Credit Score Charge-Off vs. Pay

Whether you realize it or not, your credit score plays a major role in your financial stability. A good credit score ensures that you can obtain the loans and credit cards you need at reasonable interest rates. Employers, landlords and insurance companies also evaluate your credit scores when you apply for a job, housing or new insurance coverage. Derogatory information on your credit report, such as evidence of a past charge-off, lowers your credit score -- damaging your ability to qualify for goods and services in the future.

Charge-Off

A charge off occurs when a lender stops trying to collect an unpaid debt and instead writes off the account as a tax loss. Though frequently used to refer to credit card debts, any lender can charge off a delinquent debt.

After a lender charges off your debt, it updates your credit report to reflect this fact. Charge-offs are negative notations and reduce your credit score. Each debtor's credit score suffers to a different degree after a charge-off since other information within the report also influences credit scores. In general, however, you can expect to lose approximately 100 points after a creditor charges off your debt.

Paying a Debt

Paying your delinquent debt prevents your creditor from charging it off and thus protects you from the credit damage associated with having a charge-off on your credit report. If you pay your debt in full and on time, your credit score increases rather than decreases since timely payments indicate that you pose a low risk for future lenders.

If you pay your debt late, however, your credit score will drop -- even if you ultimately pay the debt in full. Each payment you miss chips away at your good credit. MSN Money notes that a missed payment can drop your credit score by as little as 60 points to as much as 110 points. Thus, a series of missed payments can do considerable damage to your credit rating.

Settling a Charge-Off

You have the option to pay the debt after a charge-off takes place, but doing so does not benefit your credit score in any way. The original derogatory notation remains on your credit report for the full time period permissible under law -- 7.5 years.

Depending on your situation, paying the debt could potentially hurt your credit even more. Information on your credit report impacts your scores less as it ages. Should you settle an old charge-off, the trade line containing the negative entry updates to a more recent item and your credit score suffers as a result.

Considerations

While paying off a charge-off after it occurs does little to aid your credit scores, doing so prevents the creditor or any collection agencies that purchase the account in the future from filing a lawsuit against you. A creditor that wins a lawsuit can garnish your wages and seize your personal property. In addition, the court judgment in the creditor's favor appears on your credit report -- further damaging your credit.

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What Specific Information Is in a Full Credit Report?

Your credit report can have large influence in your life. A good overall score on your report can open doors for you financially, while a low number may mean you have to pass up some opportunities. You have a right to access your own credit report for free once a year to check the information that's being held.

What's In It

Your report will include your full name, and any aliases or previous names, and a list of your current and previous addresses. It will give your Social Security number and your birth date. It will list your current and past employers, as well as your marital status and information about your spouse. The nub of the report include information on your credit cards, accounts with retailers and utilities, mortgages, student loans and other debt. Each account will detail when it was opened, what your credit limit or loan amount is, and what your payment pattern has been over the last two years. If you have voluntarily closed a credit account, that will be indicated. Your report will also include relevant information about you that's in public records held by either state or county courts, such as bankruptcies, tax liens or civil judgments against you.

Who Can Access It

Your credit report is not public information, and it can only be accessed in certain circumstances. If you apply for a loan or a credit card, the bank or company will have the right to access your report. Utility and telecom companies can also look at your information before you open an account. Prospective employers and landlords will also be able to see your report if you consent in writing to a background check. Your credit report can also be subpoenaed in a court case if it is relevant information.

Recent Inquiries

Your credit report will detail exactly who has accessed your report for any reason in the past year. This is extended to the past two years for employment related inquiries. Credit rating agencies regard a high number of inquiries to be a warning sign, and that can sometimes affect your credit score. If this is the case, your credit report has to state clearly that your score has been affected by a high inquiry level.

Check Your Report

You have a right to see your report from each of the three credit reporting agencies for free once each year.Steer clear of the TV ads and email scams that offer to show you your report for a fee. Go through the Federal Trade Commission's service, where you can request your report either online, over the phone or by mail--see resources section.

What's Not There

By law, under the Fair Credit Reporting Act, your report cannot include any bankruptcies older than 10 years, and any paid tax liens, arrest records or accounts placed in collection that date from more than seven years ago. If you have disputed any information furnished to the credit agency by a third party, this must be clearly stated.

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Factors That Make Up the FICO Score

Your credit can affect many aspects of your life, from qualifying for a home mortgage to receiving a job offer. According to Fair Isaac, inventors of the FICO scoring model, a FICO credit score ranges from a low of 300 to a high of 850. There are five distinct factors that FICO considers when calculating your credit score.

Bill Payments

How well you pay your bills accounts for 35 percent of your FICO score. On-time payments will increase your score. Late payments will cause your score to drop, and the later the payment, the more your score will decrease. Other negative payment factors that can lower your score include charge-offs, repossessions, judgments, tax liens and bankruptcy. You should make at least the minimum payment on all of your bills each month to avoid damage to your score.

Debt Load

The amount of debt you carry makes up 30 percent of your score. In this percentage, FICO looks at your credit-to-debt ratio, which is the amount of available credit you have versus the amount of that credit that you're using at any given time. The more credit you have available, the higher your score. Maxing out a credit card will cause you to have more debt than available credit and this will lower your score. This area also looks at the overall debt load that you have on installment accounts, such as a mortgage, car loan or personal loan. The more you pay down your overall debt load, the better your score becomes.

Credit History

The length of your credit history accounts for 15 percent of your score. FICO averages the total length of all of your credit accounts. The longer the credit history, the higher your score. According to FICO expert Barry Paperno, closing an account may lower your score because once it's closed, a bureau will automatically remove it from your credit file after ten years -- maybe sooner if the credit issuer purges it from their database. You will then lose the history associated with the account and that could ding your score.

New Credit

FICO rewards new credit and it accounts for 10 percent of your score. Nevertheless, FICO warns against opening new accounts just to improve your credit score because it could backfire. Each new account that you open shortens the average length of your credit history. This may initially lower your score instead of raise it. Plus, each new credit application places an inquiry on your report. Opening a lot of new accounts at once is considered risky behavior by FICO and this may lower your score. Only apply for credit when necessary.

Credit Mix

The final 10 percent of your score reflects the various types of credit present on your report. FICO likes to see responsible behavior with different types of credit accounts: credit cards, a mortgage, car loan and personal loans. Still, FICO does not encourage the opening of accounts just to have a better mix since this may affect other areas of your credit score. Obtain accounts as needed but not to improve your credit score.

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Does Debt Forgiveness Hurt My Credit Score?

If you're really struggling to keep up with payments, debt forgiveness can seem like a godsend. The lender erases some of your debt to avoid you defaulting on the whole amount. Unfortunately, debt forgiveness has its downsides. One of these is that it will hurt your credit score. Another is that you will have to pay tax on the amount that is forgiven.

Debt Forgiveness

Debt forgiveness doesn't happen overnight. It's a result of a lengthy negotiation process with your creditor. In theory, you can do it yourself, but most people go through a company that specializes in negotiating with lenders. Banks are in the business of making money. They are not inclined to forgive debt out of the goodness of their hearts. The only reason they will do it is if they think there is a risk that you will default on your debt. To be eligible for debt forgiveness, you would need to show that you will never have the money to pay the debt in full, but that you can pay part of it. The bank will accept a partial payment and forgive the rest.

Debt Forgiveness and Your Credit Score

Your credit report contains a list of all of your debts and your repayment history. When a lender forgives part of a debt, they report it to the credit bureaus. It ends up on your credit report, where it stays for seven years, harming your credit score. It's impossible to say how many points you will lose---that depends on your personal financial circumstances---but it's likely to be more than 100. As years pass, the impact will subside.

Debt Forgiveness and Tax

The IRS considers forgiven debt the same as income. It's important to remember this when choosing between debt forgiveness and other debt solutions. You will have to pay income tax on the amount that is forgiven. If you can't pay it, the unpaid taxes will count as tax debt. The last thing you want to do is accrue more debt, and the government isn't in the habit of forgiving. When you calculate how much of your debt you can afford to pay, remember to include the tax liability in the calculation.

The Bottom Line

If you're drowning in debt, chances are that your credit score is less-than-healthy. And if you're really struggling financially, your credit score is probably not a top priority. A low credit score is not forever. Debt forgiveness will stay on your credit report for seven years. After that, it will be erased. In the meantime, you can take advantage of the clean slate and start rebuilding your credit history. Bankruptcy would be more damaging and would stay on your credit report for 10 years.

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How to Clean Credit Repair Letters

Credit repair letters are an integral part of the credit report dispute process. They let you challenge harmful, mistaken items that pull down your credit score. The Federal Trade Commission (FTC) explains that letters are better than using the online dispute forms from TransUnion, Equifax and Experian. A letter gives you proof of delivery if you send it certified and lets you enclose supporting documents. You can easily clean up a sample credit repair letter for your own use.

Instructions

1

Locate a sample credit repair letter to use as the basis for your dispute. The FTC provides a sample on its website, and do-it-yourself credit repair sites like CreditInfocenter.com also have free form letters.

2

Insert the address of the appropriate credit bureau into each letter. TransUnion, Equifax and Experian all report their information independently, so you must send a letter to each bureau that lists errors.

3

Fill in specific information about the the items you are disputing. CreditInfocenter.com advises you to challenge every possible error, from incorrect totals and payment dates to misspellings. You can include them all in a single letter to the relevant credit bureau.

4

Add a reference to the Fair Credit Reporting Act (FCRA), if your sample letter does not already mention it. The FCRA is the federal law that gives you the right to dispute credit report mistakes. It gives the credit bureaus 30 days to check your allegations, respond to you and erase information that could not be confirmed. They are more likely to take your letter seriously if they realize you know the law.

5

Attach copies of bills, receipts, statements and anything else that backs the accuracy of your challenge. Add a list of these enclosures to the bottom of your credit repair letter.

6

Proofread your credit repair letter and remedy any generic or unnecessary information. Completely tailor the sample to your specific dispute. It looks sloppy to leave in unrelated sentences or paragraphs.

7

Send your letter certified, get a receipt for the mailing and ask for a proof-of-delivery receipt. This documents submission of your dispute, and the proof of delivery shows you when the 30-day investigation period officially begins.

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Can a Mortgage Application Lower a Credit Score?

A credit score is a simple three-digit number that hides a complex formula. Many things can affect your credit score, including debt, late payments and new credit applications. Applying for a mortgage will affect your credit score, but only by a few points. Multiple credit applications can have a more serious effect. However, this should not stop you from shopping around for the best rate.

Credit Scores

A credit score is a summary of all of your borrowing and repayment history from the last seven years. Any time you apply for credit, whether it's a personal loan, a credit card, or a mortgage, the lender will run a credit check to see how creditworthy you are. Your credit score helps lenders decide whether to lend you money and what interest rate to charge. The higher your score, the easier and cheaper it will be to borrow money.

Credit Checks

Many things affect your credit score, including credit checks. If you apply for lots of credit within a short period, it can make you look desperate for money. This makes lenders suspicious. Desperate people do not make good borrowers. This is why it's usually inadvisable to make several credit applications within 60 days. It's better to spread them out.

Mortgage Applications

Applying for a mortgage is not the same as applying for a credit card. Lenders understand that borrowers want to shop around and compare providers before committing to a large debt. If you want to make several mortgage inquiries, try to do so within 45 days. Then all the inquiries will be bundled into one on your credit report. Additionally, when you do apply for a mortgage, all the inquiries made in the previous 30 days will count as one.

What Affects Your Credit Score

The effect of credit checks on your credit score is minor when compared to other factors. A single missed payment can cost you more points than several credit applications. If you're more than 90 days behind with repayments, you can lose as many as 100 points. Similarly, maxing out your credit lines will hurt your credit score much more than a mortgage application. It will make you look overstretched and like a bad lending risk.

Savings

If your financial situation makes it difficult for you to do make all your mortgage inquiries within the 45-day window, it may still be worth it to shop around. Interest rates and borrowing conditions vary dramatically from one lender to another. Unless your credit score is right on the cusp between prime and subprime, it's worth losing a few points to get a better deal. It can save you thousands of dollars in the long run.

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How to Watch Your Credit Score

Watch your credit scores by ordering new copies of your credit reports every few months. The reports list your credit score, along with information about your accounts, including balances, your payment history and your available amount of credit. Regularly watching your credit scores is a fundamental part of both credit repair and sound financial management.

Instructions

1

Order a free credit report. The website Annual Credit Report makes it easy for you to watch your scores. The three major credit bureaus--TransUnion, Experian and Equifax--created the site to comply with a federal law entitling you to three free credit reports a year. You can order one report from each of the bureaus over the 12 months, and you can stagger the requests. To order your first report, visit Annual Credit Report and click on "Request Report" on the homepage. Or call 877-322-8228.

2

Find your credit score on the first page of the credit report. Compare it against industry averages for "good" or "bad" credit. According to the Federal Trade Commission, credit scores generally range from about 300-850. A score of 620 is generally considered at the bottom end of "good" credit, with scores above 700 necessary for the best interest rates on mortage and auto loans.

3

Challenge errors on your credit report that might be lowering your scores For example, the credit bureau might report an account as delinquent although you know it is current. Write the credit bureau. Ask that the information be corrected within 30 days, as required by federal law when you file a dispute to challenge incorrect information. Send your letter by standard mail, or dispute online by visiting the credit bureau website and clicking the "Disputes" menu tab.

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
800-685-1111.

Experian
P.O. Box 2104
Allen, TX 75013
888-397-3742

TransUnion
P.O. Box 1000
Chester, PA 19022
800-916-8800.

4

Continue ordering your credit reports at four-month intervals for free at Annual Credit Report. Take note of your credit scores and audit the reports for accuracy. By staggering the requests, you 'll receive credit reports year-round for free as you continue to watch your scores.

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Does the Color of Your Car Affect Your Automobile Insurance?

The color you select for your new car is a personal choice based on your own particular preferences. You have every right to choose anything from gray to bright hot pink. But you may wonder if the color choice you make could affect the amount of your automobile insurance policy premium.

Significance of Auto Insurance

Auto insurance is an asset to a property owner. It provides the owner of a car with a backup solution in case of an incident that results in loss of property or injuries. Insurers offer liability policies, which cover others in the case of incidents and full coverage policies that reimburse both the owner of the car and others affected by an unexpected occurrence. When evaluating a car and its owner for a policy, the insurer examines a number of risk factors to determine the policy premium.

Risk Factors

An insurer takes a number of key factors into account when evaluating a car for insurance. One factor is the driving history of the car owner. That may include any incidents in the past, moving violations and claims made for other cars. Insurers commonly charge more for high risk drivers who have multiple driving offenses. In some cases, the insurer takes the driving histories of other occupants at the home of the driver into account when deciding on the rate. Another factor is the credit history of the individual; a driver who has a poor credit history may have to pay a higher rate.

Color of Car

One common question is whether the color of the car will affect the auto insurance policy in any way -- particularly regarding the premium. The common thought is that certain distracting colors, like red, may result in a more expensive policy. But this is a myth -- insurers do not commonly factor car color into the rate quote. They take information about the car color mainly for identification purposes. An insurer is more likely to charge a different rate based on the make and model of the car.

Additional Considerations

Even if the insurer does not charge a higher premium or express a concern regarding the car color, it could cause issues in other ways. For instance, driving a car with a flashy, eye-catching color like bright cherry red or electric blue could draw more unneeded attention on the road from traffic officers and potentially distract other drivers.

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Does Paying My Bills on Time Build Good Credit?

Your credit score is probably the most significant three-digit number in your life, according to MSN Money. Luckily, there are simple ways you can improve your credit score each month. The three major credit bureaus use software created by the Fair Isaac Corporation to assess your credit risk. The calculated result is your FICO score. One of the largest factors affecting your score is your payment history.

Payment History

Payment history is the largest factor affecting your FICO score. When you pay your bills on time, you demonstrate to creditors that you are able to honor your payment agreements. Delinquent payments reflect an irresponsible use of credit and increase your risk as borrower. Payment history makes up 35 percent of your credit score.

Amount Owed

The second largest factor affecting your FICO score is the amount you owe. You can pay your bills on time each month, but if your credit card is maxed out, your score will suffer. Creditors seek consumers who borrow what they can afford to repay. Maintaining balances on your accounts over the long term reflects an inability to manage your credit. Keep balances below 30 percent of your total available credit to help improve your score over time.

Length of Credit

Creditors report to credit bureaus on a monthly basis. Each time an account is paid on time, your FICO score goes up. As this process repeats over time, the your length of credit history develops. Length of credit history means you have an extensive track record of managing loans and/or credit.

New Credit

New credit inquiries can lower your FICO score. Once you are approved for new credit, the amount of credit you have available to you, however, can help increase your credit score. This is because your credit utilization ratio decreases. For example, if you have a credit card with a $500 limit and a $300 balance, your credit may suffer each month even if you pay as agreed. Obtaining a new card with a $1,000 limit, however, lowers the ratio of amount owed to the amount of credit available.

Types of Credit

Consistently repaying mortgages and car loans have a greater impact on your credit score than paying on retail cards or equipment rental. Keep in mind that some creditors do not report to the credit bureaus each month, so you don't get the benefit of paying those bills. Such creditors may adversely affect your credit score, however. For example, if your cell phone provider does not report to credit bureaus, but you fail to repay a debt to your cell phone company, it may send your account to collections. Collections accounts lower your credit score each month until the debt is repaid.

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Fixing Credit Scores

Credit scores fall between 350 and 850, and having a score within the 700 and 800 range opens the door to mortgage loans, auto loans and low rates on these loans. Fixing credit scores involve consistently good credit habits. You can learn how to manage your credit better and watch your credit score gradually improve.

Paying Bills

Paying bills late is a surefire way to destroy your credit score and receive loan and credit rejections. Timeliness is one of the biggest factors that affect scoring (makes up 35 percent of your score). Missing a payment or sending in a payment past the due date will result in late fees and lenders may report this information to the bureaus. A bad payment history can stop loan approvals and if approved for a loan, you can expect a higher interest rate.

Widen the Gap

Credit card balances close to the credit limit also harms your credit score. Lenders and creditors reviewing your credit report like to see a wide gap between your credit limit and the amount you owe. Because account balances make up 30 percent of your credit score, fixing your credit score may involve bringing down your balances to below 30 percent of your credit limit.

Review History

Make a yearly habit of reviewing your credit report and checking the document for accuracy. Information on your report affects your credit score. And if there's information reported in error such as collection accounts, judgments, liens or late payments, your credit score may suffer the consequences. Order your report from Annual Credit Report.

Eliminate Old Debt

Unpaid medical bills, utility bills or rental payments may appear on your credit report and lower your credit score. Fix your credit score by contacting these old creditors and offering to pay off your charged-off or delinquent accounts. Paying these accounts doesn't automatically remove the negative information from your report. Ask the bill collector or creditor to update your report after you've paid off the account.

Apply for a Loan

Acquiring a small loan and paying off the debt helps boost your credit score. Contact your bank or credit union and inquire about a small personal loan -- perhaps $500. Because of a low credit score or bad credit, lenders will likely require collateral or a co-signer. Make timely payments on the loan each month and attempt to pay off this small loan within a few months. Creditors will report timely payments to the bureaus and this information helps you build a better credit score.

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I Paid My Debt, When Will It Show on My Credit Report?

Creditors normally make monthly reports to credit reporting agencies. Consequently, if you settle an outstanding debt, your creditor should notify the credit reporting agencies of the payoff within the next 30 days. However, credit bureaus typically update credit reports once a month, so depending on when the bureau receives the information on the settled debt, it could take 45 days or more before your credit report reflects the debt as having been paid.

Consumer Protection

Credit bureaus are required to update consumer credit files when debts are settled. If you pay off a delinquent account but the debt continues to show up on your report, you must contact the credit bureau in question with evidence that you settled the debt, such as a payoff receipt. The credit bureau has 30 days to investigate your claim, and if you have a legitimate case, the bureau must update your report to reflect the payoff.

Paid-off Accounts

Negative credit events remain on your credit report for up to seven years while bankruptcies stay on your report for 10 years. Your creditors notify the credit bureaus of any payments that are more than 30 days past due. Even when you finally make these payments, the fact that you made the payment late remains on your credit report. If you default on a credit account and your creditors close it, when you pay it off, the fact that you defaulted on the account remains on your credit report but shows as "paid" rather than delinquent.

Reporting

Creditors do not legally have to make monthly reports to Equifax, Experian and TransUnion. Your creditors have to pay to establish a credit reporting relationship with each bureau, and to save money, many companies choose to only report to one agency. However, if you default on a loan, your bank may sell the debt to a collections agency and that agency may report to a different bureau than the bank. If you settle the debt with the collections agency, that agency must notify the credit bureau it reports to, but the report created by your bank may remain open. You can rectify this by contacting the other credit bureaus yourself.

Considerations

When you pay off a delinquent debt you should first contact your creditor and find out exactly how much you need to pay to clear the debt. Banks usually assess penalty fees and account close-out fees if you default on a credit card or loan. These fees are added to the debt and the credit bureau cannot remove the debt from your report until you have paid the total balance owed as well as any applicable fees.

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How do I Fix Credit Issues & Raise Credit Scores?

Financial difficulty quickly takes a toll on your credit score. Approximately 30 million people in the United States are struggling with credit issues that interfere with securing affordable credit. If you have poor credit, it's possible to turn your situation around. Raising a credit score won't happen instantly, but over time it's very realistic to restore your credit.

Instructions

1

Order a credit report. The first step in fixing credit and boosting your score is understanding the current condition of your credit. Order a free credit report from Annual Credit Report. This organization is run by Equifax, Experian and TransUnion. You get access to all three reports when ordering through Annual Credit Report. However, to access credit scores, each bureau charges a small fee (under seven dollars each).

2

Circle problem areas. Payment history makes up the largest chunk of your credit score, according to MSN Money. Circle late payment issues and contact the lenders right away. Also, find revolving credit accounts (like credit cards and equity lines of credit) with high balances. Balances higher than 30 percent of the available credit will hurt your score. Focus on paying down these balances.

3

Handle accounts that are in collection status. Collection activity has a serious affect on your credit score. There are two options for handling these issues. You can make payment arrangements with the lender. Or, you can make a cash settlement, offering less than the loan obligation, to the lender. Both options will settle the debt for good and assist in raising your credit score.

4

Avoid closing older accounts. Once you pay off revolving credit, most borrowers want to close out accounts. However, keeping these accounts open will boost your credit score. Credit bureaus award higher scores to people with a longer credit history. Check on these accounts periodically to safeguard against unauthorized use.

5

Double check your credit limits. If a credit card company lowers your credit limit, this can adversely affect your credit. A lower credit limit means your balance may be higher than 30 percent of the total available credit. For example, a balance of $3,000 of a credit line of $10,000 won't hurt your credit (30 percent or lower). However, if the creditor lowers your limit to $5,000, a $3,000 balance is 60 percent of your credit. Partner with the lender to restore your previous credit limit.

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Why Are Credit Scores Different Between Agencies?

Your credit score is calculated by the credit reporting agencies from the information in your credit report. Your score may differ depending on which credit reporting agency is providing it.

Facts

Some of your creditors may not report your accounts to all three credit bureaus. Because of this, your credit reports may not all reflect identical information and your scores may vary.

Types

Each credit bureau offers two scores: a FICO score and a consumer credit score. The credit bureaus will calculate consumer credit scores by their own formula, while FICO scores are calculated by the Fair Isaac Corporation.

Considerations

If one of the credit bureaus is reporting an error, your score for that agency's report may be significantly different from your other scores.

Effects

Lenders know that each credit reporting agency will often assign you a different score. If you are attempting to borrow a substantial amount, your lender is likely to pull all three of your credit scores to review.

Warning

Credit scores that you pull from anywhere other than the credit reporting agencies will always be different from your actual scores due to the fact that these scores are "estimated" rather than actual scores.

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What Comprises My FICO Score?

The Fair Isaac Corporation (FICO) is one of several companies that calculates consumer credit scores. Known as a FICO score, this three-digit number is used by lenders, employers and other organizations to determine your credit risk. Your FICO score is calculated based on a number of factors. Knowing the composition of your score can help you improve your credit over time and develop healthy financial habits.

Payment History

Your credit score is broken down into percentages, and the most heavily weighted portion in the calculation is how you pay your debts. According to myFICO, 35 percent of your score is based on payment history. If you have frequent late or missed payments or if you have accounts that have been sent to collections, these will lower your FICO score. Negative items can remain on your credit for up to seven years, but regularly making your payments on time can help to minimize the damage and improve your FICO score over time.

Total Debt

The amount of debt you owe accounts for 30 percent of your total FICO score. The key is to minimize your debt-to-credit ratio -- or the amount of debt you carry relative to your available credit. The closer your total debt is to your credit limit, the higher your debt-to-credit ratio will be and the more it will lower your score. According to myFICO, this is especially true if your debt is owed mostly to credit cards or other revolving debts. Paying down your debts to increase your cushion of available credit can can help increase your score.

Age of Accounts

The age of accounts and the length of your credit history makes up an additional 15 percent of your credit score. The older your accounts are, the better your FICO score will be. If you have a long credit history, you may want to avoid closing old accounts even if you don't use them, as this can impact your score adversely. If you're just beginning to build your credit, avoid opening too many new accounts as this can cause your score to drop.

New Credit

The number of recently opened accounts and the number of times a lender, collection agency, utility company or other organization requests your credit history also have an impact on your FICO score. According to myFICO, recently opened credit accounts and new inquiries into your credit account for 10 percent of your score. If you're trying to re-establish credit, refrain from applying for multiple credit lines at once to avoid a drop in your score.

Types of Credit

The type of credit accounts you carry makes up the remaining 10 percent of your FICO score. For example, depending on your age and situation, you may have a mortgage loan, vehicle loans, student loans, credit cards or personal loans on your credit history. Having a mix of types of credit tells lenders you are able to handle different kinds of financial obligations, and it improves your FICO score.

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How Can Someone Increase a Credit Score?

Fair Isaac Corp. (FICO) introduced the first credit score. The Experian, Equifax and TransUnion credit bureaus followed along with their own scores. All of these companies use similar formulas, so you can increase your score if you know which financial actions have the biggest influence on that important three-digit number. A good score gives you better access to credit cards, loans, insurance policies and even employment.

Factors

MyFICO, the Fair Isaac Corp. website, explains that scoring formulas use five different categories of information. The two most important factors are your payment history on credit accounts, which accounts for 35 percent of your score, and money you owe, which makes up 30 percent of the score. Fifteen percent of your total number comes from how long you have used credit, while your account variety and your most recent accounts each account for 10 percent of your score. The exact calculation depends on the specific information in your credit reports and how it all fits together, MyFICO explains.

Most Important Strategies

Paying your bills by the deadline every month is one of the most important methods of increasing your credit score because payment history has such a big influence. The MyFICO site advises catching up your accounts as quickly as possible if they are past due and avoiding future delinquencies. Maintain low balances on your credit cards because your debt level strongly affects your score. Pay more than the minimum payment to reduce your debt load as rapidly as possible.

Other Strategies

Refrain from opening many accounts within a short time frame when establishing your credit history, MyFICO advises. Keep your credit cards open and manage them carefully. Too many inquiries from creditors bring down your credit score, so limit your credit applications to necessary accounts. Confine rate shopping for a mortgage or car loan to a short period, as scorers will recognize that you are shopping around and treat the multiple inquiries as just one credit check to preserve your score.

Credit Repair

You credit score comes directly from the data in your credit reports, so your reports can hurt your score unfairly if they contain harmful but inaccurate entries. You are allowed to get your three reports for free once each year through annualcreditreport.com. This gives you the opportunity to search for and dispute mistakes. Experian, Equifax and TransUnion are bound by the Fair Credit Reporting Act to look into your allegations and repair or remove erroneous items. Your credit score should go up once negative data gets erased from your files.

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How Does Having Unused Credit Cards Hurt Your Credit Score?

You might think not using a credit card account makes you a better borrower, because you do not need items on credit, but it can do significant damage to your credit score. While the credit scoring formula does not punish you for failing to use a credit card, letting an account go dormant affects factors that do going into credit scoring.

Identification

A nil balance never hurts your score. However, if you own a credit card you have not used in a few months, the credit bureaus probably won't consider it in your FICO score calculation. This means you lose out on extra available credit that would lower your credit utilization ratio--credit used over credit available. Most borrowers benefit from having a utilization rate of no more than 25 percent to 50 percent.

Considerations

The lender of the account will not report anything to the credit bureaus about the card, which means you lose out on positive payment history and lengthening your credit history. Also, it lowers your mix of credit accounts which is worth 10 percent of your FICO credit score. You should have a 2:1 ratio on revolving to installment accounts.

You Might Lose the Account Forever

In 2010, banks are increasing the pace at which they close inactive credit card accounts, because unused accounts cost money just by existing in a company's database. This means you could lose the account forever and any history associated with it once the bureaus stop reporting it in 10 years. If you ever want another account, you will have to apply for one, which requires a hard inquiry that lowers your score up to five points.

Tip

You only need to put a small charge on an account to keep it active, and you can pay it off every month to avoid finance charges. This may end up saving you money, because some banks give more perks to customers who use their accounts. The CARD Act of 2010 eliminated inactivity fees, so banks have to come up with new ways to motivate customers to spend on their credit cards.

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How to Read a FICO Credit Score

When you establish your credit history you are assigned a FICO score or credit score. (FICO stands for Fair Isaac and Company, the company that developed the credit scoring system used by U.S. financial firms.) A FICO score is used by lenders to determine the likelihood that you will default on a loan -- that is, your risk factor. The lower your FICO score, the more risk you pose for a lender. A low FICO score can cause a lender to charge you a higher interest rate for credit cards, mortgages and automobile loans.

Instructions

1

Understand the range for a FICO score. A FICO score can range from 300 to 850. According to myfico.com, scores in the range of 720 to 850 will get you an annual percentage rate of 5.928 percent and a monthly payment of $760, for an auto loan of $25,000, based on a national average. This is the very best rate you can receive. If you look at the lower end of the spectrum a FICO score between 500 and 589 will get you an annual percentage rate of 18.724 percent and a payment of $913 for the same loan amount of $25,000. There is a significant difference and the amount of finance charges you pay will be substantial over the term of the loan. The term for both loans is 36 months. The rates quoted are as of Dec. 1, 2009, and are subject to change.

2

Check the items that are needed to calculate a FICO score. There are several factors that can help determine your credit score. The category that influences your score the most is your payment history, which represents 35 percent of your score. This is why it is important to pay your debts on time. The amount of debts you owe also influences your credit score by 30 percent. If you have too much debt or you use up too much of your available credit, it can affect your score in a negative way. How long you have been in the credit bureau also influences your score by 15 percent and the types of accounts and new credit each influence your score by 10 percent.

3

Review the bad credit items that can lower your credit score. According to creditcards.com, the higher your credit score is the more it is reduced when there is some sort of infraction such as a late payment. A credit score of 680 is reduced anywhere from 60 to 80 points when a payment is 30 days late. If your credit score is 780, a payment that is 30 days late will shave off 90 to 110 points. Maxed-out credit cards also reduce a 680 score by 10 to 30 points, and a score of 780 is reduced by 25 to 45 points.

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Secrets to Raising Your Credit Score

A good credit score is worth its weight in gold. A higher score leads to faster loan approvals and lower interest rates. In today's competitive climate, a good credit score can be the difference between receiving a job offer or a rejection letter. Most Americans want a higher score because it opens financial doors for them, but it requires a balancing act of several factors. Below are some tips for raising your credit score.

Pay Your Bills On Time

Your payment history accounts for 35% of your FICO score, according to Fair Isaac Corporation, the inventors of the FICO scoring model. Since it's such a large percentage of your score, this is one contributing factor that you can't afford to overlook. It's imperative that all bills are paid on time every month. If you have online access to your accounts, you can actually pay your bill before the statement posts, which can reduce the amount of interest charged on the account. The most important step, however, is to make your payments in a timely manner.

Keep Your Balances Low

The second largest factor in your credit score is the amount of debt that you carry; this accounts for 30% of your FICO score. The goal is to keep your debt as low as possible, especially credit card balances. If your credit card balance is the same as your credit limit, you're maxed out; this will drop your score. Simply transferring debt from one credit card to another will not improve your score since this tactic doesn't reduce the amount of debt owed. In addition, this factor takes into account balances on car loans, student loans, mortgages, etc. The more you reduce your overall debt load, the more your score will rise.

Reestablish Your Credit

If you have a low score because of past credit problems, reestablish your credit by strategically opening a new account. Part of what constitutes a high score with FICO is payment history. If your report only contains past negatives, such as charge-offs, closed accounts, repossessions, etc., you will need the addition of new payment history to offset the old. Over time, this new history will outweigh the bad. The older a negative item becomes, the less of an impact it has on your credit score.

Don't Open Too Many New Accounts At Once

Another 25% of your FICO score is length of credit history, which is 15%, and new accounts, which is 10%. This number reflects the average amount of time that all of your accounts have been open and the number of new accounts that you have recently acquired. The two parts work hand in hand. FICO considers a long credit history as an indicator of stability, so the longer your credit history the higher your score will be. It also encourages you to open new accounts periodically. Be careful though: opening several new accounts in a short period of time will decrease the average length of your credit history and thus decrease your score in the process. Only open new accounts when you need them. It's worth noting here that closing older accounts may also lower your credit score because that too will shorten your credit history. Even if you don't use the old credit cards anymore, leave them open to protect your FICO standing.

Vary the Types of Credit That You Have

The final 10% of your FICO score takes into account your ability to manage various types of credit: mortgage, auto loan, personal loan, credit cards, etc. Having only one type is more risky than having a mix of them. According to FICO, having installment loans as well as credit cards will raise your score. Again, don't take out new credit just to have a better mix. Too many new accounts will increase the number of inquiries on your report, shorten the overall length of your score and increase your total debt load. If you need an installment loan, having one may raise your score but it's not wise to take on new debt just to have a different trade line on your credit report.

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How to Check All Three Credit Scores

Your credit scores for each credit reporting bureau may be different. Lenders do not necessarily report to each bureau. You may have a better score with one bureau than another. It's important to check all three credit scores regularly. You then have the opportunity to correct any errors, and see areas where improvements could be made, resulting in a higher credit score.
You can get your three credit scores (TransUnion, Equifax & Experian) for free by taking a 30-day, payment free, trial subscription from TransUnion. Your credit history report held by each bureau is included in the 30-day trial period for free.

Instructions

1

Apply online to get all three credit scores instantly. It's simple and quick. TransUnion, Equifax and Experian record credit information from lenders, but you only need apply to one credit reporting bureau to get all three scores. Click the TransUnion link (see Resources) to check all three credit scores. Click for the 30-day free trial. Subsequent months cost $14.94. Complete the application form. Accuracy is important.

2

Click "Submit." Follow the simple instructions. Enter your payment details (your account won't be debited). Click "Submit," and your identity will be checked. Review your application and click "Continue." You will be given logi-n details and a link to the log-in page.

3

Click on the link. The log-in page is displayed. Enter your user name. Set your password. Select your password reminder (e.g., memorable name, place or date). Click "Enter." You now have access your credit scores and reports.

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Does Being a Cosigner Hurt Your FHA Credit?

You may be asked to help a family member or friend by co-signing for a loan or other credit-based account if you have an excellent credit score. Co-signing helps the other person open an account even if he has no credit history or has past-due bills or other issues on his credit reports. Be careful when agreeing to co-sign because your own credit can get hurt, keeping you from getting your own accounts and loans like FHA financing.

Definition

A co-signer is a person who agrees to add her name to another person's loan or credit card account and to take full responsibility for repayment of the owed amount if that person defaults on the account. The other person gets the account based on the strength of your credit. Both names go on the account, which also shows up on both of your Experian, TransUnion and Equifax credit reports. Data from the account, along with your other credit-related activities, is used to calculate your credit score. The FHA looks at that score if you apply for home financing.

Effects

You do not hurt your FHA credit as a co-signer if the other person always pays the account on time. The account has a good influence on your credit score as long as it remains in good standing. Your score drops badly if the other person stops paying because 35 percent of your credit score is calculated based on timeliness of your payments, and you are equally responsible for the co-signed account. A low score will force you to put down a higher down payment on an FHA loan, the U.S. Department of Housing and Urban Development warns, or it may totally prevent you from getting the loan.

Prevention

The best way to prevent harm to your credit score and ability to get FHA credit is to never cosign for another person's account. The only way to ward off damage if you do is to immediately pay the account yourself if the other person stops making payments. Your payments will maintain the account in good standing and keep your credit score high enough to qualify for good FHA loan terms. You cannot prevent the damage if you cannot afford to take over the payments when a co-signer defaults.

Warning

Having your credit rating ruined and losing your chance at FHA credit is not the biggest cosigning risk. You face a possible lawsuit and judgment if you have assets, according to MSN Money writer Mary Rowland, and the creditor might win its legal costs in addition to the account balance. Try to negotiate with the lender for a reduced settlement amount if you are being pursued for a defaulted account.

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The Effect of Auto Inquiries on FICO

Although most credit inquiries make up a small part of an individual's credit score, consumers applying for an auto loan with several different lenders should be familiar with how these types of inquiries will affect their FICO score.

The Facts

According to the Fair Isaac Corporation, numerous credit inquiries in a short period of time may lower an individual's credit score. However, FICO recognizes a consumer's search for a low interest rate on an auto or home loan as rate-shopping and treats these inquires differently than attempts to open several new credit accounts.

Considerations

The impact that a credit inquiry, including an auto inquiry, may have on a consumer's FICO score varies according to the length of his credit history. FICO estimates that most credit scores may fall up to five points with each added inquiry.

Time Frame

FICO disregards any auto loan inquiries made during the 30 days before scoring. Auto inquiries conducted more than 30 days before scoring also are grouped together and counted as one inquiry. As a result, most auto inquiries have little or no impact on an individual's score.

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How to Contact Transunion Credit Reporting

TransUnion is a credit reporting agency founded in 1968. As of 2009, it maintains credit histories on about 500 million consumers worldwide, according to the company website. Credit histories shape your credit score. Credit scores impact whether you will be approved for a loan, a housing rental or auto purchase. If you feel that something is included on your TransUnion credit report due to an error in accurate information, you should submit a dispute to TransUnion.

If you are unsatisfied with the result of your dispute, you can attach a consumer statement to your credit report explaining the negative item you disputed.

Instructions

Submit Your Dispute

1

Obtain a copy of your TransUnion credit report and determine which negative items are included in error. Federal law requires credit reporting agencies to supply you with one free copy of your credit report each year. You can obtain your free report through annualcreditreport.com. Find a link in Resources.

2

Make sure you have your TransUnion file number, Social Security number, current address and date of birth as well as the company name and account number of the disputed item.

3

Submit your dispute online (find a link in the Resources section). You can also submit your dispute by phone by calling (800) 916-8800. To submit your dispute by mail, print the form found through the link in Resources and mail it to TransUnion to

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19022-2000

Check Dispute Status

4

Check online at TransUnion to see the status of your dispute.

5

You may wait up to 45 days before you hear from TransUnion. Once you submit a dispute, the company that reported the negative item has 45 days to respond to TransUnion's request for information.

6

Receive notification either by email or in writing from TransUnion deciding whether the disputed item should be removed from your credit report.

Submit a Consumer Statement

7

Write your 100-word consumer statement that explains why a particular negative item is listed on your credit report.

If you desire assistance in writing your statement, call (800) 916-8800 to speak with a TransUnion customer service representative.

8

Submit your customer statement to:

TransUnion Consumer Relations
P. O. Box 2000
Chester, PA 19022

9

Remove your consumer statement whenever you desire. It will remain on your TransUnion credit report until you request it be taken off.

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Credit Rating Amount Owed as Percentage of Available Credit

A credit rating considers five major areas of credit use: payment history, amounts owed, length of credit history, types of credit and new credit. One of the major calculations that affects your score in the amounts owed area is the percentage of your available credit that you currently owe on credit cards, also known as your credit utilization.

Utilization Basics

Credit scores consider not only your utilization on each credit card but also your overall utilization across all cards. Calculate utilization by dividing a card balance by the card's limit. For example, if your most recent statement on a credit card shows a balance of $2,392 and a credit limit of $4,000, your utilization is 60 percent. If you also have another card with a balance of $120 and credit limit of $3,000, your overall utilization is 36 percent. Utilization over 50 percent on any one card or overall can hurt your credit score, according to Fair Isaac Corporation. Liz Weston of MSN Money recommends keeping your utilization below 30 percent for best results.

Decrease Utilization

If your utilization on any one card or overall is above 50 percent, decrease the utilization to boost your credit rating. There are two major ways to decrease your utilization. The first is to reduce your balance on the card by putting fewer purchases on the card and making more payments. The second method is to increase your credit limit. For example, if you have a card with a balance of $816 and a credit limit of $1,500, your utilization is 54 percent. If you call customer service and get your credit line increased to $3,000, your utilization suddenly drops to 27 percent.

Effects of Closing Cards

Closing a credit card account can impact your utilization, so do the math and evaluate the change in utilization before deciding to close an account. You should never close an account with a balance, and any card with 0 percent utilization helps your credit score. When you close a card and lose access to the available credit on that card, your overall utilization is likely to increase. For example, say your balances on all cards add up to $2,219 and your credit lines add up to $8,000, which means your utilization is 28 percent. If you close one of the credit cards, which has no balance and a credit line of $4,000, your utilization will now be 55 percent.

Utilization Tips

Banks sometimes close inactive credit card accounts, so if you carry balances on some cards and would see your utilization spike if a bank closed an empty card, protect your credit rating by using cards with a $0 balance every few months. If your utilization is high and you are planning to apply for credit soon, it might seem like a good idea to increase your available credit by applying for new credit cards. However, opening a card temporarily hurts your credit score through the area that considers new credit, so it is not an effective short-term solution to raise your credit score.

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Does an HOA Lien Affect Your Credit Score?

Many communities have a homeowners' association, or HOA, that manages the common grounds and notifies residents who are in violation of the community rules and regulations. Although those serving on the HOA board are usually volunteers, homeowners pay monthly dues to cover taxes, maintenance and improvement of the common areas. This payment is separate from your mortgage, but still a legal obligation. Some owners worry that an HOA lien will affect their credit score.

Credit Bureaus

Originally, credit bureaus recorded late payments on consumer loans, mortgages and credit cards. Other debts, such as past due medical or utility bills, did not affect your credit rating. However, the rules have changed and now credit reports reflect every form of credit, including unpaid homeowner association bills.

Homeowner Association Dues

You may have hefty homeowner association dues, if you live in a condominium or housing development that has many amenities or in need of expensive repairs. When you fall behind in paying your dues, the HOA makes a demand for payment. If you ignore that demand, then they may choose to place a lien against the property.

HOA Property Lien

Your homeowners association records the lien against your property at the county clerks office. Additionally, once the clerk records the lien, your HOA may choose to place the lien on your credit report at the three leading bureaus: Experian, Equifax and TransUnion.

Your Credit Score

All negative information, including the HOA lien, affects your credit score. The extent of credit score damage depends on whether the homeowners association had been reporting your account as unpaid for several months before placing the lien. If they have dinged your credit every month, then the credit bureau will lower your score significantly more than if the actual lien were the first negative information recorded. Your payment history represents 35 percent of your credit score, according to Equifax. The HOA lien stays on your credit report for seven years.

Further Credit Damage

If your HOA pursues foreclosure after placing the lien, it would force your first mortgage holder to also file foreclosure. This will lower your credit score even further, with repercussions in other areas of your life.

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When I Rented a Car, Did It Affect My Credit Report?

Renting a car is one of those weird things that can damage a credit score, depending on the payment method used and the policy of the rental car firm. A car rental typically only requires a credit check when the customer pays by a method other than credit card. While the inquiry from a car rental can lower a credit score, it probably won't be the reason for a rejection of credit.

Identification

Car rental firms almost always only perform a credit check when a customer reserves the rental with his debit card. This happens because debit cards have limits based on the amount of money in the holder's account, while credit cards usually have limits of thousands of dollars. If the debit-card renter crashes the car -- especially a new car -- he might not have enough money to pay for the damages and the rental company would have to pursue a court case. Rental companies understandably prefer responsible customers, and a good credit score is one sign of responsibility.

The Drop

Fortunately, renting a car with a debit card will probably not cause much damage to a credit score -- the maximum an inquiry can count for is five points, according to the Fair Isaac Corporation. Hard credit inquiries only become a serious problem if the borrower has more than five or six in one year. However, a lender probably won't deny a loan unless a report contains other negative items, such as missed payments and delinquent accounts.

How Long Does The Credit Check Stay?

Under the FICO system, credit checks only affect a score for the first year, even though the credit bureaus will report inquiries for two years. Other scoring models may factor in inquiries for a longer period of time. The Vantage Score model, sold by the national credit bureaus, includes inquiries in its formula for the full two years.

Tip

Ask the car rental firm about its credit check policies before you make a reservation. You can take out a secured credit card if you don't qualify for an unsecured line. Secured credit cards require a deposit equal to the credit limit, but you draw on the account's limit to make purchases, not the deposit, so it's not a debit account and can be used for car rentals.

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Help to Build Credit

Some people have no credit history, making it difficult to get started in the credit game. Other consumers may have poor credit but want to build credit in order to land a better credit score. Learning options for building credit can help you decide which credit solutions work best in your situation. Building credit isn't difficult; it does take patience and careful financial planning.

Establish Baseline

Consumers with poor credit need to establish their current financial baseline in order to build better credit. Start by running a credit report to confirm or contest open accounts, account balances and payment history (see Resources). Make a list of all outstanding debts, including credit card balances and interest rates. Set a monthly spending budget, directing as much money as possible toward debt balances. Steady payments will reduce overall debt, helping to build a better credit score.

'Starter' Credit

It's tough to get credit when you don't have a credit history; lenders have no guidelines for determining the likelihood that you'll repay credit used. However, "starter" credit cards can help you begin building credit, eventually transitioning to traditional credit cards and installment loans. Examples include department store credit cards, gas company credit cards and secured credit cards. Because department store or gas company credit cards tend to have lower balance limits compared with traditional credit cards, the risk of doing business with you is reduced for lenders, making it easier to score cards. Secured credit cards require consumers to deposit a specified amount of money in the issuing bank, ensuring access to repayment funds should you become unwilling or unable to pay credit card balances. Since risk is reduced, it's easier to obtain the card.

Payment Habits

Payment habits represent a slow but sure way to build credit. Your credit history and score includes whether you make payments on time, pay the balance in full or pay just the minimum each month. Missed payments or unpaid balances turned over to collection agencies can harm your credit. Consistent payment habits can help to build better credit over time by demonstrating that you're able to manage accounts.

Use Credit

It takes credit to build credit, so once you land that first secured credit card or department store credit card it becomes your job to use it -- wisely. Using your credit card regularly to make purchases and then pay the balance in full each month is an effective way to build credit. Unused credit can actually hurt your credit score if the issuer decides to close the account. You're not penalized for the closure if the balance is zero, but the reduced available credit could hurt your debt-to-income ratio and the length of your history could be shortened if your other credit accounts were opened much more recently.

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How Much Will My Credit Score Improve Once My Student Loans Are Out of Default?

About 7 percent of all student loans were in default in 2008, according to the Department of Education. You must pay student loans in almost any circumstance; defaulting on student loans damages the student's credit and it is nearly impossible to wipe them out in bankruptcy. Once you become current on your student loans expect a year or longer triage to get those points back.

Identification

Your score starts improving immediately after catching up on your student loan payments, but not by a whole lot the first month. Missed payments stay on your report for seven years and are most important during their first two years, after which they become far less of a drag on your score. Assuming you do not miss any more payments on the student loan account or any other accounts, you can probably recover most of the lost points in a year or two.

How Late Were You?

The longer your student loan delinquency, the more time it takes to recover from it. Missing a payment by 90 days or more can take up to 135 points off of your score and less for inferior scores, according to CNN. Also, once you get past 90 days late, lenders tend to put the delinquency on par with a bankruptcy and other seriously negative items, because borrowers are far less likely to pay a debt after 90 days.

Considerations

In 2008, the odd missed payment became far less derogatory for borrowers with the release of the new FICO 08 software, according to Bankrate. This only goes for 30-day missed payments. If you frequently miss payments under the 08 model, you will lose many more points than lenders that use older versions of the FICO scoring software.

Tip

Call your lender to discuss possible options when it looks like you might default on your student loan. Federal student loans, for example, automatically defer payments when you meet certain criteria, such as unemployment and other economic hardships. The government will even pay for interest on subsidized loans during deferment or forbearance. While private lenders do not have to agree to any modified payment plan, they often do if it increases their chances of repayment.

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What Affects a Credit Report Score?

Banks, credit companies and other businesses use your credit score to determine how reliable you are in repaying debts. If you have a higher score, you may qualify for lower interest rates and thus lower monthly payments. You'll also be more likely to be approved when applying for a loan, such as a home mortgage. A number of factors directly affect your credit report score.

Bill Payments

Whether your bills are paid on time significantly affects your credit score, accounting for about 35 percent of your overall rating, according to the Federal Citizen Information Center. Late or missed payments on phone bills, student loans or credit cards can reduce your credit score, as can declaring bankruptcy. To earn and maintain a high credit score, pay bills in full and on time.

Debt Owed

The amount of debt you've accrued also has a direct effect on your credit rating--nearly 30 percent, according to the FCIC. Rating agencies compare how much you owe on credit cards and other loans to your overall available credit. The greater the difference between what you owe and your available credit, the better. Keep your debt low to maintain a higher score.

Length of History

Accounting for about 15 percent of your overall credit rating, according to the FCIC, the duration of your credit history affects your credit score. The longer you've maintained a line of credit, the better your score will be. Duration is based on your oldest line of credit.

New Credit

The presence of new credit cards and loans determines roughly 10 percent of your credit rating, according to the FCIC. The effect of new credit on your rating depends on the types of credit you add, how many applications for credit you make and the length of time between applications for new credit and loans. Depending on your credit history, adding new lines of credit could hurt your score.

Types of Credit

The types of credit you have also affect your credit rating. If you have a mixture of loans, credit cards and other types of bills on which you make timely payments, this improves your credit score. If you have too many accounts of the same type--such as several credit cards on which you carry a balance--this can reduce your score.

Checking Your Score

Each individual is entitled to a free report of his credit score once a year from the three major credit bureaus: Equifax, Experian and TransUnion. Obtain your free credit score report from Annualcreditreport.com (see Resources).

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How to Remove Negative Items From Credit

The Federal Trade Commission gives you the legal right to dispute any item on your credit report that you believe contains inaccurate information. A study in 2004 found that 79 percent of credit reports contained errors. (See Resources) Negative accounts cannot be legally removed unless the account has incorrect details or is not your account. Common errors include date account opened, balance, payment amount, late payment, type of account, status of account or any other information shown on your credit report that is not correct.

Instructions

1

Look over your credit report very carefully. List each negative account that has an error. You do not need to have proof to dispute an error nor do you have to be certain an error exists. You can dispute the item if you believe there is an error but are not positive the error exists.

2

Begin your dispute letter to the credit bureau by writing the date. Go down a couple of lines and begin the body of your letter by providing your name and address and stating you are writing to dispute incorrect entries on your credit report.

3

List each incorrect entry you discovered while reviewing your credit report. You can choose to give a brief reason why you are disputing the entry, but it is not a requirement.

4

Mail the letter to the credit bureau. The dispute address will be shown on your credit report.

5

Wait for an investigation response to arrive from the credit bureau. This should arrive approximately 40 days after you mailed your letter. If a disputed entry was not deleted or corrected, you may dispute the entry again. If you have proof of the error, send a copy with the second dispute.

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