How to Contest Derogatory Items Affecting a FICO Score

Keeping your FICO score high is important to many parts of your life. Not only is it important for getting credit or buying a home, some employers may even check your credit score. Therefore, when you see something on your credit report that is negatively affecting your credit score, you want to get it off. The tricky part is that you cannot dispute this information through FICO, even if you purchased your credit report from their website. You must dispute this information with the individual credit bureaus who are reporting it.

Instructions

1

Locate the negative items on your credit report that could be negatively affecting your FICO score. These are things like late payments, collections and public records.

2

Write a dispute letter. You can hire a lawyer who is educated on the Fair Credit Reporting Act to write this for you, or you can download a template from the Internet (see resources) and customize it to meet your situation. List all of the items that you want to dispute, and you may even want to include a copy of your credit report and highlight the items on there, so that there is no misunderstanding.

3

Find the address for each credit bureau (see resources) that you need to send the letter to. You only need to send it to the bureaus that are listing the derogatory items on your credit report. If it is not on your credit report, it does not affect your FICO score.

4

Send your letters off. You may want to purchase a service, like certified mail with return receipt, which confirms that the credit bureaus received your dispute. By law, they must resolve your dispute within 30 to 45 days of receipt, so it may be helpful to know exactly when they received it.

5

Wait for contact from the credit bureaus. If you don't receive anything within 30 to 45 days, then you can buy your report again to see if anything has changed. If the item was verified, it will remain on your report; if it could not be verified, it should be removed from your report.

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My Son's Information Is Showing Up on My Credit Report

If your credit history and your son's get mixed up, you may face months of headaches and possibly financial difficulty. Take action to correct your credit history immediately and keep monitoring your credit report until the matter is resolved. You may be able to obtain credit before the credit bureaus fix your problem.

Why It Happened

Any number of reasons can cause the bureaus to mix up your and your son's information, such as a computer glitch or an employee entering wrong information on your accounts. For example, if you and your son have similar names, such as Chris and Christopher Johnson, the bureaus may report data on the same credit report, especially if you live at the same address.

Taking Action

Write a letter to any of the three major credit bureaus explaining the credit file mix-up. Include a copy of your credit report and highlight the accounts you dispute. Furnish evidence of your claim, such as a photocopy of your birth certificate and driver's license. The bureaus normally have 30 days to investigate a claim, but the Fair Credit Reporting Act allows them more time in case of complicated cases, such as mistaken identity. Your son also should send information to the credit bureaus proving his identity and dispute any of your accounts that appear on his credit history.

Suing

Treat all communication with the credit bureaus as if you are preparing for a lawsuit. The bureaus automate their dispute resolution process, which can lead to re-reporting of errors, so you may have to sue one of the bureaus to gain attention. Unusual cases, such as those involving the courts, receive special attention that regular disputes do not, according to Anne Kadet of SmartMoney.

Letter of Explanation

While you resolve your mixed-up credit file, you can leave a 100-word explanation attached to any item on your credit report. An explanation has no effect on your credit score, but a creditor may overlook a negative credit mark if you can offer a good explanation. However, you must ask the creditor to review your credit report manually. Creditors usually use software that automatically pulls your credit report and calculates your credit rating based on data in your report.

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How a FICO Inquiry Affects My Credit Report

A person's credit score, sometimes called his FICO score, is a measure of his creditworthiness in the eyes of creditors. Credit reporting companies determine an individual's credit score using information related to his lending history. Information that suggests a person will pay back his loans on time boosts his score, while negative information pulls it down. This report is available to many lenders. Inquiries made by certain lenders will pull a person's credit score down slightly.

Hard Inquiries

Two types of inquiries are made into an individual's credit report by lenders -- hard and soft. Only hard inquiries will pull down an individual's credit score. A hard inquiry is an inquiry made by a creditor who has received an application from an individual seeking a new loan or a new line of credit. When these lenders check the person's credit report, these inquiries are themselves noted on an individual's credit report. A hard inquiry will pull down a score by several points.

Soft Inquiries

Soft inquiries are inquiries made by lenders or other institutions who have not received an application from the individual for new credit. Soft inquiries can be made by a number of parties, including lenders who are considering soliciting a borrower and want to check her credit history first; by landlords investigating a prospective tenant's lending history; and employers who are researching a job candidate's financial history. Soft inquiries have no effect on an individual's credit score.

Effects

Generally, hard inquiries will cause an individual's score to drop only several points out of a total score that can range from 300 to 850 points. According to the Fair Isaac Corp., who developed the scoring model for the FICO score, a number of similar hard inquiries made within a short time will only count as a single inquiry. This is because the credit reporting agencies interpret this as a sign that the individual is shopping around for a loan and not considering taking out multiple loans or lines of credit.

Explanation

It may seem odd that a credit reporting agency will penalize an individual for seeking a new line of credit. However, this is because credit reporting agencies formulate scores on the perceived likelihood that an individual will default. When an individual applies for a new loan, it suggests that she may be experiencing financial difficulties. In the eyes of credit reporting agencies, this means she has a modestly increased likelihood of defaulting -- causing her score to drop slightly.

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How Long Do Negative Items Remain on My Credit Report?

A positive credit report is a ticket to loans with low interest rates, according to Cari Noga of the Bankrate.com financial advice site. People who make a string of late payments or default on accounts start to lose the benefits, and those with big problems like bankruptcy face continual turn-downs. Fortunately, negative credit report items eventually go away.

Definition

Credit reports are summaries of a person's demographic information and financial activity, compiled by the Experian, TransUnion and Equifax credit bureaus. Positive information makes it easier for a person to open credit accounts, buy insurance policies and get jobs. Negative items may prevent these transactions. Common negatives include late or missed payments, as well as accounts that are charged off and sold to collection agencies, court judgments for unpaid bills, bankruptcies, foreclosures and repossessions of vehicles or other goods purchased on credit.

Time Frame

Positive information on open accounts stays on credit reports indefinitely, but Experian explains that negative items eventually disappear. Most items -- like delinquencies, collection accounts, legal judgments, liens, foreclosures and repossessions -- remain for seven years. Bankruptcies are reported for 10 years, while unpaid tax liens show up for 15 years or drop off after seven years if they are paid. Credit report requests are erased in two years.

Effects

Negative items have some effect for as long as they are visible to creditors. Quicken Loans warns that credit blemishes mark a person as a risky borrower. People with many negative items are turned down for accounts and loans or forced to pay higher interest rates if they are approved. They are often turned down for insurance policies, jobs and apartment rentals, and utility companies may require them to pay high deposits for service.

Prevention/Solution

Bad credit is preventable if a person has modest account balances and pays all bills on time. Once a credit report has blemishes, the FICO credit scoring company explains, the only way to fix it is to rebuild the payment history and use accounts responsibly. This helps a consumer overcome some of the negative effects until the old items are erased, because creditors pay the most attention to recent performance.

Warning

Negative items should automatically disappear from credit reports after the appropriate period. Sometimes they remain and continue hurting the person's credit rating. The Federal Trade Commission notes that everyone is entitled to one free credit report annually from each of the three credit bureaus through annualcreditreport.com. People who know they have items that should have dropped off their reports should order free copies and confirm the items are no longer reported They can dispute outdated items with the credit bureaus to ensure they are erased.

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How to Protect Your Credit History

A good credit history is a precious asset. It enables you to open accounts or get loans whenever you need them. Lenders will see you as a good potential customer and may offer incentives like a low interest rate to win your business. Identity thieves can destroy your good history by running up bills in your name unless you take steps to protect it.

Instructions

1

Order your current credit report from TransUnion, Equifax and Experian. You must check all three because the information often differs. The reports are free and carry no other purchase obligation if you get them through annualcreditreport.com, the MSN Money financial site explains. This website is mandated by the Fair Credit Reporting Act (FCRA) to give yearly reports at no cost.

2

Search each report carefully for signs of identity theft such as accounts you do not recognize or strange names and addresses linked to you. Look for other mistakes at the same time, as credit bureaus often include errors like incorrect balances or payments improperly reported as delinquent on reports. These can also hurt your credit history.

3

Contact the creditor for any unrecognized accounts and challenge other suspicious or erroneous information with the credit bureaus, the Federal Trade Commission recommends. Each bureau provides an electronic dispute form and allows you to track the progress of your dispute. Corrections must be made within a month for information that cannot be verified, according to the FCRA.

4

Place a credit freeze on all three of your credit reports, consumer advocate Clark Howard recommends. This runs from $3 to $10 for each bureau, depending on your home state and whether you are a fraud victim. You must do a separate freeze through each credit bureau. No one, including you, can get a new account in your name without providing a special code or password. This protects your credit history from virtually any fraud attempt.

5

Set up a monitoring schedule for your credit reports to catch and dispute any mistakes as early as possible. MSN Money advises ongoing monitoring of your history by getting one report every four months. This gives you ongoing protection by allowing you to catch suspicious information quickly.

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How Does a Beacon Score Work?

Inside Beacon Scores

There are five components of a Beacon (FICO) score. On-time payment of bills counts for the most (35 percent of the total score). Payments more than 30 days late count off heavily. Another 30 percent is based on total debt. Excess debt for a person's income lowers this part of a Beacon score. The type of debt matters as well (10 percent of the total). Secured debt is best. Too much unsecured debt (like credit cards) lowers the score. The amount of time you have used credit responsibly is a factor that counts 15 percent. The last component is how often you apply for credit or close accounts (10 percent).

Credit Killers

There are several things that affect several parts of a Beacon score and will drastically lower the overall score. Foreclosure, defaulting on a debt (especially a student loan), tax lien, or having a court judgment against you for an unpaid debt all stay on a credit record for years. That's also true of a bankruptcy. However, a bankruptcy puts you in a special category as far as credit is concerned and your use of credit following the bankruptcy matters most in restoring a good credit score.

Monitoring Beacon Scores

A study by the Public Interest Research Group in the early 2000s found that over 70 percent of all credit histories contain some inaccuracies and that over a quarter are serious enough to cause credit to be denied. A Beacon score is based on the individual's credit history, so it's vital to monitor your credit history on a regular basis. It's not necessary to pay for your credit history because you are legally entitled to a copy from each of the three major credit reporting agencies annually. The Federal Trade Commission authorizes only one provider for the free credit reports, AnnualCreditReport.com (see Resources).

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Does a Credit Score Decrease When Credit Is Checked?

It is impossible to determine if your credit score will drop once you apply for credit. The website MyFICO says that if your credit does drop, it will not be by more than about five points.

Inquiries

Each time you apply for credit, you authorize the lender to review your credit report. Each time a lender reviews your credit, it is listed on the report as a credit inquiry. You can see who has requested to see your credit by reviewing your credit report.

Multiple Inquiries

As MyFICO points out, a single credit inquiry will not hurt much, and it is also acceptable to have multiple credit inquiries over a short period of time---for example, 30 days---when you are shopping for a loan, such as an automobile or home mortgage. The credit scoring system treats such multiple requests for your credit report as a single inquiry, according to MyFICO.

Continued Inquiries

Your credit score may begin dropping significantly if you make a lot of credit inquiries over the course of a year. The credit scoring system could interpret that as a sign that you are loading up on credit for a spending spree, or you are taking on more credit than you can afford. Either event could make you a credit risk and lead to a drop in your score.

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