How Do Credit Bureaus Form New Profiles?

There are credit profiles maintained for businesses as well as individuals. When you apply for credit with a bank or lender, a credit profile begins to form with the credit bureau used to inquire about your credit. A credit profile includes your personal identifying information, employment information, credit information, inquiries and public record information, according to the website Mortgage 101.

Identification

To form a new credit profile you must apply with a lender, or someone has to pull your credit report. If you previously had credit, you have an established profile. When you have no approved credit, the only thing on your credit profile will be your name, address, Social Security number, date of birth, and place of employment. You will also have an inquiry. Every lender that looks at your credit file leaves an inquiry.

Trade Lines

When you gain approval for a loan or some other form of credit, a trade line establishes or forms as part of your credit profile. A trade line consists of the name of the creditor who approved you for credit, the amount of credit extended, the date last paid, the credit limit, the payment history, the type of account, and the credit rating, which describes account payments.

Changes/Updates

Every time you receive approval for a new credit account, that lender will submit information to the credit bureau. The bureau maintains a record of your payments and any changes in your account such as a reduction in the balance or the credit limit. If you have a credit card and make new purchases, that information goes to a credit bureau as well. Changes, to your credit profile, such as a new employer or a new address, update whenever you apply for new credit.

Public Record

If a creditor decides to bring legal action against you because of non-payment on an account, this information will show up on the bottom of your credit profile as a public record; this is a judgment. Bankruptcies are public records, too. Other items that can appear on your credit file as public record include tax liens.

Inquiries/Credit Scores

Inquiries from creditors can reduce your credit score. Lenders use credit scores to determine your credit worthiness; they help lenders estimate the likelihood that you will default on a loan. Credit scores range from 300 to 850. High credit scores help you get more favorable terms and conditions from lenders, such as lower interest rates. Bad credit, such as late payments, judgments, bankruptcies, and collection accounts, will lower your credit score.

Credit Bureaus

Lenders check with one of the three major credit bureaus before approving or denying you credit. The three credit bureaus are Transunion, Experian, and Equifax. You can get a free copy of your credit report, which is a record of your credit profile, from the Annual Credit Report website.

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How to Lease With Poor Credit

Your ability to lease with poor credit may largely be determined by the type of product you're trying to lease. For example, leasing an apartment or a home with poor credit may be easier than leasing a new automobile, Landlords know they can evict you for not paying rent, but an automobile leasing company might have a tougher time getting your leased car back if you stop making payments.

Instructions

1

Review your credit reports. It's important to know what your potential landlord or leasing agent is going to see when they pull your credit reports. Get free copies of your reports at the website Annual Credit Report. Federal law entitles you to one free copy of your report every 12 months from the three nationwide credit reporting agencies -- TransUnion, Experian and Equifax.

2

Correct any inaccurate information on your report that may be hurting your credit scores. Examples include a delinquent account that isn't yours or delinquent accounts that should no longer be included on your reports because of statute of limitation guidelines -- usually seven years. Visit the websites of the credit bureaus to enter disputes.

3

Study the negative information on your reports and be prepared to respond to questions about your credit as the landlord or leasing agent reviews your application.

4

Place a consumer statement on your credit reports explaining why you have poor credit. Under federal law, you can enter a statement of up to 100 words on your credit reports, and up to 200 words if you live in Maine. Use that opportunity to explain that you fell behind on your bills because of an illness, long-term unemployment, or some other reason. Call or write the credit bureaus to enter your statement.

TransUnion Consumer Solutions
P.O. Box 2000
Chester, PA 19022-2000
800-916-8800

Equifax Consumer Services
P.O. Box 740256
Atlanta, GA 30374-0256
800-846-5279

Experian
P.O. Box 2104
Allen, TX, 75013
888-397-3742

5

Prepare another letter explaining your credit situation. Explain why you fell behind and tell how things are different now. Point out that medical bills that knocked you off track are paid off now, or that you have finally found work again after a long layoff. Stay with the facts and avoid emotion or finger-pointing in writing the letter.

6

Present your letter along with your application for the lease. Also present other documentation, including pay stubs, a recent offer letter for a job, and letters of recommendation from other companies you have recently leased from, such as an apartment complex.

7

Tell the leasing agent about your credit issues when you apply. Be upfront and honest. Offer to make a larger deposit, if applicable. Formally apply and wait for a response. If you are turned down, ask if adding a co-signer will help, or correct the problems with your credit and try again.

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What Does Insufficient Trade Lines on a Credit Report Mean?

Insufficient trade lines is one of the reasons a creditor may deny your request for credit. If a creditor thinks your credit history is lacking, they will not approve you.

Identification

A trade line consists of the information regarding your credit account. It will include such information as the balance owed, date of last payment, credit limit, credit rating, type of account and the name of the creditor. When you owe a creditor they send trade lines to the credit reporting agency containing all of your account information.

Significance

Creditors like to see you have trade lines or credit with several other creditors before they extend you credit. Insufficient trade lines mean you have not established credit with enough creditors. A creditor cannot make a decision based on your limited credit file.

Time Frame

When you apply for credit, and you only have one trade line which was opened two or three months ago, there is a good chance your request for credit will be denied. Trade lines should be opened at least two years. This policy can vary from creditor to creditor.

Misconceptions

If you apply for a credit card and you never use the account, this will show up on your credit file as a trade line but it will have limited information. Another creditor will not consider this to be a valid trade line if you have never used the account. There is no pay history for them to evaluate.

Expert Insight

If you have trade lines for a mortgage, auto loan and a credit card company this is likely to increase your chance of getting approved for credit in the future. You have to make payments on time to establish a good credit history.

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Do Paid Medical Collections Affect Your Credit?

Your credit reports are full of data about paid and unpaid accounts. Creditors charge off unpaid bills and sell them to debt collectors, who add harmful notations on your credit reports. Medical bills that go to collections stay on TransUnion, Equifax and Experian credit bureau reports for many years, even if you eventually pay them off, unless you negotiate removal. Those accounts affect your credit as long as they are visible to other creditors.

Effect

Your credit score is based on credit bureau information. Medical collections count as part of your payment history, and payment history accounts for 35 percent of your three-digit credit score, according to the MyFICO scoring company website. Paid medical collections are still negative items on your credit report, because they indicate you previously neglected a bill to the point of having it charged off.

Time Line

Medical bills are unsecured debts, which typically get charged off and sold to collection firms after about 180 days for non-payment, according to MSN Money writer Liz Pulliam Weston. The Federal Trade Commission (FTC) website warns that collection accounts remain on credit reports for seven years. They have the most damaging impact within the first few years, because lenders are most interested in your recent financial performance. A paid medical collection loses most of its negative effect in the last years before TransUnion, Experian and Equifax erase it.

Removal

Medical collection companies purchase unpaid doctor, hospital and ambulance bills for much less than their face value. These firms profit by getting debtors to pay as much as possible, so you have negotiating power before making your payment. You might offer a discounted lump sum to be accepted as full settlement and require the collector to remove the bill from your credit reports as part of the agreement. You should obtain written confirmation of the agreement prior to payment, advises Bankrate debt adviser Steve Bucci. The paid medical collection account loses all its influence once it disappears from your records.

Considerations

You may be able to erase paid medical collection accounts from your TransUnion, Experian and Equifax records if the firm made any mistakes in reporting the data. Search even for small errors, such as a wrong date or an amount that is a few dollars off. If you detect errors, dispute the collection account with all three credit bureaus, because they gather and report data separately. They must stop reporting the account if the collection agency does not verify the information. The Divorcenet website explains the bureaus sometimes drop disputed data without investigating it, or collectors may simply disregard the request for verification. The account loses its impact if it is erased because of the dispute.

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Do Bad Checks Show Up on a Credit Report?

On a positive note, a bad check probably won't show up on your credit report, but can become a far more serious problem -- maybe even resulting in criminal charges. Whether or not a check shows up on your credit report might be immaterial, because it definitely affects your ability to open a bank account. Bank accounts are often needed to start a credit account.

Identification

The credit reporting agencies do not track banking data, such as writing bad checks, according to Martha White of Wallet Pop in "Six Money Mistakes That Won't Hurt Your Credit Score." Only when the creditor initiates litigation can it appear on a credit report, because the court might award a judgment. Judgments appear on your credit report; the creditor can sell the judgment to a collection agency, which also appears on your credit report. In either case, a negative account is a huge drain on a credit score.

Banking History

The banking industry keeps track of check writing history through the ChexSystem. Some reporting agencies specialize in banking history too. Most banks run a report through the ChexSystem before opening an account for someone. A single bounced check is often all a bank needs to know to reject an application. Credit cards and installment loans often require a bank account as a condition of approval. If bounced checks prevent you from owning at least one account, you might not receive any credit in the future.

Preventing Bounced Checks

Always keep track of the balance on your bank account. Most banks offer online checking for this reason alone. Also, consider applying for overdraft protection or linking accounts. Overdraft protection usually requires a credit check, which dings your score a little bit, but it is probably worth the short-term hit if it prevents a bank from sending an overdue balance to a collection agency. In some cases where the attorney general of the state proves a case, you can go to jail for writing bad checks.

Tip

If you become a victim of check theft, review your credit report and warn the bank about potential fraudulent charges. A thief who steals checks might have stolen other items that contain your personal information and could be used to open credit accounts. Any new fraudulent accounts likely appear on your credit report eventually -- probably within the first billing cycle.

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How to Repair Your Credit in a Short Time

A credit score can help or hurt you when you apply for loans or a job. Cleaning up your credit is an excellent way to help raise your credit score. This can be done quickly with a few easy steps. Also, some long-range planning can help raise your score in the long run. It takes 45 to 60 days to see any results from changes made on a credit report.

Instructions

1

Get credit reports from all three major credit bureaus (Experian, Equifax and TransUnion) for both you and your spouse. Check all line items to see if there are any errors. Report any errors online by selecting the reason for the error next to the line item on each online report.

2

Pay off any collections, liens or judgments. Negative items will affect your credit less harshly if paid in full.

3

Look at your credit card balances. Pay down your balances to less than 30% of the limit. This will help raise your score as well.

4

Follow up on any changes with your credit report. Make sure errors were removed. The credit bureaus have 30 days to respond to your request. Provide proof of payment, if needed, to ensure that paid collections, liens and judgments show as paid in full.

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Ways to Build Credit History

The length of your credit history impacts your credit score and, in turn, your ability to get approval for low-interest loans and credit cards. This makes building a credit history early a crucial part of your future financial stability. Unfortunately, lenders and creditors are often hesitant to grant credit to individuals with no previous credit history. There are ways, however, for you to build credit even if you lack any current credit information.

Authorized User Account

A friend or family member with a credit card in good standing can add your name to the account as an authorized user. Your lack of a credit history does not affect your ability to become an authorized user. This is because the primary cardholder -- not you -- has responsibility for making the monthly payments. As an authorized user, you will receive your own credit card connected to the account, and the credit card company will report the account, along with the primary cardholder's payment history, to the credit bureaus. Provided the cardholder makes timely payments, becoming an authorized user lets you build a positive credit history.

Secured Credit Card

Companies typically market secured credit cards to high-risk individuals and those with a tarnished credit history. Consumers with no credit history, however, can also take advantage of these accounts. If approved for a secured credit card, you must make a deposit to the credit card company that will serve as your spending limit. While secured cards do not offer the best interest rates and often come with additional fees, as long as you make regular payments on your account and the company reports your account to the credit bureaus, a secured credit card serves as a viable method for building a credit history.

Student Credit Cards

If you are a college student, consider applying for an unsecured student credit card you see advertised on campus. Unlike secured credit cards, unsecured credit card companies do not require a deposit. According to MSN Money, these accounts are available to students who lack a credit history because card companies know parents often manage college students' debts. This makes extending unsecured credit to students a lower risk than to individuals not enrolled in school.

Co-signed Loans

Like credit cards, loans you apply for also appear on your credit report. While many lenders hesitate to loan money to individuals without a credit history, asking a loved one with good credit to co-sign your loan makes you a much lower lending risk. By co-signing, your loved one accepts responsibility for the payments should you fail to adhere to the agreement. Having a co-signer makes the loan a lower risk for the bank, but a high risk for the co-signer. Because your co-signer is responsible for paying off your debt should you default, it is crucial that you make timely payments to build a positive credit history and preserve the co-signer's good credit rating.

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