It was then that I realized only I could take charge of my credit and get it fixed…
The first thing I did was try a so-called “professional” credit repair agency, but…
Beacon is the trade name that the Equifax credit reporting agency uses for the FICO credit scores it provides. The other credit bureaus use the FICO scoring system as well, although TransUnion markets it under the trade name "Empirica." Beacon scores provide an estimate of the credit risk that borrowers present based on a mathematical model of the information on their credit histories.
Prompt Payments
A consumer's record of on-time bill payments makes up 35 percent of a Beacon score. Payments more than 30 days late seriously lower the score.
Indebtedness
Total debt determines another 30 percent of the Beacon score. The amount of debt is compared to income, and excessive indebtedness results in a lower score.
Debt Type
Unsecured debt presents more risk to lenders. For this reason, excess credit card or other unsecured debt will lower the Beacon score. It accounts for 10 percent of a Beacon score.
Volatility
Frequently closing credit accounts and applying for new accounts is an indicator of increased risk and may reduce a Beacon score as much as 10 percent.
Time Frame
The length of a consumer's history of using credit counts for 15 percent of the score. Good (or bad) use of credit over the long term is a strong indicator of future behavior.
Negative Events
Foreclosure, a defaulted debt obligation, and tax liens lower Beacon scores. Bankruptcy also hurts but may be offset because much of the information on a credit history is expunged after passage of time.
Today, more than ever, a good credit score is a must if you want to get a secured bank loan. Banks are tightening up their standards and are less willing to loan money, even to people with good credit. To get the best interest rate and to increase your chances of being able to buy that house or car you've been looking at, you must ensure your credit score is as high as possible.
Instructions
Credit report
1
Contact Experian, Trans Union and Equifax and get your credit report. Review the information. Dispute information that is incorrect (links to the major reporting agencies are included in the Reference section).
2
Pay down your credit cards and, when you do, devote the most resources to the cards that can get paid down quickly. Contact the credit card company and ask them to increase your line of credit, even if you won't use the additional credit, because your score is adversely affected if you always use all of the credit available to you, even if you pay it off each month.
3
Send a goodwill letter to creditors with whom you have had a couple of late payments, if you otherwise have a good record. Ask them to erase the negative listings.
4
Demand that the credit reporting agencies remove accounts not listed as "paid in full" or "current" when they are, late payments or collections that truly aren't yours, accounts discharged in bankruptcy listed as unpaid, late payments from over seven years ago or accounts listed as "closed by credit grantor" when they weren't.
5
Negotiate with collection agencies that hold smaller debts (under $500) by getting them to agree to delete the records from your credit reports if you pay them in full. Ask for this in writing and pay with a money order.
You have found some disquieting entries on your credit reports, and when you followed up with the credit reporting agencies, you learned that different companies had pulled your credit without your knowledge or permission. Each inquiry lowers your credit score. Aside from this effect, if your private credit information is widely spread, it makes it easier for someone to steal your identity. You do have legal recourse to prevent unwanted credit checks.
Instructions
1
Educate yourself regarding applicable credit laws in your state. You should be able to find this information on the state attorney general's website for your state.
2
Order current copies of your credit report from all three credit reporting agencies---TransUnion, Experian and Equifax. You are eligible for one free credit report annually from each agency.
3
Contact all three credit reporting agencies, either by toll-free number or by letter, and request that a freeze be put on your credit report. Once this freeze is in effect, only certain people or agencies may access your credit report without your permission. These include companies with which you already have credit, persons who already have permission from you, government agencies, potential employers and anyone who is monitoring your credit with your permission.
4
Let the credit reporting agencies know if you've been the victim of identity theft. If so, they will place the freeze on your credit report at no charge to you. If you have not been the victim of identity theft, these agencies are permitted to charge a fee for placing the freeze on your history.
From an idea conceived in the mid-19th century by a Calvinist East Coast merchant with an aversion to credit rooted in biblical principles, credit agencies have grown to be so integral a part of life in the United States that where you're able to live -- or even work -- may hinge on the information a credit agency has gathered about you.
Origin
The credit agency concept is attributed to Lewis Tappan, a devoutly religious Philadelphia and Boston businessman who began extending credit to his customers in the mid-1830s to keep his then-struggling mercantile business afloat. To help him assess the appropriateness of his decisions, Tappan gathered and evaluated information on his customers' character and creditworthiness. Other merchants eventually sought his advice and, in 1841, Tappan founded the Mercantile Agency, which, through a series of transfers, mergers and name changes, is still in business today.
Function
Credit agencies are NOT decision-makers.
Credit reporting agencies do not make decisions to extend or deny credit. Instead, they collect a variety of consumer data, including your employment and bill-paying histories, the types of credit you use and the amounts you have previously borrowed. The credit agency then applies a number of formulas and analytics to render a score that prospective creditors can access, for a fee, to evaluate the potential risk of extending new or additional credit to you.
Evolution
Once used primarily by merchants, credit reporting agencies have expanded into consumer intelligence businesses that now also compile information for a wide variety of users, including direct marketers, landlords, insurance companies, employers and others, to help them make decisions ranging from the amount of your auto insurance premium to whether or not to extend to you an employment offer or accept you as a tenant. According to Reference for Business, there are more than 1,000 credit agencies across the country. Most, however, are either directly owned or contracted by one of the three dominant U.S. consumer credit reporting agencies.
Regulation
Consumer credit reporting agencies are regulated by the U.S. Federal Trade Commission, the government bureau that enforces the provisions and subsequent amendments of the Fair Credit Reporting Act of 1971, which, according to the FTC, promote "the accuracy, fairness and privacy of information in the files of consumer reporting agencies." Passage of the Fair and Accurate Credit Transaction Act of 2003 places new responsibilities on credit agencies --- including mandating them to better help consumers fight the growing incidence of identity theft --- and also subjects them to regulation by financial bureaus such as the Federal Reserve.
The Future
As credit agency roles expand, new legislation that gives you increased access to the information in your credit file is prompting the development of new products that make it easier for you, as a credit consumer, to interpret your credit score. Additionally, increases in the number of global credit consumers will continue to open new markets for credit reporting bureaus, as well as produce innovations in their analytical models.
FICO is short for Fair Isaac Corp. All three credit bureaus, including Equifax, TransUnion and Experian, use the FICO scoring method for determining a credit score. A FICO score ranges between 300 and 850. A higher credit score indicates stronger creditworthiness, opening the door to lower interest rates and more financing opportunities. If you want to increase your FICO score, focus on improving the several different components that make up the score.
Instructions
1
Make credit obligation payments on time. Payment history is the largest category of the FICO score, making up 35 percent of the total score. If you have accounts that are delinquent or facing collection activity, your FICO score will experience a substantial drop.
2
Pay down revolving debt. The debt category accounts for 30 percent of the FICO score. Revolving debt (such as credit cards) has the largest impact on the category.
3
Keep older accounts open. Don't close out old accounts after making the last payment. Credit history makes up 15 percent of the FICO score. Keeping these accounts open with a zero balance will increase the score.
4
Apply for credit slowly. Opening several accounts within a short period of time will negatively affect the FICO score. This category accounts for 10 percent of the score. Instead, open credit slowly, and only when necessary.
5
Use different types of credit. A higher FICO score is given to consumers who use installment loans (cars, mortgages and personal loans) and revolving credit (credit cards and equity lines). Credit bureaus want to see consumers act responsibly with both types of credit. This makes up 10 percent of the score.
A credit bureau is an organization that tracks the credit histories of individuals. The three major credit reporting agencies are TransUnion, Equifax and Experian. A credit report includes a person's identifying information, account history, public records and credit history inquiries when a person applies for credit accounts. Businesses use credit reports as a basis for lending money and extending credit. It's good to know who reports information to the credit bureaus as you build your credit for future purchases and financing.
Credit Cards
Cards such as Visa, MasterCard, American Express, retailers and gas credit cards report individual account information every 30 days. They show the date an account opened, current balance at time of reporting and the credit limit. Credit cards can quickly build up your credit or damage it depending on your payment history. Companies will report a payment late in increments of 30, 60, 90 and 120 days, which all have a negative impact of the overall credit score.
Personal and Car Loans
Car loans build your credit.
Personal and car loan lenders report to the credit bureaus on a monthly basis. These lenders provide installment loans with a fixed payment, interest rate and term. These companies report to the credit bureaus the amount advanced, current balance, payment, name of finance company, date opened and payment status. A personal loan can be used for a variety of things such as vacations, bill consolidation, home repair or emergencies.
Mortgages
Mortgage companies also report to the credit bureau if you are on the actual loan. If you rent or are just on the deed to the mortgage, that information will not be reported. A private mortgage between two individuals will not generally report to the credit bureau. A lender of a private mortgage may provide the private mortgage information with proper documentation on payment history to the credit bureaus; in certain situations, the the credit bureaus will report the information, but you'd want to make sure the lender continues to report every 60 days.
Bankruptcies, Judgments, Liens and Medical Bills
Bad collections and bankruptcies affect credit reports.
Courts report bankruptcies and judgments to the credit bureaus. Bankruptcies take up to 10 years to disappear from a credit report, which adversely affects credit scores. A discharged chapter 13 will remain on a credit report seven years from the date filed. Judgments are the result of a lawsuit due to unpaid debt. A judgment will show up for seven years from the date filed whether it has been paid. Tax liens that have been paid will report for seven years from the date paid; unpaid will show indefinitely. Medical bills will also find their way on a credit report when not paid.
Chapter 7 could be a way to get out of an unmanageable debt burden and potentially improve your credit score. Most of the time, bankruptcy destroys a credit score, but the national bureaus can only report a Chapter 7 for a certain amount of time. Since Chapter 7 lets borrowers off the hook for most debts, the reporting time limit for it is longer than for any other type of bankruptcy.
Identification
The national credit bureaus report a Chapter 7 bankruptcy for 10 years, according to Experian. A common misconception is that the bureaus report bankruptcies from the date the bankruptcy court finalizes the case. Actually, the reporting time period starts from the date that you file bankruptcy. Until the credit reporting period ends, the bureaus report any accounts included in the Chapter 7 bankruptcy.
Dismissed Bankruptcy
You can dismiss a bankruptcy at any time by filing a "motion to dismiss" or the bankruptcy court might file a motion to dismiss if it feels you violated the court's rules, such as not taking the credit counseling session. While a dismissed bankruptcy can be a sign of a good borrower, such as one who wants to pay back debts rather than seek discharge, the credit bureaus still report dismissed Chapter 7 bankruptcies for 10 years. Other dismissed bankruptcies, such as Chapter 13, usually have a shorter reporting period.
Benefits
Bankruptcy might not be all that bad for your credit score. Bankruptcy could even improve your credit score, due to how the bureaus compare borrowers. Instead of comparing bankrupt consumers to all borrowers, the bureaus only compare them to other bankrupt individuals. Thus, after rebuilding your score, your score might drop after the bankruptcy leaves your credit report. Also, the bankruptcy case probably lowers your debt load significantly and eliminates the history on the accounts included in the bankruptcy -- which might contain negative information that does more harm collectively than a single bankruptcy.
Tip
You should always explore every option before filing bankruptcy. Most creditors will offer some assistance to help you avoid becoming totally insolvent. A licensed, nonprofit credit counselor should be your first stop. The counselor might be able to talk creditors into a lower monthly payment or restructure the terms of your loan so you can catch up on bills.
