Why Do Some Employers Check Credit Reports?

Financial institutions want to check a borrower's credit: to ensure he is responsible with money. Employers, on the other hand, check credit so they can make a character -based assessment of a possible employee. They can infer many things about a person based on their credit.

Profile

Someone with a bad credit score may be seen as having a less than stellar character or have commitment issues. Some employers fear this will transfer into their work life.

Security Reasons

Jobs on the state and federal level may check credit to determine how trustworthy an employee may be. If the job is highly secretive, an employee may be viewed as a security risk, therefore unemployable.

Money Institutions

Companies that handle large sums of money like banks and investment firms almost always run credit checks on potential employees. They may feel that someone with bad credit may be tempted to steal while someone with great credit may not feel the necessity to steal.

Work History

Sometimes employers may want to verify work history. A credit report can usually substantiate the applicant's claims of their former places of employment.

Considerations

If you have spotty credit, you may want to research laws governing what an employer can and cannot use against you. You should know your credit score, and if the question arises during an interview, do not lie about it. Remember, if they decide to run a credit check on you, they have to have written consent from you.

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Does Co-signing for a Mortgage Hurt My Credit?

A credit score, or FICO score, is a number that signifies the risk of lending to a particular borrower. Your credit score can affect how easily you can access credit and the interest rates you are charged on debt. When you co-sign a mortgage, you agree to pay for the debt if the primary borrower does not pay. Co-signing is likely to damage your credit score.

Outstanding Debt

The amount of debt you have versus your total amount of credit is one of the main factors that determines your credit score. The more debt you have, the lower your credit score will tend to be. Co-signing for a mortgage essentially adds the full amount of the mortgage to your outstanding debt. According to MSN, "Even if the loan is repaid on time each month, another lender may consider the amount of debt that you co-signed when determining if you already have too much credit." This can hurt your credit score.

Payment History

Your payment history on debts is the single most important part of your credit score. If you've never missed a payment for a debt in your life, your credit score will tend to be high, while missed payments can significantly reduce your credit score. The reason lenders require co-signers is that borrowers with poor credit are very likely to fail to make payments. If the person you co-sign for happens to miss a payment, you are liable for the missed payment, even if you didn't know she failed to make the payment. It can be difficult to make mortgage payments for someone else in addition to your own debts. Co-singing increases the chances of missed payments.

Potential

In the event that the primary borrower cannot pay a co-signed mortgage, lenders may go after the co-signer rather than the primary borrower to collect the debt. According to MSN, "the bank can do more than ruin your credit rating: it can sue you and get a judgment against you for the amount of the loan plus interest." The bank may even be able to charge its own legal fees to you as it attempts to collect.

Considerations

In a best-case scenario, the person you co-sign for will pay back the mortgage on time each month for the life of the mortgage. Even in this case, co-signing will likely reduce your credit score due to the increase in outstanding debt. The Federal Trade Commission warns that co-signers often end up paying. Financial issues like co-signing can harm personal relationships in addition to credit scores.

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I Want to Raise My Credit Score

Raising your credit score not only increases your chances of qualifying for a new loan or credit card, but it also decreases the interest rate you pay on borrowed money. Use several strategies to raise your credit score, some of which have an immediate effect and others that require a few years to have a significant impact.

Lower Utilization Ratio

One of the fastest ways to raise your credit score is to lower your utilization ratio. This number is the ratio of the amount you are currently borrowing on your credit cards to the amount you could borrow, or the credit limit. For example, if your credit card has a limit of $4,500 and your last bill listed a balance of $3,247, your utilization is 72 percent. Liz Pulliam Weston of MSN Money recommends having a utilization ratio of no more than 30 percent on each credit card. Getting the ratio down to 10 percent or less can help even more.

Pay On Time

The single largest factor in your credit score is your payment history, which makes up about 35 percent of your score. This portion not only considers how many late payments you have had, but also the number of accounts sent to collections, accounts settled for less than owed and negative public records, such as bankruptcies or court judgments. The best way to raise your credit score in this area is to set up payment reminders or automatic payments on all of your accounts so you always pay on time. If you are having trouble affording your payments, reduce other expenses in your budget so you have money to pay on time. Making on-time payments will not get rid of previous mistakes, but you will slowly see your credit score rise in the upcoming years.

Avoid New Credit

For the best credit score, you should have at least one credit card and at least one installment loan, such as an auto loan, student loan or mortgage. After you have these, don't get any new credit accounts unless you absolutely need them. New credit hurts your score by adding a credit inquiry and new account to your credit report and shortening your average account age. If you do need new credit for a mortgage or auto loan, shop for rates within a two-week period so you have only one credit inquiry count against you.

Check Credit Report Accuracy

None of the credit improvement techniques works if the accounts are being reported inaccurately on your credit report. For example, even if you make every payment on time, sometimes a lender will accidentally report a missed payment for you. Get a free copy of each credit report from the Annual Credit Report website and look over the report to verify that everything is accurate. If you find anything wrong, initiate a dispute with the credit bureau. The bureau's phone number or website for disputes is listed on the credit report.

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What Information Is Found on a Credit Report?

A credit report is a detailed and current report of your credit history and activity. Your credit report is one of the most important pieces of information you have in protecting your name and assets and in helping you acquire credit for a credit card, car or home loan. Typically, when you apply for credit, a creditor will refer to your credit report.

Personal Information

Your name, Social Security number, address history, employment history and driver's license are on your credit report.

Credit History

Your credit report includes any and all of your accounts (including past due and closed), credit cards, unpaid child support, mortgages and loans.

Credit Inquiries

Your credit report contains information on any credit inquiries within the past 12 months.

Disputes

Your credit report will also contain any delinquent accounts as well as information on how to dispute any information.

Credit Score

A credit score, or FICO, though not included on your credit report, is another key piece of information that lenders use to determine credit. A credit score may range from 340 to 850, with anything over 680 considered to be good.

Considerations

It's a good idea to maintain access to your credit report. While the Fair Credit Reporting Act (FCRA) requires each of the three credit companies (Equifax, Experian and TransUnion) to provide you with one free report per year, it may be worth it to pay for constant access (about $14 per month).

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Will Going Over My Limit on My Secured Card Affect My Credit Score?

About 14 percent of credit card holders are close to reaching the limit on their card at any given time, according to the 2008 CNN article "Credit: Know Your Limits." While people often think fees and rate hikes are the most serious consequence of going over the limit on a credit card, doing so also damages your credit. You can go over the limit on a secured card and damage your score just as much.

Identification

Secured credit cards are credit cards, usually with a low limit, backed by a security deposit the same as or close to the limit on the card. When you spend money, the issuer taps the card's credit, not the deposit. On either a secured or regular card, going over the limit will damage your credit because your credit utilization ratio increases. Credit utilization is the ratio of credit used to the balance available and falls under the "Amounts Owed" category of the FICO score formula, which counts for 30 percent of your credit score.

Considerations

Creditors do not report fees and surcharges to the credit reporting agencies, but they report balances over the spending limit. When other lenders pull your credit report, they will see you went over your limit and may consider you too risky to lend to. If you receive credit after going over the limit on your secured card, you may see a higher than normal interest rate.

Solution

Going over the limit on a secured card once or twice probably won't raise any red flags with lenders. If you are chronically over the limit, stop making purchases on the card or try to raise your limit, which will require you to increase the size of your deposit.

Tip

Ideally, you should only make small purchases on a secured line to rebuild your credit. Secured credit cards often have higher interest rates than normal credit cards, and some secured cards exist only to collect exorbitant fees from people going over the limit or paying late. After a year or so of good payment history, the lender will probably offer an unsecured line.

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How Will Credit Be Affected After Getting a Car Repossessed?

The more reliable you are about paying your bills on time, the higher you can reasonably expect your credit score to be. If you fail to pay your car payment, your lender may repossess the vehicle. The repossession will then appear on your credit report and hurt your score.

Facts

A car repossession will have a different effect on your credit score depending on how high it is. An individual with a high credit score can expect to lose more points than an individual with a low credit score.

Time Frame

The account you held with your lender, including the notation that the vehicle was repossessed, will appear on your credit report for seven years from the date the repossession occurred.

Considerations

The missed payments that resulted in the repossession may hurt your credit score more than the repossession itself. Your payments to your creditors are responsible for 35 percent of your credit score.

Misconceptions

Some individuals offer to give their cars back to their lenders voluntarily to mitigate damage to their credit score. Unfortunately, a voluntary repossession is just as damaging to your score as an involuntary repossession.

Effects

The more recently a repossession occurred, the greater the effect it will have on your credit.

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How a Foreclosure is Reported to the Credit Bureaus

The biggest worry of going through a foreclosure is, of course, losing your home. But you should also be concerned about the effect on your credit. Foreclosure can be very hard on your credit score and a note of the foreclosure remains on your credit report for seven years.

Lender Reporting

Your mortgage account is reflected on your credit report from the moment you take out the loan. Your monthly payment history is noted on your report via regular reports that your mortgage lender makes to the credit bureaus. When you begin to fall behind on your loan, this will appear on your report, and then your lender will also report the foreclosure action to the bureaus.

Public Record

Even if you can persuade your lender not to report your foreclosure to the bureaus, it may still appear on your report as a matter of public record. If you live in a judicial foreclosure state, your court proceeding is a public record. If you live in a nonjudicial foreclosure state, the notice of default and then the notice of sale must be lodged at the county recorder's office. All of these public records can be accessed by the credit bureaus and the information added to your credit report.

Effects of Foreclosure

Depending on the level of your score before the foreclosure, the action can lower your credit score between 85 and 160 points. The higher your score previously, the bigger the fall. It's likely that a lot of damage has already been done to your score, even before the foreclosure. Defaulting on your mortgage payments for up to 90 days, as is common with foreclosure cases, will have almost as severe an effect on your score as the foreclosure itself.

Alternatives

Some homeowners avoid foreclosure through either a short sale or a loan modification, believing these alternatives may be better for their credit. In fact both of these events will also be reported on your credit report by your lender. A short sale can result in a drop in your credit score equal to that of a foreclosure, depending on your situation and your previous credit history. A loan modification will also show up on your report as an alteration of your mortgage account "not as originally agreed."

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