How Your Credit Score is Affected When You Pay Off a Negative Item

Negative information can turn a good credit score into a poor score very quickly. Paying off accounts with negative information gives you peace of mind and some optimism as you move on from your mistakes. However, these good vibes don't necessarily translate to an improved credit score.

Credit Score Basics

Your credit score is a snapshot of your credit history. It lists all of your open and closed credit accounts as well as pertinent information about these accounts, such as your payment history, your current and highest balance and any collection activity or public records. Each of these factors plays an important role in determining your credit score, which can frequently change.

Effect of Negative Information

Credit scores take years to build up, but can easily be destroyed with just a few bad decisions. For example, making one payment 30 days past due can lower your FICO credit score by more than 100 points. Allowing a card to reach or exceed its limit can cause a drop of nearly 50 points. While these items can and should be avoided, they do happen and they can hurt your credit for years.

Paying Off Negative Items

If you allow a card to go more than 30 days late, but then make the payment, your credit score won't receive an immediate improvement. Your account will be considered current; however, your credit report will still show your late payment, possibly for the next seven years.

Avoiding Negative Items

It's best to avoid negative reports altogether. If you think you might be late on a payment, call your credit card company or bank as soon as possible and try to work something out. Even if you're late by a couple of weeks, it's better than going 30 days past due and getting reported. The same principle holds true if you're in fear of foreclosure or collections activity. Communication with the lender can help thwart problems before they arise.

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Credit Scores, What Do They Mean?

Credit scores are used by potential lenders to make decisions regarding extension and terms of credit. These scores are determined by weighing different factors of your credit history.

FICO Score

The most commonly used type of score is a FICO score, named after the company that developed software for the credit-scoring system used to calculate this score.

Score Range

FICO scores range from 300 to 800. The higher the number, the better your credit score. Any number more than 700 is considered good.

Score Calculation

Scores are calculated based on information from these categories: payment history, amounts owed, length of credit history, types of credit accounts and new credit accounts.

Negative Information

Negative credit information, such as late payments or charge-offs, remain on your credit report for seven years, during which time they will impact your credit score. Bankruptcy stays on a credit report for 10 years.

Score Ranges

Prospective borrowers with credit scores of more than 700 can expect to get the best credit terms and rates. A score of less than 600 is considered higher risk, and borrowers in this category will pay higher interest for credit.

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How to Improve Credit Scores Fast

Our credit scores are vital nowadays. We need a good credit score for buy a house, a car, and sometimes even to score that awesome job. There is not a magical way to improve your credit score, unfortunately. I've tried! However, with self-discipline, focus, and goal setting, you can be on your way to a higher credit score.

Instructions

1




Improving your credit score is something that takes time. I've been able to improve my credit score over 200 points within the last 3 years by following these steps.

2




Pay your monthly bills on time.

Yes, you have probably heard and read this over and over. For good reason, it WORKS!! One late payment on your credit report is looked at as negative and can knock quite a few points from your credit score. As soon as you get that bill in the mail, pay it. Better yet, sign up for automatic recurring payments if available.

3




If you are just starting out and have a skimpy credit report, consider opening 1 or 2 credit accounts. Don't charge more than 25% of your credit limit. Of course, it is best to pay your balance in full every month. You don't want to over do it, however; it is good to have a healthy mix of accounts that are in good standings to build your scores up.

4




Don't get enticed! We see it everywhere.."No payments for 12 months!!", "0% interest for 6 months!". Stores are always trying to get consumers to apply for their credit cards. Don't fall into that trap. Multiple inquiries on your credit report will definitely lower your credit score. It's not worth to save 10% on your purchase with a Target card if that card is charging you a 20% APR, plus lowering your credit score. Stick with 2-3 solid accounts and take care of them.

5




Keep your balances low.

Lenders don't want to see maxed out credit accounts. Try to keep your balance less than 25% if possible. If it is more than that, stop charging now and work on paying off the balance.

6




Negotiate a lower APR with your credit company.

If you have been a loyal customer for some time, call the customer service number on the back of your card and negotiate a lower APR. Chances are they will oblige, considering you have been making your payments on time. A lower APR will not only save you money, it will also make your monthly payments work harder towards your principal. Therefore, lowering your balance and getting that credit score up.

7




Check your credit reports.

Get a copy of all 3 credit reports from Transunion, Experian, and Equifax. Carefully go through each and every entry on your report. If there are discrepancies, dispute them. Once it is fixed, you will be mailed an updated report, look over and check for accuracy. This this over and over until your credit report if completely accurate.

8




Don't close all your paid accounts.

It used to be a myth that it is best to close accounts that you aren't using. This couldn't be further from the truth. Length of credit history plays an important factor on your credit score. You really don't want more than 5-6 inactive and open accounts. However, you want to keep the ones that you have had the longest. This will help you to be seen as more credit worthy.

9




Avoid debt consolidation and bankruptcy.

Obviously, bankruptcy will hurt your credit score. However, alot of people don't realize that debt consolidation is harmful to your credit and credit score as well. Lenders look at debt consolidation as you not being able to manage your credit and money on your own. If you are overwhelmed with debt, you may be better off negotiating a debt settlement directly with your creditors.

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How Long Does a 30-Day Late Pay Stay on Credit Reports?

Overview

30-Day Delinquencies

If you pay a bill late, it could result in a blemish on your credit report. Companies often report late payments once they reach 30 days past due. Because companies typically consider delinquencies in terms of 30-day periods, your credit report may receive additional delinquency notes if your payments remain overdue for 60 days or more.

Length of Record

A 30-day delinquency may stay on your credit report for seven years. Positive information remains on your report for the same amount of time, though some credit-reporting agencies may keep positive information for up to 10 years. The seven-year reporting period begins when your creditor reports the 30-day delinquency.

Effect of a 30-Day Deliquency

A sole 30-day-late notation on your credit report may not cause a dramatic plunge in your credit score or your ability to obtain credit and services from companies that consider it. Instead, companies may be more likely to turn you down if your report shows a pattern of repeated delinquency or also lists 60- and 90-day delinquencies. However, you may want to have it removed if you feel that it will hurt your chances of obtaining new credit.

Removing Delinquency Errors

If you feel a 30-day delinquency has been added to your credit report in error, you may dispute the adverse information by contacting the credit bureau that reported the incorrect information. Disputes are typically made in writing. The credit bureau will investigate your dispute within 30 days and remove the delinquency if it was added in error. If the 30-day delinquency report is correct, it may remain on your report for seven years or more.

Contacting a Creditor

You may be able to have a 30-day delinquency removed from your credit report by contacting your creditor and asking the company to correct the reported information. Explain why you were late and ask the creditor to remove the adverse information from your report. Though creditors aren't required to correct accurate delinquency reports, some may be willing to do so, especially for those who usually pay their bills on time. Others may be more likely to agree to change delinquency reports if the request is made during repayment negotiations.

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Definition of Fraud Alert

A fraud alert can be placed on your credit report to prevent new accounts from being opened in your name without your consent. By contacting the three major credit bureaus, you can protect yourself if you think you've been a victim of identity theft.

Function

The fraud alert tells lenders that fraud has occurred or may occur in your name and requires them to take steps to verify identity before extending credit or opening new accounts.

Types

The initial fraud alert appears on your credit reports for at least 90 days and can be placed even if fraud is only suspected. The extended alert remains for seven years, but proof of fraud must be provided through an Identity Theft Report, an official police report of the crime.

Placing a Fraud Alert

A fraud alert can be placed through any of the major credit bureaus--Experian, Equifax and TransUnion. The bureau you contact will report your information to the other two bureaus.

Benefits

Both types of fraud alert entitle you to free credit reports from each bureau. You may also opt to have only the last four digits of your Social Security number appear on your reports.

History

Fraud alerts are a provision of the Fair and Accurate Credit Transactions Act of 2003, an amendment of the Fair Credit Reporting Act.

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How to Check Credit History in Canada

Checking your Canadian credit history is important. Check it regularly so you can monitor whats in your credit file. There may be errors that need correcting. Errors have a negative effect on your credit. You can also see area where improvements could be made. Disclosure reports by mail are free but do not include your credit score. In order to get a detailed credit history in Canada, a fee is charged. There are two credit reporting bureaus: Equifax Canada and TransUnion Canada.

Instructions

1

Apply online to check your credit history in Canada. This provides you with a full report. Application is simple and quick. You can view your report as soon as your details have been verified. Click on either credit reporting bureau (see Resources). Click on See My Credit Score or First Time?, depending which bureau you have selected.

2

Complete the application form carefully. Errors will invalidate your application. Click Continue and review your application. Click Continue and enter your payment details. As of 2010, charges are Equifax $23.95, TransUnion $22.90. Fees may alter and could be different in certain provinces. Both bureaus provide your credit history and credit score in Canada.

3

Click Continue to complete the process. Wait while your personal details are verified. Your fee will be debited to your card. Provide a login name, password and password reminder. Click Submit. You can check your credit history instantly.

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How to Compare Credit Score Companies

Credit score companies determine the risk of an individual when giving out almost any type of loan. A high score can lead to paying less interest on a loan and possibly paying less for insurance. Low scores indicate that negative information is present on the credit report.

Credit Companies

Three major credit scoring companies--Equifax, TransUnion and Experian--each use a slightly different rating system to determine a credit score. In addition, the information each of these companies receives varies just a bit, which impacts scores as well.

Annual Credit Report

The Fair Credit Report Act mandates that credit scoring companies must give those who request it a free copy of their credit report each year. Some consumer advocates recommend staggering these reports. Individuals also may buy their score from each of the companies for about $8 per copy. Credit companies often include information on improving the score.

Improving Credit Scores

Credit scoring systems vary, and the information used to determine scores is complicated. Several relevant factors include: paying bills on time, the amount of credit one has, how long a person's credit history is and if any new credit is on the report.

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