Does Checking Your Credit Report Lower Your Score?

The Fair Credit Reporting Act allows consumers to check their credit reports once every year for free, according to the Federal Trade Commission. Those copies must be obtained from annualcreditreport.com. People can purchase additional copies as frequently as they wish from TransUnion, Experian and Equifax, which are the three nationwide credit bureaus, or third-party vendors. Certain credit report inquiries are reflected in the credit score, but personal credit checks are viewed differently.

Purpose

The Federal Trade Commission recommends checking credit reports regularly for mistakes and signs of identity theft or other fraudulent activity. The credit reporting agencies do not do their own accuracy checks or audits, so consumers must catch errors on their own. Reports are constantly updated with new and changing information, so new problems can happen at any time. The Fair Credit Reporting Act lets people dispute mistakes to get them fixed or completely erased. This is especially important when preparing to fill out a mortgage application or applying for other major loans.

Type

A self-check of credit reports is classified as a "soft inquiry," the Lending Tree financial website explains. Other examples of soft inquiries include check-ups by your current creditors and pre-screening by companies that want to send promotions like pre-approved credit card offers. None of the inquiries in this category has an effect on the person's credit score.

Alternatives

There is another type of credit check, known as a "hard inquiry," according to Lending Tree. This happens when a consumer applies for a loan or credit card and the lender requests credit records to evaluate the application. Banks sometimes make a hard inquiry on a person's credit files when opening a new checking or savings account.

Effects

Although a self credit check has no effect on a person's credit score, too many hard inquires will lower it. Lending Tree warns that such inquiries can reduce it by up to five points. This may not influence the ability to open new accounts, but if the score was borderline it could cause rejections or cause a person to be offered inflated interest rates.

Considerations

Credit reports are different than credit scores. A credit score is a three-digit number calculated by a company called FICO or the credit bureaus, based on information contained in the reports. Leslie McFadden of the Bankrate.com financial site explains that the credit score gives lenders a quick idea of whether a person is likely to default on loans within the next 24 months. Consumers are not entitled to see their credit scores for free by law, although they can buy their numbers from FICO and the bureaus.

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Does it Help Your Credit Score to Have Utility Bills in Your Name?

Utilities require monthly payments, much like loans, but it is unlikely utility payments will help you build credit. On the contrary, for most people, utilities on a credit report represent a negative item. Putting utilities in your name, however, could help you prove your integrity and responsibility to some lenders.

Identification

In most states, privacy laws prevent utility companies from reporting payment information to the credit bureaus, and that includes positive payment history, according to Payments Source. In the few states that do allow reporting on utility payments, having them in your name would boost your score if you pay your bill on time. Even in the states that permit utility companies to report payment information, many utility companies do not report it, because it is an added expense and utility companies are not providers of credit.

Considerations

Putting utility bills in your name risks the possibility of the company sending the bill to a debt collector if you miss a few payments. If it goes to a collections agency, the credit bureaus probably will be notified. A debt collection on your credit report does considerable harm to your credit score. It stays on your report for seven years, but does the most damage in the first two years.

Alternative Scoring Agencies

You can report utility payments to alternative credit scoring agencies yourself. Alternative scoring agencies are not widely accepted in the lending industry in 2010, but some of the major credit bureaus incorporate data from these companies into consumer credit reports. Unlike a normal credit report, in which the lender pays to report data, the consumer pays a monthly charge to have an agency report his utility payments.

Tip

Keep past utility bills and canceled checks after making payments, because you can use them to prove your creditworthiness. If you provide canceled utility checks, the lender will consider them in his assessment. Alternatively, you can obtain a secured credit card -- which is backed by a deposit and reported to the credit bureaus -- and pay your utility bill with that. The use of a secured credit card may boost your credit score over time.

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Unsecured Credit Definition

Credit accounts involve borrowing money, but many consumers do not realize there are actually two different account types: secured and unsecured. You have unsecured credit if you are one of the 176.8 million Americans who had a credit card as of 2008, according to the Federal Reserve Bank of Boston, or if you are repaying a personal loan. Unsecured credit is beneficial in many ways, but it also carries certain risks for lenders that can make it difficult to get for some consumers.

Definition

Unsecured credit is credit that is extended to a borrower in the form of a loan or credit card without any collateral. Advanced Merchant Services, a merchant account company, explains there is no designated asset for the lender to repossess if the borrower defaults on an unsecured credit account. This makes it much different from secured loans like mortgages, which allow the lender to foreclose on the house if the buyer stops paying, or auto loans, which offer repossession as an option for the financial institution.

Examples

Credit cards such as Visa, MasterCard, American Express and Discover are perhaps the most common examples of unsecured credit. Personal loans which provide funds for an unspecified purpose also fall into this category, as do retail credit lines from department stores and gasoline credit cards.

Benefits

Unsecured credit is beneficial for consumers because they can borrow money without having property or other assets to guarantee the loan. This gives them more buying power and flexibility to use the funds. They can purchase expensive items they could not otherwise afford and pay them off over a period of months or years.

Considerations

It is more difficult to open unsecured credit accounts than to get loans secured by a house, automobile or other property or goods, because there is no collateral for the lender to seize if you do not repay the debt. You need a good or excellent credit score to qualify for most unsecured loans. You may have to pay a higher interest rate and other fees if your credit is borderline. Lenders charge this extra money to offset their increased risk in extending unsecured loans to riskier consumers.

FICO, the credit score provider, explains that unsecured credit is even harder to get in bad economic times. It reports that 51 percent of new cardholders in 2005 had FICO scores below 700. This number dropped to 38 percent in 2008.

Alternatives

Consumers with bad credit can sometimes get a secured credit card by depositing money in a bank account to act as collateral. The account is usually converted to an unsecured account within a year or two if the account holder builds up an excellent repayment history.

Warning

Creditors may be able to garnish your wages or put a lien on your property to satisfy unpaid credit cards and other unsecured accounts. This requires court action and a judgment in favor of the creditor. You may be taken to court if your state allows garnishments and liens and the creditor believes you have enough assets to make the action worthwhile.

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Checking Account & Credit History

You could bounce checks all over town and it might not affect your credit, even if it is a crime. However, checking accounts often affect your credit history, mostly depending on what the bank decides to do with overdrawn accounts. In general, you should use checking accounts responsibly, because they may be important to getting a loan even if they do not affect your credit history.

Identification

Banking accounts can hurt your credit when the financial institution requires a hard inquiry into your credit history before approving the account. Alternatively, some banks do not perform credit checks unless the borrower asks for overdraft protection, a small loan that acts as a buffer for slight overages. A delinquent balance could appear on a credit report as a judgment or collection account if you write a bad check and the bank sues you or sells off the debt to a collector.

Considerations

Lenders always consider more than just the data on your credit report for their lending decisions. Some creditors, for example, also run a consumer report on applicants through the banking industry's version of the credit bureaus, called ChexSystem. Writing bad checks will likely appear on a ChexSystem report because most banks report to it. Banks that run a banking history tend to run a report on new borrowers more often than experienced customers.

Benefits

A ChexSystem report does not only detract from your ability to gain credit. When a borrower has no credit history with the major credit reporting bureaus, they might use a clean ChexSystem report as a sign that the borrower can be trusted with a credit card. Some credit cards for new borrowers, such as a secured account, require a checking or savings account to store a safety deposit.

Tip

Always review your credit reports from all three bureaus just in case the bank made an unauthorized inquiry into your credit. Banks sometimes qualify you for a credit card when you open a account and may run your report after including a consent form among the many pages of their application form. You can avoid the credit check for overdraft protection by linking other accounts with the bank to the checking line.

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How to Remove From a Credit Report Bounced Checks Added to a Bankruptcy

When you declare bankruptcy, every account included in the bankruptcy, including those related to bad checks, appears on your credit report -- in this way, filing bankruptcy won't make your credit report any better. Information related to bankruptcies can appear for seven to 10 years, depending on which type of bankruptcy you file. You cannot completely eliminate this information during this period, but you can change how it appears on the report so that the credit report appears more favorable.

Instructions

1

Visit the Annual Credit Report website. This website is a collective site approved by the Federal Trade Commission for getting copies of your credit report from each of the three major credit bureaus: Experian, Equifax and TransUnion. Request and print free reports from each company, per your entitlement under law.

2

Review each of your reports. Locate the bad checks on each report.

3

Make copies of the formal discharge notice you received during your bankruptcy case, as well as any other court paperwork that clearly shows the bounced checks passed through bankruptcy court.

4

Write letters to each of the credit bureaus. Identify yourself and the items in question clearly with your Social Security number, current address and the delinquency amount. Enclose and refer to the copies of your bankruptcy documents and ask that the status of the bounced check be updated to "discharged in bankruptcy" or "included in bankruptcy" and "zero balance."

5

Send your letters certified mail to each of the credit reporting agencies. Allow 30 days for a response.

6

Check your credit report if the credit reporting agency agrees to remove the bounced checks from your report. If the credit reporting agency does not remove the items as agreed, follow up.

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How Can I Get My Credit Score Up From 426?

A credit score in the low-400s is quite low, especially considering that credit scores range from 300 to 850. A score of 426 can be financially crippling; even if able to obtain financing, one would be subject to the highest of interest rates. Financial overload, unemployment, medical bills--all of these things can ruin a credit score. Nevertheless, a low credit score is not permanent. With hard work and discipline, it's plausible for someone with an extremely low credit score to turn the tables.

Instructions

1

Request your free annual copy of your credit report =from each agency. Simply knowing your score isn't enough, you'll need to take a look at each trade line and determine what you can do to improve your situation. All consumers are entitled to a free credit report once every 12 months (See Resources).

2

Review your credit report line by line. Each item on the report is labeled with the creditor's name; the last reported balance, high credit, past due amount and number of late payments is also shown. Circle any accounts that look incorrect or unfamiliar to you.

3

Dispute the items that may be inaccurate. Mistakes do happen; if a negative account is hurting your credit bureau, disputing it may help you remove it. You can file a dispute online with all three credit bureaus. See Resources to begin filing your dispute. Have your credit report copy handy--you'll need the report number.

4

Contact creditors that you have default or past due accounts with. The telephone number for each creditor is listed on your credit report. Try to settle the old debt, or work out a payment plan, if possible.

5

Pay down your active balances. A large portion of your credit score is derived from your balance-to-limit ratio. For example, a higher score will result from a credit card with a zero balance and a $1,000 limit, versus a credit card with an $800 balance and a $1,000 limit. The lower your balances are in proportion to your limits, the higher your score will be.

6

Attempt to acquire new credit. Although this will be difficult with a credit score in the low-400s, it is possible. Be careful not to go overboard. Opening up too many new accounts can further reduce your score. With a low credit score, you may have to consider a secured credit card, which requires an initial deposit--but almost guarantees approval. Keeping the balance low, preferably at zero, will improve your score over time and help you establish new positive credit.

7

Pay your bills on time. One of the most important factors in improving your score is making timely payments--month after month. This will take time, but eventually, it will raise your credit score.

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How Does Applying for Credit Affect Your Credit Score?

Inquiries

Applying for credit--whether a loan or a credit, or some other form of credit--does not itself affect your credit score. However, the application leads to official "inquiries," which can affect a credit score depending on quantity and frequency. There are generally two types of credit inquiries: soft and hard. Soft inquiries are not initiated by you, and do not affect your score at all. These are simply inquiries made by outside businesses that are looking to sell a product or service to people, usually credit-oriented. If your credit score meets certain criteria, then they mail you information, like a credit card or some other "pre-approved" offer.

Voluntary Inquiries

When you order a credit score report, all these soft inquiries appear on it, but lenders will usually only see the voluntary or "hard" inquiries, which interest them much more. When you apply for some type of credit, most lenders will began by making an inquiry into your credit situation. This shows them your credit history and how dependable you are at making payments, along with how well you can make payments based on your income. This inquiry stays on your credit report permanently, and is one of the things lenders look for when they conduct their own inquiries.

Now, not even these inquiries can lower your credit score, depending on what your financial situation looks like. If your credit history is strong and you have a clear ability to pay off debt, then inquiries will not drop your score. On the other hand, if you have little credit history and not many credit accounts, then inquiries will carry more weight and will probably drop your score by a few points.

Perception

However, a more subtle change is also at work. Inquiries generally stay on a credit report for two years, while those made in the last year affect the score. However, lenders will see the full two years worth of inquiries, and this will tell them many things about your credit history. For instance, if a lender sees several inquiries on your report in quick succession but no new accounts, they will know that you tried to apply for credit from other institutions and were either refused, or decided to try someone else with better rates. This will make the lender uneasy, and may cause him to make a worse offer or decline to give you credit. This may occur despite your credit score, since this history of inquiries can act as a "silent" story of your credit history.

Fortunately, most credit score calculations group like credit inquiries together within a period of time, so if you are shopping around for a good auto loan report, only one primary inquiry for an auto loan will appear on your credit score.

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