entirely could boost your credit score. The keys to high credit scores include paying bills on time, keeping balances low and avoiding negative information being placed on your report. The impact of charge-offs and other negative entries declines with the passage of time. Deleting negative information such as charge-offs speeds up the process.

How to Create a Brand New Credit File in the UK

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If you have had trouble paying back your creditors, your credit file contains information regarding history of late payments, default notices and, in England and Wales, County Court Judgments. Such information on your credit file will often have negative repercussions when obtaining credit in the future. Mortgages, car loans and credit cards will be difficult to obtain. As a result, you may wish to clean up your credit history by repairing past financial defaults.

Instructions

Get your credit files from all three UK credit reference agencies, which will contain information regarding any defaults you may have. The three credit reference agencies in the UK are Experian, Equifax and Call Credit. Each will charge you 2 for your credit file and will need your name, date of birth and any address you have lived at over the past six years.

Contact any creditors which whom you are in default. You can try to get a default notice removed from your credit file by asking the creditor in writing. This strategy is ideal for small debts, such as those under 500.

Enter into an Individual Voluntary Arrangement for any debt that could not be removed from your credit file. An IVA is an agreement with the creditor that you will pay back part or all of the outstanding debt in a certain time frame. Although an IVA will reflect negatively on your credit file, it will stand better against a default notice and will last for six years only.

Pay all your current bills in a timely manner. Creditors typically put greater importance to your recent credit history when making lending decisions.

Why Do My Credit Scores Change Daily?

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Credit scores can change, and often do so daily. Knowing how scores are calculated and what can cause them to change will help consumers understand why their scores fluctuate.

Credit scores are numerical representations of a person's reliability as a debtor. High scores mean they are more safe to lenders, while low scores indicate more risk.

Credit scores are determined using several factors regarding a person's credit transactions: payment history, total debt, length of credit history, mix of credit types, and new credit applications.

Your credit score is based on your credit report, which is a record of your credit transactions. Companies that maintain these reports rely on other parties to tell them what a consumer does, so they can be updated at varying times. Whenever a new item is reported, it will raise or lower a credit score.

Paying bills on time, keeping credit cards debt under 30 percent of the credit limit, and not having too many credit lines open all tend to increase scores. These items can be reported at any time, thus causing a credit score to rise from day to day.

Conversely, paying bills late, having too much debt, not having a long credit history, all can lower a credit score. When these items are reported to the credit bureaus by the creditor, they can cause a score to go down.

How Is a Private Student Loan Reported on a Co-Signer's Credit?

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Students rarely have much credit history, and private lenders are often not willing to risk lending to a borrower who could very well default on the student loan. The co-signer needs to have positive credit history and must agree to be held responsible for paying back up to the full balance of the loan, plus interest and fees. Because the co-signer's name is on the loan, the loan data appear on the co-signer's credit report.

All of the data about the student loan appear both on the student's credit report and the co-signer's credit report. This is because the co-signer takes joint responsibility for repaying the loan. In fact, if the student walks away from the commitment, the co-signer could end up making all of the payments. For this reason, the student loan is reported on the co-signer's credit report just as if it were a loan the co-signer made individually.

Because the loan appears on the co-signer's credit report, this individual might see some damage to his credit score. For example, opening the loan will hurt the co-signer's credit score because it is a new account and it generates a credit inquiry. In addition, if the student misses a payment, this missed payment will show up on the co-signer's credit report and affect his account history. If the co-signer applies for a mortgage, the monthly payment on the student loan is factored into the co-signer's obligations when considering his debt-to-income ratio. Because of all these potential negative effects, individuals should carefully consider the implications before co-signing on a student loan.

Some student loans are removed from the co-signer's credit report after the student has made a certain number of payments on time. This number is usually somewhere between 12 and 36 consecutive monthly payments. The logic is that the student has proved himself to be responsible in managing the loan and therefore, the lender is willing to release the co-signer from the obligation. However, if the student misses payments or defaults on the loan, it will remain on the co-signer's credit report until it is fully paid off.

Co-signers who are worried about the negative effects of the private student loan should encourage the student to look into other types of funding for school. For example, the federal government offers Perkins loans and subsidized Stafford loans to students who are deemed to have financial need. All students can qualify for unsubsidized Stafford loans and graduate students can receive PLUS loans. Not only do these loans not require a co-signer, but they also generally have better interest rates than private student loans. Students should only look to private lenders after they have received all possible federal aid.

Sunday, June 30, 2013

FICO Scoring Formula

Buying FICO Scores

Credit Information

FICO vs. VantageScore

Scoring Changes

Instructions

Instructions

Reporting Incorrect Information

If Credit Bureau Doesn't Respond

Friday, June 28, 2013

Identification

Effects

Disputing an R9

Tips

Function

Types

Warning

Features

Considerations

Tuesday, June 25, 2013

Definition

Outcome

Effect

Collection Effort

Payments

Sunday, June 23, 2013

Definition

Minimum Requirement

Impact

Considerations

Saturday, June 22, 2013

Credit Card Balances

Timely Payments

Check Credit Report for Mistakes

Re-establishing Your Credit History

Thursday, June 20, 2013

Significance

Benefits

Function

Considerations

Insight

Wednesday, June 19, 2013

Effects

Time Frame

Prevention/Solution

Factors

Purpose

Range

Effects

Time Frame

Tuesday, June 18, 2013

Significance

Function

Considerations

Misconceptions

Benefits

Review Your Debt

Assess Credit Length

Examine Card Type

Tips

Monday, June 17, 2013

Application Process

Approval

Benefits

Time Frame

Accuracy

Sunday, June 16, 2013

Liens

Public Records

Boat Loans

Judgment

Saturday, June 15, 2013

Limit Accounts

Timely Payments

Account Closure

Personal Responsibility

Late Payments

High Balances On Your Credit Lines

Closing Credit Card Accounts